Marco Arment made a radical decision last week when he decided to stop offering the free version of his popular Instapaper software, which lets people save online articles so they can be read later.
"I don't need every customer," Mr. Arment wrote on his blog.
"I'm primarily in the business of selling a product for money. How much effort do I really want to devote to satisfying people who are unable or extremely unlikely to pay for anything?"
Mr. Arment's decision to take free software off the table goes against the grain of how many online startups are doing business.
The most popular model is called freemium, where a company offers a free version of its service or software that includes enough features to satisfy most customers. For people who want more features, companies will offer a premium version.
Many companies subsidize free versions of their services with advertising, while premium services are usually ad-free.
The freemium model became popular because it is based on the theory that, if a lot of people check out a service, a sufficient number will like it enough to pay for it. That usually amounts to fewer than 10 per cent of total users.
Freemium is seen as a business model that offers the best of both worlds because it makes a product or service accessible to anyone while, at the same time, providing companies with a way to make money.
The danger in not offering a free version is that it prevents the try-before-you-buy model. This approach is seen as necessary in the online world, where many consumers expect services to be free - a notion cemented by free and robust services offered by companies such as Google.
Mr. Arment's decision to abandon free is bold because new users will have to pay for the service. At the same time, it opens the door to rivals such as Readit Later, which offer free and premium products.
One of the problems with free is that it can be difficult to convince consumers that a service has any value. After all, what do you expect for nothing?
As well, when you are not paying for a service, loyalty's an issue: It's easy to move on to the next shiny new service that comes along.
Although it is still early days, Mr. Arment may discover that many people who used his free software may happily cough up $4.99 for the premium version. At the end of the day, Instapaper has value because it gives people something that makes their online lives better.
"I don't know if I'll remove Instapaper Free forever, and I don't know if it's going to be a good long-term idea, and I don't know if you can apply any of this to your product," Mr. Arment wrote.
"The only way to figure any of this out is to experiment, and the best way to benefit the community is to share the results of such experiments."
Special to The Globe and Mail
Mark Evans is a principal with ME Consulting, a content and social media strategic and tactical consultancy that creates and delivers 'stories' for companies looking to capture the attention of customers, bloggers, the media, business partners, employees and investors. Mark has worked with three start-ups - Blanketware, b5Media and PlanetEye - so he understands how they operate and what they need to do to be successful. He was a technology reporter for more than a decade with The Globe and Mail, Bloomberg News and the Financial Post. Mark is also one of the co-organizers of the mesh, meshUniversity and meshmarketing conferences.
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