Why Charging Just a Little Can Be Smarter Than Charging Nothing 
at All
  By: Farhad Manjoo
  The strategy of giving everything away often creates as many 
hassles as it
solves.  Why charging just a little can be smarter than charging 
nothing at all.


Google's much-anticipated desktop operating system, Chrome OS 
(debuting in late
2010), has one main selling point: It's free.  The search company 
plans to give
the software to computer makers in an attempt to amplify its 
rivalry against
Microsoft.  That's Google's way -- nearly everything it makes is 
free to users.
  In an earlier generation, we might have scoffed at this 
marketing strategy.  What
business gives away its products? But not anymore.  Free is the 
new normal.
  Today, every business that deals in intellectual property -- 
from software to
journalism to music -- feels the no-cost push.  If you're not 
giving it away, the
thinking goes, you must be doing something wrong.
  Though digital prophets champion our pay-nothing future, it's 
instructive to
consider why free sometimes fails.  To return to Google's Chrome 
OS, sure, Google
will persuade some computer makers to install the OS.  But when 
you consider what
free really buys, the answer is not much.  The computers are 
likely to sell at
$20 or so less than the price of comparable Windows machines 
(Microsoft sells
Windows XP to netbook makers for just $15 a copy).  In exchange 
for that slightly
lower price, customers will get computers that do much less -- 
they'll run fewer
programs and connect to a smaller range of peripheral devices.  
And good luck
finding tech support.
  Most consumers get it.  There's already a free operating system 
for computers:
Linux.  Yet netbooks running Windows outsell their Linux 
counterparts by a margin
of nine to one.  In other words, free is getting trounced.
  Why? Because free costs too much, weighed down with hassles 
that you'll happily
pay a little to do without.  That's why people buy bottled water 
and cable TV.
  That's also the model that The Wall Street Journal uses to goad 
people into
paying for news online.  Anyone can read its stories for free 
through Google or a
news-aggregation site like Digg, but people who want the full 
newspaper
experience pay $103 a year for the privilege.  More than a 
million subscribers
consider that a good deal.  This isn't an anomaly, either.  
According to a recent
study by the private-equity firm Veronis Suhler Stevenson, 
consumers now spend
more time reading or watching media they've paid for than free 
media.
  There are also natural advantages to charging a price -- for 
starters, revenue,
which can fund such extravagances as marketing and support.  
Google's free
cell-phone operating system, Android, has had a tough time 
competing with
Apple's iPhone in part because Apple has the funds to spend big 
sums on
advertising and to staff its Genius Bars.  Apple makes an 
enormous profit on each
iPhone; Google, meanwhile, will make money only incidentally -- 
through
advertising revenue from people who use Google products on their 
phones.
  Some companies have been at the vanguard of making a paying 
business out of
"free." IBM, HP, and other tech giants generate significant 
revenue selling
consulting services and support for Linux and other free software 
to businesses.
  These customers are willing to pay for nominally free products, 
because they
understand that only when money changes hands does the seller 
become reliably
responsive to the buyer.
  Even Google is starting to learn this lesson.  You can run 
Gmail and its office
suite for free, but if you'd like tech help, better reliability, 
and someone to
blame when everything goes wrong, you have to pay.  Perhaps 
Google should take
this strategy more to heart.  If rock-bottom prices don't work 
out for Chrome OS
or Android, there's only one way to go: up.
  Farhad Manjoo covers technology for Slate and is the author of 
True Enough:
Learning to Live in a Post-Fact Society.


Copyright Ággc) 2009 Mansueto Ventures LLC.  All rights reserved.
  Fast Company, 7 World Trade Center, New York, NY 10007-2195


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