Say you’re in a busy train station, looking for a store that sells water, and you spot someone handing out water for free. If you’re anything like me (read: paranoid), your first instinct is “This is either a charity or it’s a scam” and “Will that water make me sick?” Now imagine if the train station is the internet, and you’re looking for a service provider in the already sensitive space of data privacy. Alarm bells are definitely going off!
This might be caused by instinctual responses we have to the idea of a “free” product or solution. Even if (or especially if!) something seems genuinely disruptive like Amazon’s free delivery or Southwest’s no-fee changes, we could be skeptical. The value to us may seem obvious, but we wonder what’s in it for the vendor. What’s the catch?
So, let’s talk about where those reactions come from and see if they hold true for today’s free business software, especially SaaS solutions.
#1: “A free product must be lower quality”
Simple economics has taught us that the higher priced a product is, the higher quality you should expect from it. This isn’t a hard and fast rule - sometimes we get fooled into paying for a brand or a logo - but it’s why you may not have a problem paying more for premium items, such organic foods or luxury goods. And when you go “cheap”, you generally accept lower quality and the consequences of that. Fast fashion is meant to be replaced yearly, and there’s a reason people celebrate moving on from furniture you put together yourself.
However, software is not the same as consumer goods – the same pricing structure doesn’t apply. With the technologies we have today, Software-as-a-Service (SaaS) companies can build software that solves problems common to multiple companies, then simply serve up that same solution to customer after customer directly from the cloud. They can deliver those benefits to a significant slice of the market without requiring costly customizations, consultant implementation hours or onsite hardware installations. This allows companies built on SaaS from the ground up, with a business model just as streamlined and flexible, to leverage efficiencies of scale to offer powerful software at a much lower cost than legacy on-premises providers. You can’t do that with clothes or furniture. ALTR VP of Product Doug Wick explained very clearly how being built on the cloud from the beginning helps ALTR to deliver our solutions more quickly and for a lower cost than legacy on-premises solutions.
I’d go even further: not only is free software not necessarily lower quality, it actually has to deliver even higher quality than a paid solution in order to retain and grow the customer base. Because there’s no financial commitment by the user, it’s easy to start but just as easy to stop using the product. A free tool quickly exposes any weaknesses, issues or flaws. Users will need a seamless experience that delivers value immediately in order to continue, let alone consider upgrading to a paid version.
#2: “If you’re not paying, you’re the product (especially on the internet)”
This idea has been around a while, but really took off during the Facebook/Cambridge Analytica scandal. Many of us jumped onboard the Facebook train, adding our contacts, sharing our updates, checking in at locations – enjoying the opportunity to use technology to be more closely connected to our far-flung network. But most of us may not have considered what was happening with all that data. It turns out that our data is a commodity. We learned through scandal to be skeptical, and Facebook is far from alone. For example, a popular email cleanup tool turned out to be using the opportunity to collect and sell information on user purchases. In fact, a company co-founder accused users of being “naïve” to think the tool wasn’t “monetizing” their data.
This is especially threatening for IT and security folks whose primary goal is to protect data! We know this feeling, as our founders come from data security in the financial services industry. They created ALTR to solve the problem of data control and privacy across the data ecosystem and built the company on a culture of data security.
When users sign up for ALTR’s free plan, what we’re getting is not your data (we don’t need to store it in order to protect it - it’s as secure as ever) but information about your experience. A free plan allows us to greatly expand our user base and gain more insight into how the software can best solve problems and provide a better experience. Our users become active participants in our product development process, helping make the platform work better for them and future users. It’s a win/win.
#3: “A free product can’t solve enterprise problems”
In the beginning, there was only enterprise software because only enterprises could afford it. It was developed to manage processes across the business, taking on big, complex problems on a massive scale. This came with expensive, years-long development cycles, complicated on-premises implementations by costly consultants, a big contractual commitment and a hefty price tag. The side effect was that even simple business problems could stay unsolved for months or years as the convoluted buying process wound its way along.
Today, business solutions are taking their lead from consumer software: focusing on individual user needs and experiences instead of tackling enterprise-sized challenges out of the gate. Companies like Slack, Zoom, Canva, and even Google offer low-cost or free versions of their software for messaging, design, or content development. This allows individual users at large enterprises to test-drive solutions to solve a specific thorny issue, making overall processes more efficient.
Instead of needing buy-in from an endless number of executives and months-long contract negotiations followed by months- or years-long implementations, the users who will actually be using the software can simply sign up and try it. Once they understand intuitively how it works and determine if it will solve the problem, they can share with others throughout the organization for their review. If it gets traction, it’s much easier to upgrade to an enterprise-level subscription for additional features or support or to take on larger challenges across the business. This is buying from the ground up instead of the top down.
ALTR’s free plan, for example, lets governance and data teams identify sensitive data in Snowflake, see who’s using it, and put basic access controls in place. It allows companies with a smaller need to address it immediately and users at larger orgs get a taste of how the solution would scale across all their data. A clear upgrade path makes it easy to grow as needed.
Fact: “Free” can deliver more value than you might expect
So, while low cost or free may seem suspicious when it comes to clothes or furniture (or bottles of water!), software is a different beast. Technology advances have disrupted the way software is developed and the usefulness it can deliver to business users for low or even no investment. For those who associate free products with a drop in value or quality, it’s time to reconsider our general impulses around pricing to ensure you're not missing out on the real opportunity.