The Best Things in Life Are Free

We want to make a lot of dough. We've got a hot product - How should we go? You want to make big dough, you say? Take our advice: Give it away!

Netscape did it - and got rich. Microsoft did it to Netscape - and got even. Netscape did it again - and got back in the game. But Apache did it first - and remains the leading player in a market that Netscape and Microsoft both prize.

It is the defining paradox of the new world of business: More and more companies are creating value by charging the same price for their products - zero. The best things in life, it seems, really are free. "It's one of my mantras," says T.G. Lewis, professor of computer science at the Naval Postgraduate School in Monterey, California and author of The Friction-Free Economy (HarperBusiness, 1997): "Every company has to ask itself, How do we make money if we're giving away our products?"

The meteoric rise of the Apache HTTP Server Project can't compete for headlines with the "browser war" raging between Netscape and Microsoft. But as a lesson in strategy, that story is even more dramatic. Back in 1994, Brian Behlendorf was chief engineer for HotWired, the online magazine. He wanted to create a database of its registered users. The server software that he relied on, developed by the National Center for Supercomputing Applications (NCSA), couldn't do the job. So he and seven other Web pioneers wrote "patches" for the software and asked NCSA to add them to its public-domain application.

But the update process had stalled. Many of NCSA's developers had been hired away by an obscure startup called Mosaic Communications, later renamed Netscape. So Behlendorf and his colleagues formed one of the most virtual software teams in the world. The group decided not just to improve the NCSA software but to rewrite it from scratch. "Rather than working on individual patches," says Behlendorf, "we integrated our efforts to produce something greater than the sum of its parts." Eventually, hundreds of people around the world joined in the effort. Today the Apache Project has no headquarters, no CEO, no advertising. But it does have the most popular Internet-server software in the world, with a market share of nearly 50%. Apache powers Web sites for high-profile companies such as McDonald's, Harley-Davidson, and Sony - as well as for the FBI and the Pentagon.

Who could have imagined that such a radically decentralized team would produce such mission-critical software? Or that a free product would create so many profitable opportunities? The rise of Apache has inspired the launch of a growing number of products - all with real price tags - that supplement the Apache server. C2Net Software Inc., based in Oakland, California, has developed a version with better security: Stronghold sells for $995. Tenon Intersystems, based in Santa Barbara, California, has developed a version for the Macintosh: WebTen 2.0 starts at $445.

You might not want to stop charging for your products - at least not yet. But you should reckon with the lessons that free-spirited innovators like Apache are learning - and that tough-minded competitors are leveraging. "Every company has to figure out what it's giving away and what it's selling," declares Lewis.

Does Apache's free-is-beautiful ethos sound too good to be true? Then consider Network Associates Inc., formerly known as McAfee Associates. This hard-charging company, based in Santa Clara, California, controls about one-third of the market for virus-protection software. It has 25 million users, annual revenues of more than $200 million, and a market cap of nearly $3 billion. How did Network Associates become such a powerful force? By giving away its core products. And even though it now charges for them, it still offers a 90-day free trial. "If you're in a fast-moving industry and you want to gain market share, this strategy is paramount," Lewis argues.

But giving away software is about more than just capturing market share, insists Sal Viveros, a product-marketing manager for Network Associates. He says there's a more powerful reason: The less you charge, the more you learn. "Because we have more customers, we also have more customers giving us virus samples. With more customers giving us samples, we can detect more types of viruses," he says. And the more viruses the software can detect, the more frequently users will pay for upgrades.

In a sense, Network Associates has applied the classic "give away the razor and sell the blade" model - updated, of course, for the Age of the Net. The people at Apache, however, say they'll never charge for their product. Why would hundreds of programmers work on software that generates no direct revenue? Because of a second lesson: There's more to value than price.

It's no accident that the names of the key players appear prominently on Apache's home page http://www.apache.org . That kind of recognition often translates into new professional opportunities. "Engineers like to see their name in lights," says Behlendorf. "But we don't often get recognized for what we do. This isn't Hollywood. When you do get recognized, it can mean a better job or the opportunity to work on much more interesting stuff."

Behlendorf, now 25, is a case in point. Thanks to Apache, he travels the world, addressing Internet conferences and trade shows. He is also cofounder and chief technology officer at Organic Online Inc., a fast-growing Web-development firm with a long roster of corporate clients. His Apache ties give Organic "street credibility," Behlendorf says. "People assume we know what we're talking about when it comes to technology in general, and to hosting big Web sites."

That lesson alone is worth taking to heart. Indeed, Apache's real miracle is not so much its success in the software market as its magnetic draw in the talent market. No single company could hope to hire the diverse programming team that came together to create Apache. Even more amazingly, this global collection of brainpower received no compensation for its effort. Sure, the product is free. But so is the labor.

"We're a volunteer organization, so you can't force anyone to do anything," says Behlendorf. "The way you encourage people to spend their time on something is to make sure that they see the results. If people get value from this project, they will contribute to it."

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