Are You the Customer or the Product? (Part 1)

by | Jun 7, 2022 | Procurement mindset

free technology

Free technology

Many companies these days are providing free services and technology to different markets.

This is not a new trend. Over a decade ago, I got my first free, Web-based e-mail account. It was a Hotmail account and, in fact, I still have it today. Free storage, free tools, free address book, etc. – it’s pretty cool.

spend analytics

Today, you can find dozens of free, Web-based e-mail solutions, each having its own hook but all looking pretty much the same. The one consistent theme is how they can provide their services for free: advertising.

The providers collect “value” from user activity, such as analyzing the content of your e-mails to track all sorts of data that the companies then use to make money. For most of us, this is a small price to pay, but in aggregate across millions of users, the information becomes very valuable to each provider.

In this model, the user is not the customer, the user is the product.

This is a critical distinction. Users get access to free goods and services because they trade value, in this case email and user content, to advertisers who subsidize the product. For instance, Ford would buy access to email users “the product” through an email provider such as Hotmail or Google. Ford is the customer, not the email user.

What is critical to note for many free, Web-based services is that they are very easy to use. In fact, they are designed to be so simple that we continue to use them – they become sticky.

However, the downside is that they also lack many of the critical features that we would require to use them effectively for business – such as security, integration with other applications, or allowing multiple users. To get those features, you need pay.

Recently, some other providers of SRM and spend management software have started giving away tools that businesses can use to start eSourcing. No commitment. No cost. Sounds great! Or is it?

First, examine the value that the providers of the free tools gain. There is always the upsell opportunity.

These free tools naturally have very limited functionality: basic RFx, simple reverse auctions, some simple supplier management tools, one or two user limits.

The providers are obviously hoping that their clients quickly outgrow the basics and see the need to upgrade to more sophisticated for-pay tools. But is that the only upsell? And is it only the client who is paying?

Some of these providers are also hoping that their free users will want to access their supplier networks to find new suppliers to invite to sourcing events.

That’s an amazing incentive, and I’m all for adding good competition to the mix.

But who pays for that? These discovery services often come at no cost to the client user, but maybe the suppliers must pay fees to participate in the network, and maybe they face a higher fee if they are awarded business.

Although that seems like a direct cost to the supplier, would you be surprised if they started padding their quotes a little bit to make up the difference? If you were a supplier, wouldn’t you? Ultimately, the client user may end up paying for network participation as well.

Stay tuned for Part 2 of this series, which will discuss another critical component missing from free eSourcing tools, support.


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