Do you cheat?

As someone still grappling with ‘Binge-install Syndrome’, I find my computers loaded with tons of applications that I rarely use. Wordweb is one such application. I hadn’t noticed it around till the day I saw this-

This is definitely not a generic software licensing prompt where we always go for the least annoying option: Ignore, Later, Don’t Register or Cancel.

The Wordweb free licensing prerequisite stands out- this might well be the most ingenious bit of license copywriting that you’ll ever see. It’s interesting how an innocuous dialog box plays on the user’s principal moral obligation- honesty- to achieve a deeply commercial end.

Contrast this with conventional ’shareware’ agreements that people routinely ignore, circumvent, or under-license without feeling a little badly at the dinner table?

The key difference here is that you’re offered a choice, a measurable context in which you make your decision; you have an option to cheat and keep using the software for free, or to be honest and pay up. It gives you a benchmark to judge yourself. It isn’t ‘did you find it useful?’, it’s ‘did you lie?’, and that’s the big difference: the economic decision is preempted by a morality test.

What choice did I make? Well, I might be average at spellings, but I’m not a software thief!

For fellow entrepreneurs and folks who are curious about software pricing theory, Wordweb is a great example of the Freemium licensing model where a bunch of paying-users subsidize a service for free-riders. I’m told this company makes money which means this unique moral incentive actually works!

Chris Anderson gave a great talk at Startup School 2009 where he argued that free (for some) is indeed a viable pricing model for products and services, particularly those delivered through the internet.

At the heart of the Freemium model is the idea that you offer your base product for free and then build an incentive for users to pay for premium features. Offering a good product for free can attract a large user-base fairly quickly, and from there, it’s not hard to monetize a captive audience that already loves your product. One might imagine that Freemium works only if the material costs of the product are low( typically software, where the cost of delivering and scaling services is reducing every day)- this is incorrect. Look at how gaming consoles are priced, Microsoft and Sony barely break even on the hardware but make a killing on selling game titles. Anderson cited an example at Wired magazine where a small portion of premium-subscribers help the company sustain the service for a vast majority of readers who don’t have to pay.

It’s important to understand why a user might pay for the service:

• Users pay to save time.
• If risk is lowered.
• If there’s a social (/status) incentive.
• Users pay if they are made to pay. (Much like the Wordweb license which compels the user to pay, or cheat!)

Clearly, one cannot offer the kitchen sink in the free variant of the service, there have to be some restrictions which are to be applied to develop an incentive for the user to upgrade or go premium.

• Feature Limited
  Restrict certain features in the base version and offer them as ‘paid-for options’.
• Time Limited
  This is a legacy shareware software model where all the features are available for free for a certain duration, after which, the user must pay for the product. This model has a serious drawback whereby the user never really commits to the product as he knows that he might have to give up on it. Time limited licensing fails often as it has the least user engagement.
• Capacity Limited
  This restriction is popular with most data intensive internet services (Flickr, Picasa, Box.net?) where free users are given a certain amount of free capacity beyond which they must pay.
• Seat Limited
  Free for a certain number of users, beyond which you must pay.
• User Class Limited
  Free for students and non-profits, corporate customers must pay.

Far from a mere buzzword, Freemium(the naming credit wrests with Fred Wilson!) model is the big mover, and by far the most interesting pricing model on the internet. This presents endless possibilities for savvy companies to bundle their products in a sweetened wrapping of free, and make a lot of money in the process.

Think about job sites showing teasers to potential (non paying) recruiters and charging per lead, or offering a free posting to non members. This might nicely compliment their generic all-you-can-eat(time limited) database access. I know a lot of ways this access can be, and is, abused. How about helping a small company get started and making some money doing it? It takes away the incentive to cheat, and develops some real goodwill (/love) for your product. And that, we know, goes a long way!