FT.com / Technology - Small and medium-sized companies: Free software and services packed with value

FT.com / Technology - Small and medium-sized companies: Free software and services packed with value

Small and medium-sized companies: Free software and services packed with value
Stephen Pritchard

Published: March 28 2007 10:14 | Last updated: March 28 2007 10:14

Technology trends are challenging the notion that anything free is likely to be of little value. Some of the largest technology companies, including Microsoft, Skype and Google, are focusing on new business models.

Skype, one of the pioneers of internet telephony, bases a large part of its business on the idea of providing some free services, in its case calls to other Skype users, and more recently, to some landlines.

Skype, of course, hopes to make money by selling other features, such as calls to fixed or mobile users, voicemail and numbers that link Skype to the fixed-line network for incoming calls. In some ways the business model is not far from that of the mobile phone business, where in many markets operators subsidise the phones, in order to sell airtime and other services.

None the less, the mobile business model is a way for small companies to acquire sophisticated equipment without paying an upfront fee: unsubsidised, a smart phone from the likes of Nokia, Motorola or HTC can cost almost as much as an entry-level laptop.

A number of mobile operators are understood to be looking at a similar model for laptops themselves, where the purchase cost of the machine is offset by a monthly charge for downloading data.

Even more interesting, perhaps, are some of the ideas coming from the software and internet services field. Small businesses and the self-employed have long used free e-mail services such as Hotmail and Googlemail. Often, small organisations only move to a more sophisticated e-mail system when the need to promote a corporate identity prompts them to register their domain name. And for many sole traders – from knowledge workers to builders – the brand is their name, and what comes after the @ symbol matters rather less.

But some small businesses do want more from their e-mail, and Microsoft and Google have both responded by offering a number of more flexible, hosted services. Microsoft, through its Live programme, allows companies to register their own domain names but still have up to 25 free e-mail accounts each with 2GB storage – more than many larger companies with their own mail infrastructure provide to employees.

A charged-for service supports 50 e-mail accounts and online contact management, while a premium service offers a greater range of internet applications, including basic document management and even customer relationship management systems.

Google is less specific than Microsoft in aiming its free services at small businesses, but the fact is that many small and even some larger companies already make use of offerings as diverse as Google Maps and e-mail.

But it is day-to-day software applications, including spreadsheets and word processing, that could do most to cut small businesses’ IT spending. Rather than pay for an office suite upfront, applications such as Writely give a good degree of functionality to a business user with a broadband connection and a browser. Google covers the cost of running the free version of Google Apps with advertising; businesses can opt for an ad-free version for $50 a month. And competition between companies offering “office 2.0” services should ensure costs stay low or even fall further.

“There are quite a few start-ups in the ‘office 2.0’ market,” says Nicholas Carr, author of Does IT Matter?. “There are two models for suppliers: build your own massive data centres, a la Google and Microsoft, or just create the software and then use other companies’ data centres to run the service. The latter model reduces the entry costs significantly.”

This could mean that companies with even quite specialist software needs might be able to find a free, or low- cost service, online. Online software service Salesforce.com, for example, extended its AppExchange service last year to allow third-party software developers to use it as a way to distribute their applications without first building infrastructure.

According to Peter Critchley, strategy director at IT consultancy Morse, the suitability of free or low-cost applications depends largely on how critical they are to the business that uses them.

“There is a trend for core technology to reduce in price and commoditise to the point where it is free or pseudo-free, or paid for in a different way,” he says. “The limits come down to the business criticality of the application. You might be happy running free web serving or free e-mail, if it would not hurt your business too much if the services are not available.”

Being able to turn to a competitor for a similar service will be vital if small and medium-sized enterprises, rather than consumers, are to accept the free software model.

Few if any businesses now question the fact that web browser software is free, even though it is critical to so many business processes; a company dissatisfied with Explorer can switch to Netscape or more recent alternatives, such as Firefox.

But companies do need to know they can transfer their data; the fact that web browsers are all based on standards is a key factor in making a switch feasible.

“Google and other companies are adopting standard, open data formats for many of the online applications,” says Nicholas Carr. “So it’s generally not difficult to extract your data in a usable format. But data transfers are always problematic, as different applications have different features and protocols. Companies should carefully consider the risk of lock-in, just as they should for bought hardware and software.”

Copyright The Financial Times Limited 2007