There is a growing “meme” out there that Microsoft is on the verge of death and that Google will take over the world with free stuff. Please.
I’m actually anti-Free. I haven’t even read Chris Anderson’s book titled “Free.” Don’t really feel like I need to read it either. I think free as a business is almost always representing subsidy — a crutch to gain market share in the eary going. Eventually, if you want a business, you need to move to premium, paid services.
Think of all the free stuff out there, and then try to give me an example of some free stuff that holds the best market position: That is: Highest quality, high margins. I can’t think of anything.
Free phone service? It’s great if you have an employee in Europe and you want to use VOIP and cut down on expenses, but how does somebody like Vonage make money from free voice calls? Judging by their sub-$1 stock price, that hasn’t exactly worked out for them. The bottom line is if you have an important customer call you move to a premium telecommunications mode, you’re not going to Skype your multi-million dollar customer.
Of course you can point to all the glorious free Google products: Gmail, Google Analytics, Google Chrome, Android, e.t.c. No doubt these are great for consumers and especially startups like myself who can leverage pretty good software without paying a penny. But as a business? Basically it’s enabled by Google’s own subsidy of these markets through the massive revenues they earn on search and Adwords. Google is not earning a profit on it. The only reason it’s there for free is they are willing to pour billions into these markets in order to gain market share and hopefully “take down Microsoft.”
I can think of dozens of places where “free” or “near free” is destroying industries: The music industry is a great example. Piracy and cheap downloads have pressured the business, but the biggest acts still demand a premium. I don’t see the most successful recording artists touring for free — they want $200 for a ticket.
My general view on business and investing is to look for places were there is high value and high margin. Free generally means very little of either as these. You can’t build an empire on free.
Google may succeed in the near-term in chipping away at the low-end of Microsoft’s Office and OS franchise, but in the long-run where will this lead? Microsoft still sells billions of dollars in OS and applications software because large enterprise businesses are afraid of “free.” To them, free means high risk and little support. Eventually if Google wants to get into the enterprise software business they will have to come up with support plans, upgrade services, and package for which they charge money — this is the only way to build a large enterprise franchise. Free is always for the low end of the market.
If Microsoft loses its margins and enterprise business, it will be because the quality of their products goes down and they don’t provide adequate support their enterprise customers. It will have nothing to do with “free.” In the long run, free has to migrate to “premium,” its the only way to build a busiess.
Granted, I’m publishing this on a free Web site. So you can call me a hypocrite, for now! But hey, i’m just getting started!