Counterpoint: Did Jott Betray Their Users?

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Yesterday, Zoli posted about Jott’s decision to do away with the free model. My philosophy is that it costs
money on the infrastructure front to host web based services and it is OK to
charge for the Web 2.0 or SaaS applications. However, Jott’s move from freemium
to completely paid option brings the plight of users into focus. In this post, I
will offer a counterpoint to my own and Zoli’s philosophy on this paid web
application strategy.

A freemium model is one where the basic service if offered as free and
advanced plans with more features are offered for a reasonable amount. Some of
the freemium providers, like Zoho
(disclaimer: Zoho is the sponsor of the blog but this is my independent personal
opinion), don’t push ads on the free versions while others use ads to cover the
costs associated with the free accounts. Jott belongs to the latter
category.

Let us sit back and understand the dynamics between the app developers (or
the company behind the apps) and the users. From the days of desktop computing,
the normal practice for the developers is to release the beta version of the
software for free so that users can check it out. Once the software is released,
the users will have to shell out money from their pockets to continue using the
software. Since users opt in to the beta test out of their own will, this model
worked out well without any problems. This beta testing approach carried over to
Web 2.0/SaaS based world seamlessly and worked well.

What changed in the Web 2.0/SaaS world is that some of the vendors started
offering applications through the web adapted freemium models. After the beta
period, users were offered free access to their applications with reduced
functionality. Companies used this as a bait to lure users into paying for
advanced service with more options. Usually, people sign up for the free plans
and around 2% of them moved to higher paid plans (Note: Jott’s claim that 30% of
their free users converted to paid option is a news to me and, from what I heard
from various companies, the conversion factor is 2-5%). All the companies set up
their terms and conditions in such a way that they keep the right to charge for
the service any time and all the users willingly (well, I am assuming that they
are reading the terms and conditions) agree to this. So, legally Jott hasn’t
done anything wrong.

But, if we see this from the consumer perspective, the free users have
invested their valuable time and, in some cases, money on these Web 2.0/SaaS
services. If it is a social network, they have used their valuable time to build
relationships on the social platform. If it is a storage service, they have
spend time uploading their documents, music, pictures, videos, etc.. In the case
of Jott, the users have uploaded their thoughts over time into their service.
They spend considerable amount of time (in some cases, money too) putting their
data into these services. Once they have their data into the service, they
invite their friends to the service thereby adding value to their data and the
service (by contributing to what is known as network effects, which plays a
major role in the success of such services). The free users also contribute to
the improvement of the service by submitting bug reports and also, in a way,
help the company understand some of the aspects like scalability, security,
etc.. In short, the app vendor is not doing a charity for their free users. They
derive considerable value from these “freeloaders”.

I am a strong believer in the true form of capitalism. In my opinion, the
true form of capitalism should protect the rights of all the players and not
just the select few. When a company, like Jott, moves from a freemium model to a
completely paid model, we usually see from the company’s business perspective
and justify its move. Often, we ignore the time (and money in some cases)
invested by these free users in putting their data into the service and, also,
the value they add to the service by using it. I think this is a case of taking
advantage of users which goes against the principles of capitalism. A
company, which relies on the ad money to keep their service running, should have
thought about bad times in advance. They should have taken care of it as a part
of their initial pricing strategy. They should not take advantage of the
helplessness of the users (well, if a company changes track after the users
invest their time putting data inside their service, the users are, indeed,
helpless) to protect their bases from the fallout of their own mistakes. Such
actions on the part of Web 2.0/SaaS companies will discourage users from putting
their data on the clouds. Irresponsibility of few companies has the potential
to completely damage whatever little trust users have on the Cloud based
computing. It is time for all the entrepreneurs, venture capitalists,
evangelists and others in the Cloud Computing community to think deeply about
the business strategies and pricing models so that we don’t break the trust
users keep on us while putting their data away in far away datacenters.