Monday, August 31, 2015

Software Developers Should Stop
Giving Away Freebies

Too many software developers give away their products and services for free. While there may be times when it makes good economic sense to give away your software, you should be looking for ways to turn free products and services into money-makers.

Free Software Applications

There are some perfectly good reasons to spend months developing a software application, and to distribute it for free. You can use a freebie as a loss-leader for the standard and professional versions of your application. You can use your free software to drive traffic to your website. You can use your free application to generate adware and other revenue.

There are also a lot of bad reasons for giving away your programs. Make sure you're not offering software for free for the wrong reasons.

Some developers create an application, try to market it to the world, and fail. Out of frustration, they provide the software for free, or release it as an open source program.

Before declaring your software application to be a loser, you owe it to yourself to understand why it wasn't a financial success. Perhaps you need to apply some creative marketing to your program to turn it into a moneymaker.

Put the program back into beta testing, and ask your testers why they believe that you weren't able to sell it. Watch in silence as your friends, family members, and neighbors try to install the program on their computers. See if they run into technical or logistics problems. If they're confused, then a lot of your prospects may have been befuddled, too.

Search the Internet for similar programs that are being offered for free or at bargain-basement prices. Compare your program's feature-set with your competitors' offerings, and add more features if needed.

Find a better way to describe your software. Ensure that the people who use your trial version have expectations that line up realistically with the features and benefits that your application delivers.

Examine your program's characteristics and your marketing efforts exhaustively before you consider giving away your application.

Free Software Features

Many software developers give away too many features in the free version of their programs. As a result, they have hundreds or thousands of users who haven't paid them a cent, and who are receiving all the benefits that they will ever need from this type of application.

Remember that the free version of your application is a marketing tool for selling the standard and professional versions. The purpose of the free version is to show the buying public that you offer a family of well-designed, well-executed applications. Don't give away so many features that software buyers don't need to pay for the income-producing versions of your software.

Free Lifetime Software Upgrades

Don't offer free lifetime upgrades to your software. If you talk with successful microISVs who have been in the software development industry for a decade or more, they'll tell you that the majority - the vast majority - of their income is generated by selling software upgrades to happy customers. Without exception, these successful entrepreneurs will tell you that you should always charge for upgrades.

It's tempting to use free lifetime upgrades as a way to differentiate your software from your competitors' offerings. The value of these free upgrades, however, appears to be larger in the developers' minds than in many prospects' minds. Most software buyers know that the chances of a software developer being in business six or eight years in the future are low. Buyers know that the value of a free lifetime upgrade guarantee is not huge.

In addition, many software buyers have found that their software application is no longer being offered a few years after they bought it. The Widget program has been replaced by Widget Gold, a new program that isn't covered under the discontinued program's lifetime upgrade guarantee. Buyers have been burned, and they don't perceive a free lifetime upgrade policy as having a lot of value.

Offering free lifetime upgrades may generate a few more sales at the beginning. But this policy will cause an ever-increasing financial drag on the company in future years.

Free Software Support

It's usually a good idea to offer free technical support for the software that you sell, especially if you're selling your programs to consumers. Most software customers expect to receive free support for the applications that they buy.

With business software, however, you might be able to turn technical support into a profit center. Business software buyers expect to receive ordinary support for day-to-day problems. But if your program is a mission-critical application for a particular business, the company might be willing to pay for an annual support contract or for some other type of premium support.

For a price, offer 12-hour turnaround on support tickets instead of your usual 24-hour turnaround. Offer telephone support in addition to email support. Offer to assign an account representative to your customer. Find a way to deliver product training and support that your business customers will find valuable, and market that service aggressively.

Free Multi-User Licenses

Many microISVs price their multi-user and site licenses with the small business customer in mind. By concentrating on small businesses, software developers often sell their larger licenses to larger companies at prices that are far too low.

Software developers have two pricing models to choose from:

(1) Some developers create price bands whose per-user cost decreases as the number of licenses increases. For example, a single-user license costs $25, two through five licenses cost $23 each, six through ten licenses cost $20 each, 11 or more licenses cost $18 each, and a site license is priced at $450.

(2) Some developers create packs. A single-user license costs $25, a 5-pack costs $115, a 10-pack costs $200, and a site license is priced at $450.

While either of these pricing scenarios might be attractive to the owner of a small business, they're an absolute giveaway to larger enterprises. If you're selling to large corporations or nonprofits with hundreds of employees, the pricing regimens described above would mean that you're offering your application for a few pennies per user. Looking at it from a different perspective, under these scenarios you'd be getting a fair price for the first 10-or-so copies of your application, and you'd be giving hundreds - perhaps thousands - of copies away for free.

Be sure that your pricing bands or pack prices include an attractive profit margin for huge institutions that buy enterprise-wide licenses. Stop giving away hundreds or thousands of copies of your program for free.

The Bottom Line

You work hard to create and support your software applications. Stop giving away your software unless there's a compelling reason to do so.

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