This question is often asked on internet marketing, web master and other forums. In fact, almost every time you present a new product a new product, a bunch of people post replies asking this exact question.

It is quite a logical thing to ask, because if you can get something for free which is identical to the product you offer, it would not make much sense in offering it for money, right? Well, not exactly.

I know a lot about offering stuff for free; I admin and run huge free hosting sites, file sharing sites and image sharing sites. The market for such sites is incredibly hard right now; ad spendings are down, hosters are getting strict with their policies and hosting costs, in most free giveaway markets, are always rising.

It is like the owner of Plentyoffish (the free dating site) said; Free doesn’t scale; your income doesn’t grow with the amount of work/hosting/hardware/bandwidth (anymore). It is true, though not for him; with his $10 million/year income he shouldn’t complain; if he cannot do it for that and have millions of profit he is an idiot.

For a while it was a hype to start a free site, get 1 million uniques a month and sell on Sitepoint, that won’t work anymore as the economy is down and people are not buying sites. They used to sell very well as everyone knows; if you just have traffic, $ will come, right?

The advantages of free:

• Easy to get people to sign up
• Easy to obtain massive amounts of traffic => traffic means ad income
• Because of the below disadvantages, you’ll have little competition; the competition dies off quite fast in most free markets, so if you are able to pull through you will be the only big one

The disadvantages of free:

• Most popular / easy free giveaways (web hosting, file hosting, image hosting, …) take huge amounts of storage and bandwidth (and thus cost)
• People signing up for free stuff are signing up there for a reason; they don’t want to pay, so a list of freeloaders is worth about as much as no list at all
• You will be giving free support all the time, and if you are blessed with over a million members, this support will be a fulltime job; note, freeloaders nag a lot more than paying customers for some reason
• You will grow, but probably the income won’t grow at the same pace, leaving a (fast) growing gap if you didn’t plan for this
• If you grow really big, the letters from lawyers, movie studios, record companies, private investigators and so on will come flying in; before I implemented my anti scam system on my free hosting sites, I used to get 800 complaints / day
• Most people start an online company, totally bereft of technical prowess; usually trying to get rich etc; when you grow bigger chances are you don’t have money to hire a tech guy and yet you need one
• Your services will degrade fast; abusers, spammers and normal ‘hardcore’ users will make sure of that

And there are a lot more of those.

For me the worst one is that you don’t have time/money to build features, work on new ideas and so on. You cannot really extend your service or spend money getting people to extend your service.

So while I was telling about my new project Deskuploader, people started asking me that question; ‘why pay if you can get for free?’. I usually reply with the above rant about free services and then ask ; what would you want from such a service?

The deskuploader is what it sounds like; an application to upload files, images etc from your desktop to a server and getting URLs for downloading them and the ability to give those URLs to other people. The application works on Linux, Mac OS X and Windows and is not written in that horrible Java environment.

Things people want from such an application:

• Easy/ier to use
• Multiple ways to upload, download and get to your files
• Automated conversion (docs -> HTML/PDF, video conversion, image scaling/conversion)
• Always fast download/upload
• Nerdy stuff like commandline / serverside uploaders, rsync/delta compatibility, scheduling
• Encryption
• etc….

When making such a project for free, you have a time when you are passioned about it; you’ll build all features you can think off in a short time. Including bugs.

Then you launch and people start mailing you bugs and feature requests. You’ll be making $0 at that time and doing all for ‘the future’. You are still running on passion, but the passion is waning. People are annoying and complaining about your very cool work!

Now it is time to continue, quit the project or open source it. If you choose to continue, it will be quite painful and you might never get money to pay the server bills, let alone your (and/or the programmer’s time). Most (free) projects don’t.

Making this is a paid (monthly fee) project for the storage of the uploaded objects, the bandwidth and the support work, it can be made the best system in the world. Only thing you do is get clients. Accidentally every tutorial, ebook and video about marketing on the web, free or paid, is about getting clients for paid products.

I am not sure if it will sell, but it is a great product already and, although there are free alternatives (not as advanced/intuitive though), I am sure this will sell to people who need and use this kind of tool every day. It is simply a tool everyone could use. And it will grow, helping you to get more efficient.

Edit: Rapidshare is free and doing fine; a lot of people become member and pay. Ofcourse this is because the entire reason RS is successful is warez; apps, movies, series etc. Remove those and they won’t have any members left. So yes, if you add enough warez, any site will sell. And they seem to get away with it too