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When “free” becomes a gun to your head

Readers of this blog and our book, Shoestring Venture, know that we love nothing like we love “free.” And we invest basketloads of time tracking down the best “free” deals. (Best free deals? Well, just as in mathematics, some infinities are “larger” than others, in the biz world some “free” things are more free than others). But, to put paid on our frequent warning that “free” can easily transform into a gun to your head, Kodak recently announced that Kodak Gallery, which allows consumer users to store photographs for free, will start charging for its services (about five bucks a month). “Pay us or we kill all your pictures” is the value proposition they’re offering. My wife is one of those “valued customers” made an offer she couldn’t refuse. She can (and will) refuse because we’ve been smart enough to store our photos on CD.

Let this be a warning.

For small business and start-ups, we live in a golden age of free Web services that include email, social networking, banking, tax preparation, accounting, image editing, advertising, site analytics, project management, customer relationship management, office productivity, and a whole host of wonderful, advanced business tools. While our book offers several warnings and caveats, one of the most critical is where your data is going to be stored and how portable the data is.

This is absolutely critical, because there’s an iron law of business that the only way to pay bills is through revenues. Therefore, many of these “free” Web services will eventually charge a fee — or die. Look at the whole panoply of free Web services you use. If any of them start charging a fee, does “free” become a gun to your head? If you don’t pay, do you lose all your email for the past year or two? All your accounting information? All your site analytics? All your project management data? Customer and sales information?

And if you have taken our advice and stored your data locally, how much in time, effort, and money will it take to set yourself up on another “free” service?

More after the jump.

If you’re in business (or if not), think of all the “free” Web services you use. You probably do much if not all your email through a free service such as Gmail or Yahoo! You probably do a considerable amount of banking and bill-paying. You may even be using something as sophisticated as a free CRM system (such as SugarCRM).

If you’ve read our book, you’ve followed our advice and evaluated the service to make sure that you won’t be burned by overages, that the company will stay in business, and, more importantly, that you can store your critical business data locally and/or easily port it to another platform — or, at the very least, port it to an Excel spreadsheet or Access database. If your critical business (or personal) data sits on their server, then the “free service” has got a gun to your head. When they figure out the first thermodynamic law of business (“For every dollar you pay, there must be an equal and opposite dollar you collect”), you’re in line on the shake-down list.

I can’t tell you, for instance, how many people I’ve worked with who practice intense social networking as part of their business but don’t have records of their social networking “friends” and online interactions. There will come a day — I promise — when folks like Facebook and Twitter start charging for their service. Are you willing to pay? Do you have something to lose? Like, for instance, valuable data and information? Can you port all that valuable information and contacts to another platform if you can’t? (And don’t get me started on the “one platform social networking” mistake.)

Some “free” Web services are likely to be around longer than others, such as the tiered-fee systems. For instance, SugarCRM gives away low-level CRM accounts because so many “free” users graduate to the paying subscription accounts. Any Web service that has “free” as a low-level service (provided the low-level service is usable — sometimes it’s too low) as an entry drug to higher level services will probably stay free for a long time. Provided, of course, that they have enough paying subscribers to stay viable as a business. Twitter, for instance, is making noise about transitioning to a tiered fee system with “free” at the bottom and “give-me-all-your-money” for power-level corporate users at the top. But until they figure out how to make money, Tweeters the world around are facing (tiny) fees in the future.

The most risky Web services are always those that are free to everyone — and that includes free email. Advertising revenue almost never cuts it, so if you come to rely on these free Web services, you’re putting too many eggs in one basket.

The cardinal rule of Web services, one we repeat till we’re blue in the face in our book, is this: “It’s 3 AM. Do you know where your data is?”

It was Abraham Lincoln who said, “Free advice is worth what you pay for it.” Well, right now, free Web services are worth WAY more than what you pay for them. But all that means, of course, is that you’ll probably have to pay someday.

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