Interesting. I’ve spent most of my career in one form or another of consulting. Its an easy business to get into, the problem of course being that you can never stop working, since you get paid on a project or hourly basis. According to Nassim Nicholas Taleb, such “non-scalable” businesses are actually the safest to be in though, since there’s little substitute (yet) for skilled human labour.

On the other hand, the lure of the huge “dot com” project still attracts most software developers like moths to a flame…

There’s an upside and a downside to that, of course.

Software as a service is great for vendors, since they are “renting” out their product or service to their customers, rather than selling it. That means a (in theory) constant stream of revenue. Its also hard for an existing customer to leave (walled garden effect), which means that there’s at least some price elasticity.

The downside is on the customer’s side. As a customer, I try and avoid any online service where I’m going to be locked in for a long time, particularly if I have concerns about data security / privacy etc. I also really don’t enjoy getting “dinged” each month, even if its a small amount. In time it adds up.

I think the key for vendors of this service is to a) have a free basic service that allows people to grow into the paid version, b) provide a really high value premium service, and c) make sure that they have reasonable terms of service and policies that are enforced even-handedly. Its often hard to do this in practice though.

Yup!

Freemium is analogous to “gatecrasher special” or “loss leader”.

The difference being that grocery stores don’t give away products as their entire business model, with advertising making up the difference. Although that would be a very interesting store…