We meet a lot of entrepreneurs and startups through Innovation Breakfast and Mass Innovation Nights. (If we don’t know you already, come introduce yourself!) Once we get past the introductions and initial explanation of what a company concept is, the next question is “How are you going to make money?” This is especially true of Web-based startups and other tech-based ventures. These companies have been caught up in the swirl around the freemium business model. I would submit that most go beyond freemium and are squarely in the free camp.
What is freestrapping? Start with the definition of bootstrapping. Bootstrapping your startup means you are not accepting outside help — no friends and family funds, no angel funding, and no venture capital. Bootstrapping generally means you are able to fund your business by internal means. In the strictest sense, a bootstrapped company should be a lean enterprise that supports operations from an early (often small) revenue stream, selling enough product or services to keep the door open. Often workers are ill-paid and excess revenues get put back into growing the organization.
But many startups today have crossed over the line into freestrapping. Pay isn’t “low”, it’s “no”. Operations aren’t lean, they are free. Revenues aren’t small, they don’t exist. That’s right — no revenue and no overhead that can be strictly assigned to the business. Workers work virtually so there’s no office. Or maybe they spend hours at the local coffee shop mooching Internet access. They work for free, sustaining themselves some other way. Maybe they work part-time, have a working spouse, still collect unemployment or have “walk-away” money from their last gig. There are no materials in the strictest sense since they are creating a web-based or mobile application. Even their tools are free. Can you say open source? Or maybe they are using a “free 30 day trial” of a development tool. (Ah, so that’s why the agile development scrums are so short!) They are creating something from nothing. (And, yes, guilty as charged. That’s how we did it. There were a few out-of-pocket expenses but so far nothing that seriously cut into my coffee habit.)
If you are an experienced bootstrapper, this all sounds familiar, right? You are used to making nothing or next to nothing. The difference, and the trouble lies in the lack of revenue or prospects for revenue and the use of free raw materials and tools. The expectation of free has become so pervasive that we are harming our economy’s ability to grow. How can we make a living if we give everything away for free? And why should we expect anyone to pay for what we produce when we don’t pay for the tools we use?
Shades of the dot.com bubble. Are you living in a freemium world? Are you freestrapping? Do you have a business plan that relies on building up a base of non-paying customers? And not just a sample or a trial, are you giving away the whole product?
In other, less free-oriented times, entrepreneurial communities supported each other. One small business buys products from another and a network starts to form. The companies start to form their own economy. In a freemium-oriented world, this doesn’t happen. Are we creating a non-economy?
I am sure they will all monetize the eyeballs some day!
Oh wait! That’s so 1999 of me. This time, it’s different and we need different metrics to measure these companies.
[I wonder how many of the freestrappers are old enough to understand that the above is a joke.]
Great job of illuminating the other big negative of freemium. The obvious one is that it conditions users to expect everything to be free, but the less obvious one, which you highlight, is the “non-economy” aspect of it.
[…] Innovation Breakfast on “Freestrapping”. Excerpt: ? Shades of the dot.com bubble. Are you living in a freemium world? Are you […]
Interesting take. I think the motivation for many is writing a successful app that gets wide usage and recognition, with the money being secondary. I’d call that a hobby and not business.
A good freemium model should have a well thought out, compelling premium features within touching distance of the free app.
[…] We’ve been discussing a lot about the “Freemium” economy in the past weeks and especially at #likeminds. Innovation Breakfast goes beyond and presents Freestrapping. As much as Open Source tools or Trials can help build a product, the concept of not having a plan to make money with a product sounds a bit surreal.. Well.. It happens… Read on.. Amplify’d from innovationbreakfast.com […]
I think that the freemium model is simply a product of a rounding error. Until banks make it possible to pay for services on the Internet in pence rather than pounds or dollars, service providers will be forced to round down to free.
Alan T — I believe you are correct. As I suggested at the MassTLC unConference, there is a proxy for micropayments: impression-based ads. (See http://masstlcun.posterous.com/tag/MassTLCH3) The substitution of this indirect micropayment mechanism for the (nonexistent) direct one is thus one of the primary driving forces behind the “premium” feature of “no ads!”
However, Bobbie’s point is different. While a well-thought free/premium model is good business, a free model without a thought to what you’re going to charge for is not. Like in the dotcom bubble, we’re seeing the emergence of companies that will get a big audience and hope to make money some day… except that, like the dotbust, they won’t make money. Their very existence, though, conditions customers to expect things for free, ruining the ability of others to create a real business.
But I’m sure it’s different this time. 😉
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[…] there’s no exchange of goods between the businesses participating in it. From the blog of Innovation Breakfast, an event for connecting web entrepreneurs in Boston: In other, less free-oriented times, […]
[…] there’s no exchange of goods between the businesses participating in it. From the blog of Innovation Breakfast, an event for connecting web entrepreneurs in Boston: In other, less free-oriented times, […]
[…] web developer Alan Thomson noted in the comments of the post on Innovation Breakfast: I think that the freemium model is simply a product of a […]
[…] web developer Alan Thomson noted in the comments of the post on Innovation Breakfast: I think that the freemium model is simply a product of a […]
“One small business buys products from another and a network starts to form. The companies start to form their own economy.”
Huh?
Just about the same as “free” if there isn’t some *export* to the “outside world”, WHICH goods are sellable to the outside world? (the “normal” economy)