Free Tools vs Free Version, and Backup

I’ve gotten quite a few notes that asked me to do a blog post on the a competitor’s “Free Backup” announcement on Monday.

First of all, starting with the basics, I think it’s a good thing when companies make free “stuff” available. The reason companies produced this so-called freemium (and this includes my company, Unitrends) is to attempt to drive revenue in the long-term by giving away something of value in the short-term.  The mechanism for that lies in something called the “demand curve” – which is the mechanism by which a user (a user is someone who does not pay for software) becomes a customer (a customer is someone who pays for your software.)  The demand curve is how you “monetize” (make money) from your freemium – and you have to be awfully careful not to annoy the users you want to be customers by making the demand curve too onerous.

The two best known freemium vehicles are the “free tools” approach versus the “free version” approach.  The free tools approach is exemplified by much of what Solarwinds does – they provide management and monitoring tools that are free and that are typically separate from their paid tools.  One of the best-known free version approach is Dropbox – where a free user and a paying customer get the exact same product/service with the exception being the storage capacity.  In the free tools approach, you’re hoping that you create awareness via an indirect “demand curve” – you drive awareness with your awesome free tools and hope that users will eventually pay you for your licensed products.  In the “free version” approach, your demand curve is direct – you hope that the free version of your product is so useful that users will eventually pay you to use them in a more functional manner.

What our competitor did was to take their free software, and put it in their backup product.  It’s kind of an interesting combination of the free tools approach and the free version approach.  I can honestly say it would never have occurred to me to do this – and I think that’s where this gets fascinating.