Tough to beat free

Posted: 12.24.10

Microsoft started it a long long time ago, and now Microsoft may now be the biggest victim of it – giving stuff away.

When Microsoft was striving for market share with its operating system, and later with its applications like Office, it established the policy of adding programs that were developed by third parties to augment either the OS or apps. Spell check is a good example. Small companies made accessory programs for Word that would do spell and grammar checking, and then Microsoft added it and made it free, built into the cost of Office. That was great for the consumer; you didn’t have to buy any extra software. It was hard on the companies that developed the accessories, and in a few cases Microsoft acquired them or licensed the technology.

This went well for Microsoft for a long time until a web search engine company began to grow and offered more and more services to attract consumers to its pages. Then the search engine company with the improbable name of Google, offered free office applications.

Free office applications weren’t new; Sun had offered them for years and still does. It’s called Open Office and is typically the second install a user makes.

Google’s slant was a little different, not only was the software free, but so was the storage of the files, and they are stored in the cloud so they can be accessible anytime you have on-line access. Google apps now added the dimension of free collaborative content creation and editing. And then Google had the audacity to offer an operating system for free too.

Without really planning it, Google also basically neutered a major vexation for Microsoft – piracy. Why steal Microsoft programs if you can get the equivilant on-line for free?

But this leaves Microsoft in a squeeze and in search for a new business model. It can’t afford to keep investing zillions of dollars into development of Office apps if they are going to be free. And even though the company managed to keep Office sales increasing while Sun’s free Open Office was available, they did it through a locked in mechanism - no one wanted to be incompatible with anyone else so you had to buy the latest version. The latest version always had new rich features that were nice, sometimes great, to have, but not really essential, so Open Office was often good enough – but not quite in some corner cases (Excel images being one of the most common problems).

Sun suffered from limited resources and that’s why Open Office became open, and why the company got sold to Oracle, which has little interest in free anything. But Google is different, like Microsoft it seems to have unlimited resources and wants everything to be free (except advertising). Google can, and will, match Microsoft on features so that won’t be much of a differentiator any longer.

But if Google and to a lesser extent Open Office succeed in beating Microsoft at its own game, and they become the dominate supplier of office apps, where’s the competitive push to make office applications better and better? It’s hard to compete with yourself, no?

So is free the path to no further development? Maybe. Browsers have been free, and there are competitors in the browser market, but there hasn’t been any real major improvement or breakthrough in them since Netscape was around. Sure, there are new features, but a browser is a browser is a browser and not one has much to offer over the other.

You know why? It’s really hard to compete when you’re free.