How to Translate 'Free' to 'Fee' By Tania Hershman Jan. 22, 2002 http://www.wired.com Informing your freeware users they have to pay sounds like a test to see how fast they can disappear. Not so, found point-and-click translation startup Babylon, which saw a 20 percent "user conversion rate" to payware. Babylon's story is a familiar one, as software companies continue to move from free to fee. And while the lessons may be specific to this particular company, Babylon's story is an interesting peek into today's Internet environment. Babylon attracted 15 million registered users in the four years since launching its free Web translation and dictionary tool, which translates from English to 55 languages. But the revenues weren't there. "The company needed money. At the end of 2000 we added banners and offered an adware version but we found out that the (online) ad market is not very good," said Babylon CEO Alex Azulay. "We decided to go back to the good old model." The days of free software were over. "We started a pilot project to convert free users to paying users in May 2001. We started to roll out our new business model to 10 percent of our install base, in Israel, Australia and Switzerland. It is going very well." The software now costs between $17.95 for a one-year license and $44.95 for a perpetual license. The only thing that is free is a 30-day trial, after which product functionality gradually degrades. In the next few months, Babylon is extending the rollout to Europe, North and South America and Asia. Babylon said it hoped that 10 percent of existing users wouldn't jump ship. Twenty percent of Israeli, Australian and Swiss users decided it was worth paying, 13 percent from the corporate market and 7 percent from retail. Over half of Babylon's user base uses the application at work, and from reactions the company has received, it seems that many users went to their bosses to get a license. Not all reactions were positive. "We got a small percentage of users who said, 'What are you doing! You are ruining the Internet spirit,'" said Babylon VP Michal Frenkiel. "But this is nothing compared to the positive ones. People are aware that if they don't pay for the software, the company might disappear. If they need the product, they are happy to pay." "People (corporate or otherwise) will pay for software which saves time or money," agreed Edward Forwood, an analyst with Durlacher, a research firm based in London. He is not surprised by Babylon's conversion rates, believing that this fits a certain trend. "As a particular class of software becomes mature/mainstream, the number of players in that space will reduce down to two or three leaders, who will then find it easier to charge -- a bit of a generalization, but still true." Forwood does not believe there is an "everything free" Internet spirit: "People may say they hate Microsoft, but for example, Sun's (free) Star Office suite has made virtually no headway against Microsoft Office." He also doesn't believe it will help a company to play on their users’ sympathy and beg for money to avoid oblivion. When it changed its business model, Babylon did not stress this point, unlike virtual eCard website Blue Mountain. The greeting card site, which recently began charging an annual fee for unlimited use of its cards, thanks its users in advance for paying in a popup window from the home page. The FAQ says: "Creating and maintaining great eCards is expensive. In order to survive, we need to charge a small annual fee for membership. Please support us by signing up for Blue Mountain Unlimited." Rather than resenting the new fees, some user communities may value a product more. "There is a particular audience that does believe paid-for products deserve more respect," says Doug Miles, director of marketing communications at instant messaging company Imici. "Software developers and other professionals involved with software will often view the price of the product as a reflection of the quality and amount of development that was put into the product." Imici began with a demo version of its messenger, and then launched a new version in November 2001 for "power users" with more functionality for $20 a year. "The free demo is still available, but the $20 fee provides advanced features, such as message encryption and archiving in an ad-free environment," Miles said. Imici told existing users that they could stick with the free version or upgrade to the new payware. The response was positive. Imici experienced a download rate drop-off of about 30 percent, but product usage and revenue increased significantly. Miles believes that the there is a trend at work here. "If you examine download sites, such as Download.com, you'll notice a definite trend toward payware. Though the original spirit of freeware still exists, software is typically presented in demo fashion for free, with the ability to upgrade for a fee." Toad, a tool for Oracle application developers, was developed by Jim McDaniel as freeware. He then sold it to Quest Software in 1998, which then released a commercial version alongside the freeware. "We told the existing users that they could continue to use the freeware, but all the new upgrades, enhancements and tech support would be for the commercial version only," said Darin Pendergraft, Quest's product marketing manager. "Initially, there was a mixed response. Some cried foul -- that Jim had sold out -- and demanded that the source code be made public. Others were very pleased and went to their management immediately to get budget to buy commercial copies." IncrediMail launched its free e-mail client in beta in September 2000. Last March, after signing up 400,000 users, the company came out of beta. The freeware remained free, with the addition of banner ads, and the company launched IncrediMail Premium and LetterCreator, both payware. "We planned this all along. We were going to have a professional version that we would charge for. Ads are not good enough," said IncrediMail CEO Yaron Adler. So what happened in March? "People started to pay. There was no friction or anything like that," Adler said. "When you make a change like this you are worried a little bit, but we felt that we should be a company that has revenues from selling software. A software company should sell software. A couple of months ago we broke even."