A friend pointed me to an interesting post in the Atlantic today, called “Take My Money, Please! The Strange Case of Free Web Services“. It makes the interesting case that “many companies don’t want to take on the obligations to the customer that come from selling a service” as a basis for their not charging for services. This is not to say companies don’t want to provide support for their services, but rather that they don’t want to have to heed to end-user demands for features, functionality, policies…
While avoidance of answering to end-users may well be a factor in the decision to provide services for free, I would argue that this is a manifestation of another driver, which highlights the complexity involved in today’s business models: Offering services without charge is also a strategy for addressing the risk that another provider will undermine the hold on a user-base simply by offering a free substitute for it – where the new provider derives value from another constituent (most basically, the ad-driven model).
So, by not charging their end users for use of the service, they are in a sense pre-emptively “leveling the field” for themselves. In so doing, they compete on what they determine to be in best satisfaction of a balance of the constituencies of the particular engagement scenario (users, advertisers, customers…). This raises the bar for any competitors by forcing them to create a better service or a new value-model to justify engaging that user-base.
Translating value across constituencies — i.e. leveraging a user base for the knowledge derived from their traffic — is always a balance. This can be seen, at the lowest end, in the context of freemium models where, for example, a paid user may be ad-free. Having many masters can be a complex and conflicted existence. Ask any publicly traded company. Not taking payment from one constituent (end-users, in this case) allows a company to prioritize more clearly and stay truer to their mission than they might otherwise.