Software Vs Service: Darwinism Or Antitrust?

Speaking of NewsGator…before time further slips away, I’d like to draw your attention to an interesting situation involving the company back at the beginning of the year. On January 9, NewsGator converted all of its numerous platform-targeted RSS clients to freeware (for personal use…corporate servers and bundled clients are still sold at a non-$0 rate), along with its NewsGator Online service. NewsGator was already one of the biggest names in the RSS software business, and this move will undoubtedly further expand the company’s market share (at unclear fiscal impact).

Why did the company make this move? Although founder Greg Reinacker didn’t come right out and say so, I suspect his primary motivation was an even bigger and looming ‘gorilla in the room’, Google’s free-from-the-beginning Reader. To wit, Greg notes:

What we’re working to do is to saturate the market with our clients. Anyone who wants a rich experience for consuming content, or anyone who uses multiple computers or devices and wants a best-of-breed experience on each can now use our clients.

With all due respect to Greg and his business savvy, the above comments are a bit reminiscent of the late ’90s dot-com focus on market share, not profit. But further in his memo, Greg gives some hints as to where the funding will come from going forward.

First, we’ve found that when we go into an enterprise to sell NewsGator Enterprise Server (NGES) and Social Sites, there are already a ton of people using one of our desktop apps already. The more folks are already using them, the easier it is to sell our server products - especially since these client apps can sync with NGES directly.

The other revenue-and-profit angle admittedly sets off privacy alarm bells in my head, but we’ll have to wait and see how the specifics evolve over time:

And second, we want to collect “attention” data (actually I like to call this activity data, but everyone else in the world calls it attention) and use it to make everyone’s experience better. If there is a specific feed you love, and you’re constantly emailing its articles to friends or saving articles in your clippings, that’s interesting…and if there are a lot of people doing this, it’s probably a good indicator about the “relevancy” of that content for other users. Similar with individual articles that are getting a lot of attention from users. Basically, by using your data, in combination with aggregate data from other users, we can deliver a better experience for everyone. And that’s a good thing - both for us and for you.

Not surprisingly, other software developers (both generally, and specifically of competing RSS clients) were immediately up in arms about NewsGator’s move. I particularly found the comments of Paul Kafasis, CEO of Rogue Amoeba (a company who I’ve admiringly written about many times in the past) thought provoking. Here’s an excerpt:

Unlike physical goods, software has little in the way of built-in value - there’s no cost of base materials, no manufacturing cost per unit, and so on. Software is thus worth what the market says it is, instead of the sum of its parts plus a reasonable markup. Developers may set a price, but the market determines if that price is reasonable. 

There’s certainly a place for free software. But when a fully-featured product such as NetNewsWire is suddenly free, it effectively reduces the value of other for-pay software products. "Why should I have to pay for quality tools, when this quality tool is free?", the thinking goes. When something is given away for free, its perceived value is lowered. If software is treated as valueless, it becomes much, much harder to sell. One need only look at a quote from news coverage discussing the move to freeware to see this in action: "And thank [NewsGator] for this grand gesture…While you’re at it, do pray that a few other software companies get inspired by this move and follow suit." 

While I understand the sentiment, as someone who makes his living selling software, this is a disheartening thing to read. Yes, it might seem great if all software was free. But while NewsGator has the financial resources to accomplish this move, most companies do not. Very rapidly, you’d see a shrinking of the market, a loss of innovation, and ultimately, a decrease in quality. There’s no market for commercial software on Linux, and the quality of solutions simply isn’t on par with what’s available on the Mac. By attaching a value to software, we give it value, in a self-fulfilling prophecy.

While I’m not necessarily surprised that NewsGator converted its clients to freeware, I am somewhat surprised that the company converted its online subscription service to no-cost status. It’s possible to run the NewsGator clients in standalone mode, after all, although in doing so you won’t be able to leverage either the feed archiving or multi-client synchronization capabilities that the NewsGator server-based alternative approach additionally enables. Apparently, though, Greg and the rest of his team decided that the fiscal upside of the incremental data the company would be able to cull from users’ RSS habits via pervasive free NewsGator Online usage was more lucrative than a smaller number of paid NewsGator Online accounts.

Two months later, NewsFire went free, other well-known established clients will inevitably follow, and any newcomer to the RSS space will be hard-pressed to justify a price tag in. Software developers, what are your thoughts on the issues raised by NewsGator’s move, as elucidated by Rogue Amoeba and others? Is this just ’survival of the fittest’, or is it a competition-squashing move which, in degrading the future health of the market, begs for regulatory scrutiny?