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The Return of Paying for Software

iPhone Line

Over the weekend, I finally picked up an iPhone for myself thanks to my lovely wife who woke up and, no crap, said first thing “when does your Verizon contract end?”

She’s obsessed with the thing.

Small Change for Small Applications

When it comes to making money with software, the iPhone App Store is the glossiest example of trend I feel creeping up on us: people paying for software.

Yes, people have been paying for software forever, but the expectations for most consumer software of late has been that it’s free. GMail, YouTube, blogging, Twitter, Facebook, and IM. And there’s the encroachment on Microsoft Office from Google Docs, ZoHo, Adobe Buzzword, and others.

This is great for consumers, assuming that they “pay” for the software in other ways – looking for ads or helping the company in question stock up on eye-balls and the potential for a cash-out.

Developers, on the other hand, have had a tough time of it. If “everything” has to be free, it’s hard to boot-strap a company without the capital to burn while you’re “figuring out” your business model.

Looking at things like the App Store, Facebook apps, Ning, Bungee Labs,, and other (pretty much) SaaS-based platforms for small application developing, it’s seeming like the idea of getting paid up-front for software is starting to cook again. The excitement here, for developers, is being able to tap into an immediate revenue stream for products, for software. The alternative is usually consulting and services which distracts from building the software.

As we’ve noted in the past, the current round of platforms here are typically much more locked-up – closed – than we expect in the “freerer” world. My feeling is that the trade off is finding the sweet-spot between lock-in tolerance and fast revenue: the faster you can make more revenue, the more lock-in you’ll accept.

What’s Changed?

The change here is an environment where people will spend $0.99 to $20 for a piece of software. I often comment that this user-mentality – spending small amounts of cash on software – exists in the OS X world, but it’s been lacking from others.

Things like the App Store could start to chip away at a user’s concept that they can “pay” for software in non-cash ways. SaaS people like SalesForce and even Google Apps $50/year work to chip away at that user-spend mentality as well. Ultimately, the SaaS angle could accelerate this move away from free even more than Apple. (Search-and-replace SaaS->Cloud if you need to be buzzworded.)

Indeed, running and/or distributing software over the web seems to be one of the blockers removed. Part of the benefit is transforming your (the one selling software) sales organization to be primarily web based and understanding how you go all SEO-crazy and beyond to insert offers to buy into the life of your potential customer/user as much as possible. You take your sales force off the green and out of the steak-houses and put them on the web and in social networks. People like Solarwinds (soon to IPO, no less) and Spiceworks (400,000 users and growing) lead on this kind of thinking.

I don’t think it’s a sure change now in the user’s mind, but I think it’s close.

Servicing the Marketplace

For vendors, the chance is to provide the monetization platforms to these developers. The vendors benefit is not only take a cut of the sales, but also attracting the developers to their world.

It sounds “obvious,” but in the open source/everything is free world we’re in now, using “you can make money quickly” as a developer ecosystem feature/benefit isn’t actually as clear-cut as those developers with bills would like.

Take Adobe, for instance, fresh on my mind from the Analyst Summit last week. Currently, Adobe wants to fill out its RIA developer ranks. There are several ways to do this: pull in the existing Flash world, poach/share Java developers, bring in web/LAMP developers, etc.

Even more compelling for developers than “has good interfaces” and “can make sexy charts” that Adobe RIA currently uses would “makes me money quickly.” Here, the idea is to rig-up a platform for allowing developers to sell the RIAs they develop – the back-office, distribution, and sales/advertising (see web-based sales notions above) for that.

Being an “Adobe programmer” would not only mean nice looking charts, but it’d mean being able to get money quickly from software.

Adobe is just one example, of course. Any outfit could for for that: like Sun with Zembly.

Disclosure: Adobe, Sun, and Microsoft are clients. And thanks to Charles for the term “lock-in tolerance.”

Categories: Cloud, Community, Development Tools, Marketing, Open Source, RIA.


Comment Feed

6 Responses

  1. It's amazing how reluctantly we consumers pay for certain types of (actually valuable) software when you consider the other types of abuse that we sign up for:

    With DirecTV or Comcast – you buy their hardware upgrades ("HD Receivers" for example), then they milk you for extra monthly connectivity charges.

    With credit cards, despite the fact that we're paying richly for short term loans, we're also now subjected to all sorts of b.s. service upsell attempts any time we talk to a human being (which people must be buying, based on how hard they're pushing it). And of course, if you actually sign up for one, it's auto- recurring billing (because they'd hate to lose you as a customer just because the service happens to suck).

    A lot of these practices that have been going on in the consumer / home services world (and particularly with monopolies) revolves around marginally valuable services that are presented in a misleading way, with predatory pricing and recurring billing schemes. And most of us are signed up.

    But if the online service that we've been using for free for five years and love to death all of a sudden tries to charge us $1.99 per year – well, dammit, we're not going to put up with THAT 😉

  2. I think this culture is Apple localized. Windows developers seem to pirate their software, and Linux folks get it for free.

    I was just discussing this the other day with a friend, as I (as a Linux user) was stunned by the fact that if you want to use IRC on Mac you need to buy a $10 piece of software. I suspect that the culture which values paying slightly more for design is a culture that doesn't mind dropping $10 here, and $5 there for software that does small things on the desktop.

    So, while I'm sure that you are seeing this more and more, I'd be really curious if you are seeing it outside the Apple sphere of influence.

Continuing the Discussion

  1. […] off, I think Dave is taking some liberties with Cote’s original prediction about paying for software. Cote wrote: “Small Change for Small Applications: When it comes to […]

  2. […] I was reading an interesting post today by Rory Cellan-Jones about National Rail Inquiries decision to cut off a free service and replace it with its own for pay version. If you asked Cote he might just say that’s the way the wind is blowing – fee is the new free – The Return of Paying for Software. […]

  3. […] reading this, I instantly thought about Cote excellent post titled “The Return of Paying for Software” from last summer.  Cote wrote: “When it comes to making money with software, the iPhone App […]

  4. […] reading this, I instantly thought about Cote excellent post titled “The Return of Paying for Software” from last summer.  Cote wrote: “When it comes to making money with software, the iPhone App […]