Earlier this year, accounting software provider MYOB partnered up with Google to provide free websites, domains and hosting to small businesses in Australia using its MYOB Atlas website creation tool.
Now, in what appears to be a game of business-model-swapsies, domain and hosting company Netregistry has teamed up with Reach Accounting to offer free cloud-based accounting software.
So, MYOB is offering free internet services to win paying accounting customers, while Netregistry is offering free accounting services to win paying internet customers.
Gloves off for Netregistry
Just over a month after launching, Netregistry’s new software had received 10,000 sign-ups. The ultimate goal is for the company’s 250,000 business customers to opt-in to the free online accounting service.
In a decidedly miaowy post on Netregistry’s blog, the company said: “The success of this product launch highlights the need of Australian SMEs for an accounting service targeted specifically for their needs, without the excessive features and functions of other applications, such as MYOB, which offer cumbersome and often expensive accounting solutions.”
Netregistry CEO Larry Block further bigged up the software’s success. He said: “It’s great to see so many Australian SMEs embracing cloud functionality – despite media claims that Australian business aren’t ready.”
“It proves emphatically that SMEs are desperate for cloud services and are comfortable with cloud security.”
Bloch forecasts that the Reach Accounting service will overtake key competitors in no time, and is on target to reach the goal of over 150,000 sign-ups within 12 months.
“It seems that SMEs are hungry for a product which is specifically designed for them, something which MYOB fails to deliver. The days of inflexible and expensive desktop software are gone. We are on target for over 150,000 sign ups within 12 months,” he said.
Reach Accounting is being offered as a free two-year subscription to all Netregistry brand customers, but will be rolled out to the Netregistry’s other key brands within the next few months.
MYOB’s sucker punch
Netregistry could almost be forgiven for the churlish rebuke. (Two digs at MYOB in one blog post? Haven’t they heard of Xero or Quicken?) This is because, in March, MYOB launched a website creation tool called MYOB Atlas, in partnership with Google.
It bundled the website offer together with a $75 AdWords Voucher and a free domain. After the first year, business owners will be invited to pay $5 per month to keep their site.
MYOB chief executive Tim Reed told iTnews at the time that the websites would be hosted by a third party partner (Amazon, apparently). Pending the venture’s success, MYOB is likely to have built a substantial database of Australian businesses, which it will share with Google and, presumably, use to bolster its accounting customer base.
In fact, according to CEO of MYOB Tim Reed, “Our initial goal is to get at least 50,000 businesses set up with a free website this year.”
The marketing tactic presents a direct threat to almost every domain and hosting service provider… anywhere. If one company can offer free internet services by subsidising the cost with revenues from accounting software or advertising, others will follow.
The same could also be said of Netregistry’s offer. But in reverse.
So is this the rise of freeconomics?
MYOB and Netregistry are just the latest in a long line of companies to jump on the freemium bandwagon.
It’s not a new concept, and usually refers to situations where a product or service is offered free of charge, but makes its money by charging a premium for advanced features. In fact, it was the subject of an Anthill Magazine cover story in August 2008.
The trouble the model has, however, is low conversions from free to paid.
In an article for Thinq.co.uk, author Gareth Halfacree said freemium providers, like online notepad Evernote and business social network LinkedIn, have trouble converting three per cent and one per cent of their user bases respectively into paying customers.
He identifies UK-based music streaming company Spotify as one of a small group of companies to beat the odds. Spotify converts around nine per cent of its user base into paying customers. But, according to most reports, this came about due to the extension of its offer beyond its core service, by offering premium mobile services.
Perhaps it’s the potential of this extension of the model that has MYOB and Netregistry facing each other off.
In both the scenarios above our two combatants have taken the model beyond the freemium norm — offering free alternatives to a related product or service of likely to interest to the target markets of their core products and services.
The long-term game
The risk that both parties now face is the accidental creation of a market that comes to expect free accounting services and free internet services.
Google and its predecessors have already created the expectation that email and software can be free (much to the chagrin of Microsoft). And, now, there’s no turning back.
However, both Netregistry and MYOB are likely to be also looking at the long-term game.
As mentioned above, the MYOB Atlas service increases to $5 per month in the second year. Netregistry’s Reach Accounting offer will start requiring fees in the third year. However, by that time, who knows what consumers’ expectations will be.
By 2013, perhaps we will expect to score free domains and hosting with the purchase of a new laptop or PC? Perhaps we will feel entitled to demand free accounting software with every stationary purchase at Officeworks?
Naturally, this is the nature of business.
We just look forward to the time when we won’t feel surprised to score an accounting, internet and cloud storage combo as a value-add with every car wash.
Of course, by then, the service will be called an iWash and it will be automatically debited to a smartphone. (And the brain of Steve Jobs will be running Apple 2.0 from a bell jar.)
Penny for your thoughts?