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Home » Information Tech, Investing

Is free software profitable in the long run?

Submitted by on October 16, 2008 4 Comments
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Quicken reduced the cost of Quicken Online to free. This is great for consumers, but I have to ask myself why Intuit would make such a move. What does Intuit see that would cause them to move in this direction? Are some of the new online financial applications starting to take root and they see this as a move to fend off competition?

If you are giving your product away free, while incurring costs, how exactly is this great for your business long-term? The only thing I can think of, is that you use the consumer base as a breeding ground for future business or complementary product sales. This strategy seems risky to say the least. Consumers will move to free online applications over paid applications, and will then move amongst the various free applications at will. I do not believe in consumer online loyalty in the software space, as everything is just a click away.

Companies that move in this direction may be protecting their brand and customer base, but if the customer base does not generate revenue, are they really worth having? The idea of “making it up in volume” or “ad revenue” is a design for slowly going broke. Intuit is no Google in regards to PPC revenue sources.

I came across a review of Quicken Online and Mint.com on ARS.  This is worth a read and made me think about if I am going to upgrade my local Quicken installation or move to a free online product.

Online financial organization have just grown more robust as Mint.com and offline incumbent Quicken both introduced new features to their web-based products. Since Mint.com and Quicken Online have similar purposes and functionality in mind, we thought it was time to take a comparative look at how a company from the new social media realm stacks up against a desktop software giant when it comes to online money management.

Both retail and business consumers are expecting more for less, and sooner or later this will bring the downfall of many smaller companies.

I have been a huge fan of VMWare. This company sold its Virtual Server software (called GSX at the time) for over a thousand dollars per license. Microsoft reduced its product to free, and VMware had to respond in kind. Now they have moved the ante up again with VMWare giving away one of their enterprise solutions.

I do not know if the model of giving software away free and making it up in service or complementary sales will survive. I feel this trend is terrible for the long-term health of the software industry. We may end up with Microsoft and a few other huge corporations, as the small developers will be priced out of existence.  Venture capital will only last for so long before the small companies will have to find a way to make a profit or discontinue operations.

4 Comments

  • BTW, Intuit posted a wider loss this quarter…tough times.

    I tested Quicken Online and it is a basic ‘teaser’ application. It lacks several of the functions of the desktop application, and looks to be a method by which they will attempt to attract new customers to the more feature rich desktop version.

    I know that I would not have been happy to pay a monthly fee for the web application, when the desktop versions have more features and a lower total cost.

  • Preston says:

    Well everything I wanted to say was said by nukeit and Philip but I felt I had to add my two cents worth anyway…

    Prestons last blog post..The SITS Photoshop Contest Makes My Chocolate Contest Look Bogus!

  • Philip says:

    I agree w/ nukeit. The money is in the services these days. Especially in Enterprise computing HW and SW. Most companies almost give away SW and HW in the Enterprise space to lock a customer into a service contract. It looks like this is starting to trickle down to the consumer market. Companies that are exploring this business model with some success are IBM, HP, Sun Microsystems, Red Hat Linux, and Ubuntu Linux. Someday, everything will be a service. Count on it.

  • nukeit says:

    Just took a look at osalt’s database for FOSS alternatives to Quicken. All 4 of those programs will run on Windows (Java) and all support importing Quicken files. Long ago, I told a few customers that there were free Quicken compatible software on Linux, and it was essentially the “killing blow” to get them to switch.

    I see these changes as a good step though not soon enough, and I’m sure I would have a few bones to pick concerning their EULA. The great thing about pricing is that it’s dynamic. They can quickly go from free to $19.95. I’m also sure that they try to survey each user as often as they can to find out whether people will pay and how much.

    You might also take their long standing corporate software and support packages in to consideration. These $10K+ packages are every software companies bread and butter. They aren’t losing these to a crippled, online only, unsupported, “home user” edition of their software :)

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