How to Spot the Best Free Business Tools
By understanding the motivations behind why they’re free
Ask any of my friends or family, and they’ll tell you that I certainly love a deal! I’m the guy using coupons at the grocery store, scouring the web for discount codes, and haggling any chance I get. So when it comes to the systems that I use for my business, I follow my lean principles and look for the best value I can get.
So how do you know when something’s a real steal and when it’s too good to be true? The answer lies in understanding the motivations behind why a product is being offered for free, and making sure the trade-offs work for your needs.
Here are my top 3 reasons why a company will offer software for free based on what I’ve learned over my years bargain hunting for the best-valued systems.
Reason #1 — The Freemium Model
The Freemium Model has become nearly ubiquitous in the world of subscription based (SaaS) applications for both consumers and businesses. Essentially, a company offers a basic version of their product for free with higher tiers available for an additional price.
The motivation of freemium models is to lure customers in with a free offering so that they can entice them to purchase a paid plan once they get to experience what the tool has to offer. The way they do this is by letting users experience one set of the product’s characteristics while limiting another. Most often these trade offs have to do with feature set and usage limits.
When looking at a freemium product, it’s just as important to know what you’re not getting as it is what you are. In addition to price, make sure you look at plan characteristics such as:
- Feature Set — which product features are available and which aren’t
- Usage Limits — limits on number of users, records, storage, etc.
- Collaboration — the ability to share information or work with others
- Integration — how and if the tool can exchange information with other applications
- Support — how much, if any, support is available
If you understand the tradeoffs of a freemium plan, you can stand to get a great deal. First, you get the opportunity to experiment with a new tool for free without the pesky time limitations of a trial plan. Secondly, if you don’t actually need the features or access that comes with the higher tiers, you could get a top notch product bankrolled by the user base who’s paying for the tiers above you.
Freemium products work great for individuals and small businesses who can get by with the low usage limits typically offered with free plans. Just be prepared to upgrade when you outgrow your plan.
Expert Pick: Asana is an outstanding Task and Project Management tool that has a free plan up to 15 users. While the feature set is limited, its simplicity is its biggest strength yielding a beautiful interface and intuitive user experience.
Reason #2 — The Multi-Sided Model
A multi-sided business model is one where a company’s users are not the same as their customers. The most common multi-sided model is advertising based. A product offers most, if not all of their features for free in order to create a large user base that they can monetize through advertising. Facebook is a classic example. Free website builders like Squarespace and Wix are another.
The most important aspect to understand in a multi-sided model is that the users are not the only focus of the product vendor. Their highest priority isn’t you, it’s the customers who pay them for access to your data or your eyeballs. Just as with the Freemium Model, there’s a trade off.
For this reason, I’m not the biggest fan of multi-sided products when it comes to business applications. Not necessarily because of the ads glaring at you, but because the product’s development team isn’t solely focused on my needs as a user. A free website that’s hosted on someone else’s domain and blasts ads in the face of my customers doesn’t feel like it was built for me, and just doesn’t seem worth the savings to me.
Of course, in certain circumstances, it could work out in your favor. There’s a tipping point in multi-sided products where the user base becomes so large that the only way the product can continue to grow is by providing new and additional value to customers.
Expert Pick: In my opinion, one of the best examples in the business world is Google’s G Suite. G Suite is free for individuals and starts at $5/user/month for businesses. What you get for that price is staggering — Email, Calendar, Spreadsheets, Word Processor, Chat, Video Conferencing, tons of storage and more. For me, the tradeoffs between ads in my inbox and the understanding that Google is using my data is worth it.
Reason #3 — The Loss Leader Model
The last example of why companies offer free products is to serve as a sales channel for their other products. This is called a loss leader. A company will sell one product at a financial loss as a way to then upsell those customers to their other higher earning products.
One of the most popular examples of this is HubSpot. HubSpot offers a free CRM that goes toe to toe with other popular CRMs like Zoho, Insightly, and Salesforce.
Of course the reason HubSpot offers a free CRM is because it pairs beautifully with their other products that they sell in a tiered pricing structure. Plus they’re betting that people who use their CRM also have a need for their other products and are more likely to purchase from them than an alternative.
As always, there are trade offs with loss leaders. The biggest trade off is similar to that of the multi-sided model. The free product simply isn’t where the development team is placing it’s focus. You can expect limitations in the feature set of the product without the opportunity to upgrade, as you would have in a freemium plan. You may also face road blocks designed to push you towards one of their paid products.
Also keep in mind that the loss leader is designed to attract a very specific type of customer that also has the need for the company’s other products. It wouldn’t be smart, for instance, for a company that doesn’t rely upon a digital marketing strategy to use HubSpot’s free CRM. It simply wasn’t designed for them.
If it feels like the free and paid products of a company were made for you, and you could see yourself growing into multiple products that company offers, that’s a recipe for taking great advantage of a Loss Leader product.
Expert Pick: HubSpot CRM is a fantastic offering for companies who rely upon digital sales and marketing strategies and who don’t need the fluff or customization of other CRMs.
Too often, business owners will make systems decisions based on what’s on the proverbial billboard. They take the bullet point list of features at face value and assume it will work for them regardless of the price tag. But savvy systems shoppers know better.
At the end of the day, companies who develop and sell business tools and applications are no different than any other business. Their goal is to make money. Where they place their focus and where they deliver their best value is driven by what will bring profits back to the business.
So if you’re in the market for a new system, and your budget is $0, think about why the price is what it is. Understanding the vendor’s model and motivation will help you spot a true deal and avoid the duds.