Ok, the title is a bit ridiculous. But 37Signals has been urging developers for years now to charge for their software, and attacking anyone who suggests a business can be made from giving that software away for free instead. Their model works for their own products, at least so far. But I believe they are responsible for influencing a number of startups to charge for products that were already commoditized by the time they launched. Which is suicide.
Feedlounge, a subscription-based online RSS reader, is the most recent casualty. They launched in 2005 and offered a web based feed RSS feed reader for a monthly subscription fee. There were a number of free competitors at the time, including Bloglines and NewsGator, which had dominant market share. FeedLounge planned to carve a niche for itself by offering speedier and slightly better service.
The reader was good but not great, and came out in the middle of the pack when we reviewed the competition in mid 2006. But the company defended its business model until the end – hear our podcast interview at TalkCrunch with founder Alex King where he defended his business model.
They shut down over two months ago, canceled everyone’s subscriptions, and no one seemed to notice until now. FeedLounge is now in the deadpool, although they may re-emerge as a free service at some point.
If you are in a position to charge for your software and you aren’t that concerned with dominating your category, by all means go for it. But to blindly follow the idea that software must not be free because, damnit, people put a lot of time and effort into it, means you probably shouldn’t be making the business decisions for your company. And if you are entering what is already a commoditized business (online feed readers in this case) that has a price point of zero, you are absolutely crazy to try to charge for that product.
Offering your product for free isn’t always the right choice, either. Often, the right choice is to never have entered the market to begin with. But just because 37Signals tell you you are dumb to go the free route doesn’t mean you have to be a lemming and walk over the cliff.
Thanks Smaran for the tip.
I can’t wait to see the responses to this one- especially is 37 Signals responds. I think you need to know your market to decide whether or not to charge. I think 37 Signals (and also our market) require such, but charging for feed readers was probably a bad idea.
100,000 lemmings cant be wrong. Or not.
But was Alex King influenced by the 37 Signals pitch or he in fact believed he could build a business with that product and business model? There are many people starting web companies that charge for their services and don’t even know what 37 Signals is.
RBA – you are 100% right, thus the first sentence of the post. However, I think that a lot of people do look to 37signals for advice on how to run their business, and I believe that advice is often catastrophically wrong.
I think 37 Signals is right though. They do charge, but their products are worth it… why introduce YET ANOTHER RSS feed tracker/aggregator, no matter how must *more* useful it is, when others do the same or similar job for no cost.
The difference between this writers interpretation of 37 Signals view is that apparently users aren’t prepared to pay for something that isn’t worth the difference, and apparently they are prepared to pay for something that is worth it. It’s the Apple problem… why pay what appears to be more, for something that doesn’t feel like it. They can get a Dell for $500, why pay $1000 when they can’t appreciate the difference.
Commoditization has led us to a world of mediocrity – mediocre computers, applications and lives – we don’t see that something that is great, is worth something, and as such is worth paying for. We’ll expect rent free apartments next, and cost free living. If only utopia would come?!
I think another big part of the 37s mantra is to build something of value. I never tried Feedlounge, but it does not sound at all remarkable and thus doomed to fail, free or not.
Seems to me that the problem was not that they charged for their service… perhaps they had an average service in a crowded space. Charging for the service simply becomes a hinderance to adoption — but who’s to say they would’ve survived even if the service was free?
When did the 37s ever say “You’re dumb to create a free service”? A couple of their services are free…
Sensationalism… *yawn*
When reading that post I got a strong feeling that somebody doesn’t like 37Signals….
37Signals can charge fees for their products because they offer a unique set of tools and services that are mostly unmatched by their competitors — especially their competitors that offer similar services for free.
With Feedlounge, I think the problem was that they were going up against an already-entrenched and over-saturated market where the competition was fierce. Even Google got into the game with their Google Reader, which is free.
Attacking 37Signals for the failure of a completely-unrelated company seems a bit ridiculous, Mike. Maybe I’ll start blaming you for the failure of every blog out there that tried to make money by blogging but didn’t hit that perfect mix of content, information and opinion. After all, it’s not their fault — it’s TechCrunch’s fault that they failed. Silly.
Here are my thoughts from last week on the free vs. paid dealy:
http://www.cent...ant-to-be-right
I totally disagree with this statement:
Often, the right choice is to never have entered the market to begin with.
The right choice is to do what you believe is right. Sometimes we must fail to learn. If we don’t try (in this case enter the market), we will always look back at what might have been. The key is to jump into the deep end and learn to swim and not wade in the shallow part.
Once a product moves into the commodity stage, the key to being able to charge is to innovate and move outside the commodity.
As for free or paid, my belief is that you should look at both options and then decide. Too many companies I speak with believe it has to be free and never think about the paid option. Paid will naturally mean less accounts and activity but might be the better choice in the end. The issue is that once you go free, you can’t really change easily.
Can we stop spreading the false myth of lemmings being stupid creatures who cannot figure out how not to walk off a cliff?
http://www.snop...ms/lemmings.htm
It is a combination of timing and business model that banished it to the deadpool. It might have a chance if it was one of the first to enter the RSS market and charged a small fee for it and later on make a 180 and becomes free.
But by the time it launched, the “fee” model that would’ve worked when the idea was conceptualized would not have worked.
I’m not entirely sure how 37s factors in to the fact that a mediocre product is going out of business. That said, I too am a HUGE advocate that free software is either (a) a bad idea or (b) money left on the table. Even worse is that nowhere in your post do you note that all of 37s products have a free version, which is a shame.
There are a lot of ways to generate revenue on the internet. Regardless of a person’s feelings on those models, the fact remains that mediocre offerings at poor price points will fail every time. 37Signals didn’t invent that truth; it’s been around forever.
The RSS feed reader market is saturated like the video market. Expect to see many entries into the deadpool from this crowd. Hurry up and register tcdeadpool.com or some catchy derivative Mike.
I don’t get it. Why would any business be basing its decisions on what 37 Signals does? I can’t even find someone in IT offline that’s *heard* of 37 Signals.
Or the other possibility is that most web2.0 ventures should not charge for their services because their services are not worth more than micro-payments (which are apparently still impossibly difficult to collect online).
No subscription $$s for you! So its ad-supported or bust..
And if you’re going to fail by collecting $2 per 1000 pages from adsense because to pay the bills that way means you need to serve more page views than god, then try not launching in the first place, your idea isn’t good enough.
Looks like someone at 37signals did not agree with Michael at some point and was put on his shit list. Michael, why are you calling out 37Signals for feedlounge failing?
The add-supported model is often suicide as well. Works great when the economy is booming, but ask 75% of the internet companies back in 2000 what model they were on, and you will see a pretty high correlation between those who were on the ad-model and those that shut down when the market crashed.
A lot of people are making a great point, that the true deciding factor here was whether they really offered value to their customers. Create value and you can charge, because it is worth it. Offer a commodity, and most likely it is a losing proposition anyway.
Someone left a comment defending actual lemmings. I love TechCrunch comments!
They responded to a rediculous statement made by one of your employee’s and you fire back that they are “attacking”.
If the marginal production cost of software is zero, then why did TechCrunch buy inviteshare, built in a few days of coding, for $25,000?
Garth – do you know what “marginal production cost” means?
It’s good to know that I can now build a mediocre website in a saturated market filled with free alternatives and then blame 37signals for my failure.
I think 37signals encourages folks to offer a free version to get folks hooked and then charge for a more robust product. I don’t think its 37s fault that these guys went under.
I do just fine in my market by not charging users….
If you are in a super competitive industry, than not charging for a product is probably the only way to grow and gain marketshare. None of the markets mentioned here are all that competitive, as there isn’t all that much money to be made. ie Not a billion dollar market.
Damn, sounds like someone has a grudge against 37 Signals. I’ve read their book and seen their stuff and I can say it is great they are making money. I also admit that it’s foolish to charge money for something that you can get for free. However, just ask SmugMug about free stuff.
It’s a game and it’s getting harder and harder to find something worth paying for.
cbmeeks
http://www.signaldev.com
I must admit to feeling a little bit brain-washed after reading Getting Real. Let’s be honest, when it comes to business models, you’ve just gotta go straight to MC Hammer.
Mike,
Way to take something way out of context and use some sensational headlines to try and grab readers… 37signals preaches to charge for a product, and I think they have the right idea. The problem with feedlounge is that they didn’t offer a free version for me to try. Look at every one of the 37signals products and you will see they have a small free version to try their product.
You seem like a smart guy, so why play dumb in your post?
Doesn’t 37 Signals promote more of a “freemium” model for their applications? Freemium models have solutions for everyone – personal users and business users. The feature set drives users (a small percentage of them) to pay the application.
Any dumbass that is willing to take any one persons advice (i.e. Jason Fried’s) as the sole way to shape a business model doesn’t deserve to be in business anyway.
Michael has interesting point about commoditization of services. Web e-mail, calendar, RSS has been commoditized and 99.9% of consumers are not willing to pay. The bar has been raised by Oddpost and Gmail so all the crap e-mail services have been deadpooled.
IMO – if you are building a subscription based consumer service, the competition is fierce. I think there are a ton of opportunity in the vertical business markets for respectable web apps. It is not sexy, but there is money to be made.
It seems copy cat startups are a dime a dozen just like in 1999 except they are all waiting to get noticed by Google. I see danger Will Robinson.
I have no affiliation with 37s, in fact I could care less about them… BUT, I must defend them here, this article is just a huge conflict of interest.
History: Nick of TC fame recently wrote an article about Mundu (an iPhone app) and why it’s dumb they’re charging:
http://www.tech...-they-charging/
37s wrote a response to Nick’s article, calling it complete crap:
http://www.37si...62-fleeing-free
(Choice quote: “They forget that not everyone has Google’s search subsidies, Yahoo’s traffic, or Apple’s hardware revenues making up for their “free” bundled software.”)
And now we have an article on TC saying 37s sucks, more or less.
Hmmm… interesting.
PS: I’m making a living in a very crowded market (web analytics) that includes Google as an obviously VERY major competitor. How am I making money? Mainly off charging users for the product.
Does this make me crazy?
Michael – are you as obnoxious as you seem?
Seth, how is stating an opinion a conflict of interest?
It’s simple: you price your product based on the value your market places on it. If your product is as valuable to your market as the $100k enterprise system they currently own, you price your product at $100k. If your market already has comparable products available to it for free, then your market is not going to pay you anything for your product, not even $1. Note also that it’s your market that determines the meaning of “valuable” and “comparable”, not you!
Mike on fire today bashing Alexa and 37 signals left right and center
What I mean is that TC has a *HUGE* influence, and I feel like this post is abusing that power to get back at someone, rather than just a typical article with some random observation.
This article basically boils down to, someone else didn’t like an article on TC, so they wrote a response to it. And in response to that, TC writes an article saying more or less that 37s sucks and because people listen to 37s’s opinion on software pricing, they are making other companies fail.
If this article had been written before the “Mundu” article on TC, it would be an entirely different story. But this is all about retaliation, and that’s crap.
Why blame 37signals? THese guys didn’t have to follow their advice. YMMV!
(PS: Didn’t you say way up there that the software “wasn’t great”? RIP.
Apparently, you should only start companies with strategies that are guaranteed to succeed – and Starbucks should not have entered the premium coffee market since , well, a cup of coffee was fairly commoditized when they did.
Aside from 37’s freemium model being omitted in the post, I for one like these more ballsy opinion pieces. The previous “Alexa is embarrasing” post included.
Bravo
You can’t fault Alex / Scott for trying to build a business around a useful service. It didn’t work, but it’s a stretch to label them lemmings considering they were in the minority at the time by trying to build a paid subscriber model. It’s also worth noting that Alex jumped out of feedlounge ops quite a while back.
ok boys and girls – what have we learned here? mess with an intern on tc and get your arse handed to you by tc boss using hitman title tactics. This story has nothing to do with 37sig but it was just sitting there waiting for the right time to pownce.
#34 Sean – you are correct.
I am certainly not a techie, but I am a businessman. I know profit is a dirty word to a lot of people these days. Shame!. I also understand Mike is an attorney, and I know the negative mentality that’s inherent in the legal profession. Most attorneys are deal killers instead of deal makers. I have been reading TC for about 5 months now and I see a lot of negativity towards Arrington. I also see the attitude Mike has towards many businesses that may cut their teeth outside of his sphere of Venture Capital circles. He is in the business he is to make a profit and to make a positive impact on those businesses his circle of friends are involved with. either directly or indirectly. It’s called Greed , and Greed IS Good, even in tabloid journalism. To make such an attack on 37 Signals out of left field is preposterous. A recent article on Cnnmoney.com of fthe top 50 internet influences state that TC brings in about $200K a month. Not chump change but probably no where close to what 37 Signals pockets. To post an Editorial View as news and blame other businesses demise on 37 Signals is Tabloid. To attack a company out of jealousy is small minded. I enjoy reading TC, but am getting a little tired of the FB evangelism and the constant cutdown of anything not touched by MA. The article made reference to how damaging it can be to any business to not be blessed by Mike. Just remember, what goes around, comes round. This blog has deteriorated badly.
@Dominin
You are so right, this blog is starting to go sour, just like a startup that has reached its tipping point – It’s time to sell Mike!
Not sure about putting it all on 37s, in fact, I don’t think 37s should even be mentioned in this post, unless they advised FeedLounge or something like that …
The rest of the post is good reading especially…
* Often, the right choice is to never have entered the market to begin with. *
That, Mike, is 100% correct.
i am sure that if the market crashes, 37Signals will be the last to close their doors. They have one of the most solid businness model out there.
but here is the catch, it’s quite a challenge (understatement) to be another 37Signals. paying for a web RSS reader when there is google reader is crazy.
What a stupid argument that is. This company probably would have failed even faster if they never charged for their services, how would “giving it away for free” have saved feedlounge?
why is this an argument against charging for software?
Businesses are happy to pay for software when they see value. Thousands of small shops make a very decent living of selling them software. And guess what? They did not wait for web2.0 Photoshop effects to do so.
TC is missing many boats lately…
Nah, I think Arrington is right on this one. He didn’t really diss 37 Signals, just pointed out it’s model isn’t for everyone, or every service.
The models *are* different. Feedburner was selling a commodity — something that is so cheap to produce that is sells for little or in this case, nothing — whereas 37 Signals sells productivity software that is used higher up the value chain by specialists who are willing to pay for it.
A good example is Zoho (yes, the company that advertises all over techmeme) — which operates by *both* models. The mass-market office is good quality, and it’s free.
Two things seem to be going on here:
1. Content that was once free, or has the expectation of being free, is tainted. Note The New York TimesSelect, and even the music industry, where purchased music represents 1% of the music on all ipods.
2. Freemium (free and premium content) works with niche audiences. See Techdirt.
…
You’s guys are getting a little trigger happy…
[ Nevin : Nah, I think Arrington is right on this one. He didn’t really diss 37 Signals, just pointed out it’s model isn’t for everyone, or every service. ]
I’m not sure how you read “37Signals Drives Another Company To The DeadPool” as anything but a diss.
[ A good example is Zoho— which operates by *both* models. ]
You mean like 37Signals does?
This is a really stupid way to make a point. A classic headline in the (headless body in topless bar) genre.
You have a point about where charging and where free is applicable. Just as 37s does. However, to attacking 37s like this makes no sense. If you have a beef with them, you can put it in Crunchnotes where the rest of your fights are settled.
Google is beginning to charge for “free” products through extra storage or small business/enterprise versions. Same route as 37signals. It’s web based, you start on a free package and try before you buy.
I too have a beef with 37signals. But more on the issue that they are too damning of software they claim to be bloated, when in fact they are sometimes bloated to offer the customisation that enterprise needs. Their “Getting Real” principle is what they quote most, not their pricing model.
Michael, I don’t think you know what you’re talking about. I’ve felt this for a long time, but now I undeniably believe it. It’s people like *you* and your advice who have driven one too many companies to the DeadPool. It’s people like you who have garnered a following and who have taken advantage of that position to dole out poor advice based on speculation and false positives that has created the culture of fear and paranoia that has driven much of internet development since the mid 90s.
Feedlounge didn’t survive because their product was ill-conceived, not because they charged for it. They didn’t understand their audience or their target market well enough, hence the product tanked. And even if they did do everything right, there’s no guarantee they would have survived. Them’s the breaks. That’s life, and that’s business.
What any of this has to do with 37signals is anybody’s guess.