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Not charging for your product leads to trouble

GodinEntrepreneur, blogger and marketing guru Seth Godin made himself famous partly by giving his books away and encouraging other people to give their products and information away free, too. He is a best-selling author, even though most of the books he has written are available on his Web site for free.

Many of us have gotten used to the idea of getting things for free: our digital content, our social media sites. But what happens when free fails? The Wall Street Journal asks just that in this article:

  For some, the "freemium" strategy is turning out to be a costly trap, leaving them with higher operating costs and thousands of freeloaders.

That's what happened to Chargify LLC, a provider of billing-management software to small businesses, which used the freemium business model when it started out in 2009.

The Needham, Mass., company gave away its software to merchants that billed fewer than 50 customers a month. If a merchant wanted to bill more than 50 customers monthly, then the business owner would have to start paying $49 a month.

Most Chargify users never became paying customers. Within a year, the company was on the path to bankruptcy.

Chargify eventually put up a paywall for all users. Last month the 12-employee company became profitable, with more than 900 paying customers. The starter plan is $65 a month . . . .

The freemium approach doesn't make sense for any business that can't eventually reach millions of users. Typically only 1% or 2% of users will upgrade to a paid product, said David Cohen, founder and CEO of TechStars, a start-up accelerator since 2007 with five U.S. locations . . . . Paid users generally expect to get better or different versions of what they've already received free of charge. And it rarely makes sense for companies that sell products or services mostly to large businesses. Enterprise clients typically have budgets for buying goods and services, thus, they aren't as drawn to free products.

Of course, The Buffalo News is about to roll out a subscription fee for its digital content. But some non-profit news organizations, such as the excellent investigative reporting sites Pine Tree Watchdog and Wisconsin, are making a go of giving their content away free to other publications. This article takes a look at why they might have a tough time of it. 

---Samantha Maziarz Christmann


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