When free is bad - News - Business

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This story was printed from ZDNet Australia.
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When free is bad

By Steven J. Vaughan-Nichols, Sm@rt Partner
December 20, 2000
URL: http://www.zdnet.com.au/news/business/soa/When-free-is-bad/0,139023166,120107771,00.htm

I love Janis Joplin, but she got the song wrong for our business. In computing, "free" is just another word for you to lose.

The Internet is full of free promises: free service, free apps, free porn (sorry about that last example, kids). Technically, many low-level, bread-and-butter services, like Internet access, have become so affordable that with even a little bit of ad revenue, you could theoretically offer them for free and make money. It was enough to drive someone trying to create a real Net-based business to drink.

Don't cry in your beer anymore; the party's over. It's time for people who have a business plan-beyond conning moronic venture capitalists with promises of ad dollars--to rise up again.

Companies like HotOffice, with its free groupware, have gone belly-up. Their problem? Give customers a choice between a free service and a subscription service, and guess which one they'll take. The free, of course. And that was the end of HotOffice, one of the first and most successful ASPs.

The free Internet services also are dying. CMGI killed off 1stUp, the ISP behind such popular, branded free-access ISPs as AltaVista. Additionally, Spinway, the ISP behind Kmart's BlueLight, only survives because Kmart is propping it up to keep BlueLight's customers on the Net. The fall of those free services goes beyond their customers. 1stUp's and Spinway's troubles also brought down ZipLink, once a wholesale dial-up powerhouse. That, in turn, crippled serious ISPs that relied on ZipLink for their national dial-up points of presence.

And did I mention that all of those companies are closing their doors so fast that their customers get caught holding the bag? Oh yeah, free services saved them money, you betcha!

So where's the silver lining? It's good news because by throwing out the gimcrack free-service companies, businesses with real services--for which they expect to be paid real money--can finally emerge. Listen, I'm sorry if you've been hosed by basing your business on a free service. But come on, folks, there's no such thing as a free lunch. The free services flourished only because of an insane economy that believed volume and the promise of volume was all.

Reality happens. Volume without profit is just a shortcut to bankruptcy. The other free services will follow in their path. NetZero--a free ISP that claims 5.7 million customers and gets a third of its revenue from non-dot-com advertisers--may last the longest. But with ad revenue shrinking, how much longer can the ISP make it? Others will follow sooner, rather than later.

If you're a smart Internet user, it's time to wean yourself away from free services. Their failures can cost you too much in lost time and work. Give yourself a real holiday gift: Buy your services, and make partners with ISPs and service companies that will charge you an honest dollar for honest services.