Even 'free' has its costs
September 19, 2011
Last week Biodata, one of the companies in which we've invested, announced that they had acquired a similar service, LabLife. This is a very significant development and I'd like to say a couple of things about it.
First, these are two amazing teams with two outstanding products. It goes without saying that we're big fans of Biodata – after all, we've invested in them and work closely with them every day. But it's worth adding that we've known the LabLife team for even longer and have a huge amount of respect and fondness for them too. The founders are Ken Fan, Melina Fan and Benjie Chen, who also created Addgene, the definitive plasmid repository and sharing service. I've visited them several times and their vision, intelligence and execution are second to none. So I'm delighted that these two teams found a way to work together to keep LabLife going, even once the founders had decided that they couldn't support the service to the degree that their users deserved. In fact, Biodata has committed to maintaining LabLife for at least another two years, and keeping it free for existing users – whilst of course hoping that at least some of them will switch to Biodata's own (paid) service.
This leads to my other point: free versus paid. I'm a big fan of freemium business models – we're already using them at Digital Science and will be announcing more examples in due course. As with so many other things, my thinking here has been heavily influenced by Tim O'Reilly. His talk at the 2008 Tools of Change Conference, 'Free Is More Complicated Than You Think' (a title taken from Scott Adams) is perhaps the best explanation yet of this approach, at least from a publishing point of view. (And I like to think that in my own small way I contributed back: Tim's description of ASOS and related businesses was a result of my introducing him to an old school friend, Quentin Griffiths, who's a founder of those companies.) The point is that 'free' isn't just about charity, or the logical conclusion of self-defeating a price war; neither is it just about slapping ads onto every content page and hoping for the best. But with the right accompanying revenue-generating strategies it can be a sound, even optimal, business strategy.
Yet the complexity of 'free' cuts both ways, and nice as it might seem to users, it's not always optimal even for them. This is nicely summed up in a quote (attributed to Andrew Lewis) from Eli Parser's book, 'The Filter Bubble': "If you’re not paying for something, you’re not the customer; you’re the product being sold."
In other words, if someone else if paying for the service – and someone somewhere, whether an advertiser, an investor, a philanthropist or whomever, is always paying – then whose interests does the service provider have at the top of their mind? Even more profoundly, if someone else is paying then how long will they continue to foot the bill, and what happens to me as a user if they stop? This was effectively the situation confronted by LabLife when they began to doubt that their existing approach would be sustainable, and without the deep pockets of a large organisation they had to make a decision quickly. To their huge credit, they secured a great deal and a wonderful new home for their loyal users.
Sometimes it feels as if the idea that online services have to be free at the point of use has been elevated to the web business equivalent of scriptural doctrine. But to echo Tim O'Reilly's thesis, it's more complicated than that. We're all still finding our way in this exciting new landscape and experimenting with a variety of approaches. 'Free' and 'freemium' definitely have their places, including in our business, but the evidence from this particular episode points to the conclusion that when it comes to lab management tools, modest user charges may be a more reliable approach – and therefore better for users and providers alike – than trying to make everything free, because even 'free' has its costs.