Original Link: http://www.marco.org/2013/03/19/free-works

Marco Arment:

Google Reader’s upcoming shutdown and Mailbox’s rapid acquisition have reignited the discussion of free vs. paid services and whether people should pay for products they love to keep them running sustainably.

But users aren’t the problem. As Michael Jurewitz wrote, many tech startups never even attempt to reach profitability before they’re acquired or shut down. Nobody ever had a chance to pay for Google Reader or Mailbox.1

When a free option is available in a market of paid alternatives, far more people will choose the free product, often by an order of magnitude or more. Asking people to pay unnecessarily is asking them to behave irrationally and against their own immediate best interests, even if it’s probably worse long-term. (This behavior affects far more than the tech industry.) And when the free product is better in some ways, which is often the case when a tech giant or well-funded startup enters a market previously occupied only by small and sustainable businesses, the others don’t stand a chance.

The risks are very low for new consumer tech startups because everything required to start one is relatively cheap and can often be ready to launch within a few months of starting development. If a product grows huge quickly, which almost always requires it to be free, it will probably be acquired for a lot of money. Free products that don’t grow quickly enough can usually die with an “acquihire”, which lets everyone save face and ensures that the investors get something out of the deal. Investors make so much from big acquisitions that they can afford to lose a lot of other unsuccessful products in the meantime.

I have to agree with Marco on this post. There are times when offering a service for free does work.