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I help companies modernize their technology and licensing strategy for maximum effectiveness, efficiency, and profitability.

Mike Wozniak, Software Licensing Architect

Buyer Beware: Always Ask Yourself, Why Is It Free?

In the age of online everything, you can find a lot of things available for free. But, as you know, you get what you pay for and there’s no such thing as a free lunch. Have you ever paused to ask why some of these free services are free?

It’s Smart to be Suspicious

Many apps offer freemium levels of their services. A freemium is a product with baseline features that anyone can access for no fee at all. So can we throw out the old idea that everything comes with a cost?

Unfortunately, no. Business is business, and very few are in it for charity. It’s just that a company’s source for profits may not be obvious to the casual observer. You can bet that if you are not paying money for the service, you are very likely paying in a different way.

Here’s an example: A friend told me about a wonderful app that makes it easy for families and other close-knit groups to keep track of one another. I was excited about using it until I paused to ask, Why is this free? Because the shared data the app offered in its freemium account included details like the speed at which your family member or friend is driving, and the points at which they make abrupt stops, and other fine real-time details. That’s a lot of data being captured.  While I knew this data was being shared among users, I had no idea my data was also being shared elsewhere.

Well, after researching, I realized that this company actually sells the data to auto insurance companies to use as a tool to find risky driving behaviors. Under the terms of their contract, the app developer can realize enough income from the insurance company to cover costs of the freemium, and make a profit as well.

There’s an old quote that is now truer than ever: "If you aren’t paying for the product, you are the product." Always ask "Why it is free?"

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Sometimes you may be willing to trade your data and personal choices in return for a free service, and sometimes you may not approve such a trade. The important thing is to be aware of the many ways you may inadvertently be contributing to a company’s bottom line.

Obvious Case in Point: Google

Google is your friend, of course. What would we do without its endless resources?
But think about this: when the internet first came out there were a couple of companies out there that provided analytics for websites. The computing resources that are needed to track web analytics for a website are massive. In those early days of the internet, web analytics systems were sold with prices based on how much traffic a site attracted.

Then in 2005, Google bought out the leading company offering web analytics, and configured it to be available for free to anyone with a website.

How could this be a viable business model for Google? Simple. When using their analytics service, you’re sharing with them an enormous amount of highly valuable data. Google uses this data for its own purposes, enabling growth and profits that far outpace a fee-based business model.

Free Doesn’t Mean Free from Risk

I switched from paying $1/minute to using a free artificial intelligence app to transcribe my audio recordings. I can upload several hundred minutes each month for transcription, all for free with their base level account. It’s a cool tool that I really appreciate, but I have to ask: what supports all that free use of bandwidth and AI processing? Is the company surveilling my content, maybe using my secrets? How do I know they are not?

Another example: some years ago, a friend asked me to check out his computer, which was not working properly. Eventually, I figured out that he’d been downloading pirated movies. These films were easily downloadable, so he didn’t think it could be a problem. I had to explain that the malware on his computer actually was deposited there via these downloads. By participating in this activity, he risked destroying his computer and data, not to mention putting himself in immediate jeopardy of being sued by Hollywood moguls.

And how about this very possible scenario?  You sign up for a free app that you love, because there are no restrictions.  But the company that runs the app realizes that their freemium business model is not sustainable and needs to pivot by selling the product to another company (or maybe this was their intention all along?). Now this new company owns all of your data and is legally free to change their Terms of Service and Privacy Policy at any time.  Next time you receive an email about a company changing their terms, you may want to see what changed and why.

Looking at the Issue from the Other Side …

From the developer’s point of view, the configuration of a freemium option for any piece of software is a tricky business. Are the contracts you have set up to underpin the cost of your freemium really sustainable?

For example: Wall Street has been wrangling with a disruption abetted by the Robinhood app, which allows individuals to trade stocks with no fees charged. How do they turn a profit? According to the New York Times, “Robinhood makes money by passing its customer trades along to bigger brokerage firms, like Citadel, which pay Robinhood for the chance to fulfill its customer stock orders.”

So far, so good. But what happens when more people than expected suddenly start using the app, and the costs of this free access outstrip their profits from the brokerage firms? When a recent run on shares of some companies that were being short-sold overwhelmed the Robinhood business model, they had to shut down trading, causing havoc in their operations and widespread customer ire.

Once Your Data Is Out There, You Can’t Take It Back

Freemiums should not be taken lightly by developers or the end users. Always consider the give and take involved in a free service that is necessary to keep the service free. Pay extra attention to things that seem too good to be true (such as free movies and music), as this is exactly how malware gets distributed to your computers.

Be sure you are taking nothing for granted, especially when it is free!

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