Why Free Is a Bad Price

Marco Arment is the brains behind one of my favorite apps. Instapaper allows you to store articles off the Web for later reading; very useful, for example, when I am surfing and come across an article I want to share with my students or use in a future blog post. And the editor of Instapaper periodically shares excellent reads that I might otherwise miss.

Instapaper is currently available for both the iPhone and the iPad for $4.99. As Marco discusses in his blog, however, the iPhone version has sometimes been available for free (but with ads).

Based on his pricing experiments, Marco has decided that free is a bad model. In part that’s because ads provide weak revenues, and it’s expensive to support two versions of the app. In part it’s because the free app cannibalizes sales from the paid version.

But that’s not all. Another problem is that the free version attracts “undesirable customers”:

Instapaper Free always had worse reviews in iTunes than the paid app. Part of this is that the paid app was better, of course, but a lot of the Free reviews were completely unreasonable.

Only people who buy the paid app — and therefore have no problem paying $5 for an app — can post reviews for it. That filters out a lot of the sorts of customers who will leave unreasonable, incomprehensible, or inflammatory reviews. (It also filters out many people likely to need a lot of support.)

I don’t need every customer. I’m primarily in the business of selling a product for money. How much effort do I really want to devote to satisfying people who are unable or extremely unlikely to pay for anything.

Free is a risky price because it allows people to get something without really thinking about whether they want it. That’s why health insurers insist you pay at least $5 to see your doc or get a prescription.  And it’s why DC’s nickel bag tax has been so effective in cutting use of plastic bags.

Kudos to Marco for sharing his results and calling on others to run similar experiments. But I won’t be one of them. Free continues to be the right price here in the blogosphere.

5 thoughts on “Why Free Is a Bad Price”

  1. Free isn’t free if you force people to endure advertising for their “free” object of desire. Advertising by and large cheapens discourse, cheapens experience and diminishes the value of the object providing the advertising. Who would put television and the polio vaccine in the same category of remarkable and world changing technologies?

    Television, Radio, Billboards are all diminished by the content they host which is predominantly commercial advertising. I would value an application which forced me to endure a perpetual stream of advertising drivel much less, than one that didn’t.

    Hence I see a flaw in the author of the apps reasoning, his advertising supported app is less valuable and of lesser quality therefore it should receive much lower reviews.

    Free with an enormous flaw (annoying advertising) is not really free nor is it the same as the paid app, the entire premise is flawed, deceptive and specious.

    Sometimes free is not really free, like a free lunch or a free app.

  2. I have a free app that works and doesn’t subject you to ads. I email myself the link to the stories that I don’t have time or eyesight to read.

  3. @Jane I think you are missing the point, which is “Free” pricing models have costs that are often overlooked. These costs are additional support, higher tech costs, cannibolization of the paid app, a less loyal customer base, etc. The author of the app says “the paid app was better,” but continues to make the point of why he should have simply just never offered it in the first place.

    @Donald — Thanks for posting. I love hearing about owners “lessons learned.” May even include a post on my blog about this…

  4. @Anthony, I think you are missing the point. Words have specific meanings, hence free means both without cost and unencumbered. This “app” was neither. To call it “free” is deceptive, and then to use this as example of the “costs of free pricing models” is either deceitful or naive.

    The app authors regret is more a sign of the frail psychology of the creative, than indicative of any useful economic understanding. Its like studying the disemboweled intestines of a small animal in order to know whether you will win the next battle, very useless but it makes you feel like you understand an uncertain world with certainty.

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