With relatively little fanfare, Microsoft has made Office for mobile devices free. Faced with a minuscule software market share in the fastest growing device markets, Microsoft decided that they needed to make Office — their biggest money-maker after Windows — free for iPhones, iPads and Android devices.
As I posted last year, the age of free software is upon us. Social media companies grew like crazy giving away their software. Google’s free offerings expanded into email, then entire operating systems, and their own office productivity suite. Apple followed in a major way — making its operating system, productivity tools, and many general applications all free for all devices. Of course software is not free to create, and there are only two rational motivations to distribute software without charging for it. One is to subsidize the software because it drives users toward other business lines.* Google does this with its search/advertising business, while Apple makes money from hardware and iTunes sales. The other strategy is to give away the basic version of your software and then charge users for more valuable software features or add-ons (or in some cases for training/consulting). LinkedIn does this for example, as do a host of “freemium” games.**
Google and Apple both have very profitable lines of business that draw customers on their own merits, and for them free software enables and extends those revenue streams. Gaming companies can make a tidy sum from in game purchases, especially as the games themselves morph and change over time, and as users experience more and more difficult challenges within the games. But for a firm like Microsoft — that was first and foremost a PC operating system and office productivity software company — how does this strategy play out? How much revenue can Microsoft generate from added value features for software that competes with full-featured free equivalents from other companies? Does Microsoft hope to generate more of their revenue from hardware sales? It’s not clear to me that free software is anything but bad for them.
* Open source software (like Linux, R, Python, etc.) actually still operates according to this model. Contributors either earn non-monetary (i.e. reputational) revenue, or are developing tools needed for other revenue-generating activities — but then share the resulting software. The open source model works quite well for tools and frameworks, where giving away a tool or code module will likely result in someone else developing/giving you a useful tool in return. It doesn’t work in the context where giving away your software destroys your business or eliminates your income.
** If you can’t follow either of these strategies, you have to charge for your software. If that software is specialized, complex, or otherwise hard to replicate — yet provides a lot of value — people will pay for it, and you can have a viable business.
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