Can free online accounting survive?

A company that makes a different online accounting app announced yesterday that it wouldn’t continue its free services. Any customers using the free service would, after a grace period, be required to switch to a paid product.

They’re not the first to start free and charge later. And there are some people in the industry who have argued that free doesn’t work. (They, of course, want you to pay hundreds of dollars instead, but that’s a different story.)

Where does all this leave Wave? Short answer: Wave is and will remain a free online accounting program, because we never planned on taking your money in the first place.

Let me go into some detail, starting with what can go wrong with some free products.

Many — maybe most — companies that have a free version use it as a stepping stone to get you to pay later. In this model, the free version usually offers limited features, and the goal of the company is to get you in the door and then migrate you to a paid “deluxe” or “pro” version of the product later on. But if they can’t move enough customers into the paid version, the business model falls apart and they kill off the free version.

Some free products plan to generate revenue with add-on products or similar strategies, but can’t make it work for whatever reason. Maybe they’ve misjudged the revenue potential or the size of the market. Most often in these cases, though, free is still not where the company’s heart is at. Free for them is probably still a transitory state — the place where you go before you pay.

Does that mean free can’t work? No way.

There are some very successful, free business-to-business applications we can point to. And most notably, these are companies where the business model is based on a free product being self-sustaining. These companies want customers to come, stay, and never pay a cent.

PracticeFusion.com is one of these. It provides a web-based electronic medical records (EMR) tool for free to doctors, with an advertising-supported version. You can opt to pay for an ad-free version, but if you’re comfortable with their discreet advertising, you can keep using the PracticeFusion for the long term, and everyone — including the company — is happy.

SpiceWorks.com is another successful, free, B2B web app. Also ad-supported, it’s a free IT management software, and it’s rocking its industry. Once again, SpiceWorks will do just fine even if its end users never pay SpiceWorks a cent.

These two, and a handful of others, show that free B2B online applications can in fact thrive. What we see as the common thread here is a well-planned business model that doesn’t treat free as a temporary state. Instead, free is the natural, permanent state for them.

This is also where we have positioned Wave. We intended for it to be free for the long haul, and built our business model accordingly. That model is:

• we provide a great, free accounting application for small businesses
• by bringing lots of small businesses together in one place, we can attract the providers of the products and services you want, and get a better price from those products and services (we call these Savings Opportunities)
• if you take advantage of these Savings Opportunities, we get paid by the supplier

Other companies give up on free because they never wanted to be in the free business in the first place.

At Wave, free was always the plan. If you never hand over a penny to us, we’ll still be happy. And you’ll still have a great product that you can count on for a long, long time.