Ruben Gamez from Bidsketch took time out to share his experience on the free vs. paid model on Softwarebyrob.com. I found his experience really interesting. I use a number of online software services for various different things. With some of them I have a simple free account while with others I gladly dish out the money to pay for the premium account. I think that most users who are looking for a service provider are willing to pay for the extended features if it’s something that they REALLY need to use and there are no alternatives to it.

I’ll use my Pandora account for example. I love Pandora. I don’t however, use Pandora every day, nor do I listen to my Pandora stations for hours at a time. For me, it’s not worth paying for a premium account with its full set of features. If Pandora were to limit the length of time you could listen to your stations per day or limit the number of stations you could create on a free account would that make a big difference to me? No. I’d still keep my free account. However, the user who LIVES with their Pandora station on every day, or the place of business that uses Pandora to stream music at their place of business, they are much more apt to go for the paid account.

In the end, it’s really dependent on what how your users use your service and if there are alternatives for them out there on the Web. If Pandora eliminated their free accounts altogether would I immediately upgrade? No. There are plenty of other service providers out there that offer a similar service for free. Pandora knows that and just finds a way to capitalize on their free accounts. That’s that key. Learn to make money even off of your free account users. The revenue doesn’t even have to pay for the costs of the free accounts, just brining in a little bit is a great start.

Doing more with less is important in business, and even more important when times are tough. Managers, however, need to carefully evaluate every cost cutting decision to ensure that the costs being cut will not have too great of an adverse effect in the organization’s ability to do business, in the morale of its employees, and in leaving its customers and clients feeling cheated. If careful consideration is not made companies will end up spending less and getting less, or spending less but increasing its costs in other areas in order to operate its business.

3 Cost Cutting Traps

1) Focusing cost reduction on areas with highly variable costs. Advertising, training and recruitment are often hit simply because they are easy to switch on and off.

2) Seeking to give all areas of the business an equal share of the pain. For example, all departments may be required to find 20 per cent cost savings regardless of their relative importance.

3) Enabling a political power struggle. Departmental leaders many times use their influence with the CEO to campaign to protect their area, whatever the cost elsewhere.

3 Correct Cost Cutting Principles

1) Identify and protect your key profit generators. A profit generator is a business activity that has a disproportionately large impact on the profit and value of the organization. These business activities should have a focus of ensuring that they maximize their revenue potential for the long run and not just minimizing their costs. Not in check, this creates the cooking the “goose that lays the golden egg” syndrome. You, in your cost cutting efforts, cut back on the necessary resources your main income generator requires.

2) Understand where you are competitively disadvantaged on cost. Don’t just review your own costs to drive profits, you should also critically review and understand your competitors’ costs. If your competitor can cut costs in certain areas, can you do the same? If so, do it. If not, you will need to come up with an alternative area where you can cut costs to offset what your competitor is doing.

3) Determine where you make and lose money. A good starting point for increasing profit is to stop losing money. In most businesses there are areas of high profitability and areas of low returns or losses. Poor-performing businesses cannot be switched off overnight, but focusing your resources and effort where you deliver the greatest returns is likely to raise profits. Each of these areas, however, need to be carefully evaluated as to what the costs, in the end, bring to the company. Some costs can be cut with relatively little effect on the company. Other costs can minimize business potential, decrease morale, or even increase costs in other areas of the business.

Cost cutting initiatives in business are not easy or simple decisions. Managers who face the requirement to cut costs should carefully weight their options, seek for input from those directly related to the areas where costs will be cut. Most often, by involving others and explaining the reality of the situation, managers can seek for insight on areas where costs can be cut. Those employees who work in those specific areas day-to-day often have a wealth of insight into the business and can, many times, offer solutions to make the decision process more informed and better for the business.

I came across this Internet infograph on the http://www.makeuseof.com/ page and had a couple of thoughts just burst out of my head.

The US ranks 22nd overall in the world in average Internet connection speed. With the highest number of Internet Service Providers, the greatest number of data centers, servers and Web sites hosted, how do we rank so low in average connection speed?

I think that the size of the country has one thing to do with it. We’re a large country compared to the top 10 countries in the average connection speed list. But I don’t think size has everything to do with it. I think when it comes down to it, as much as we want competition to be allowed in business, there’s actually not very much competition taking place. I think we’re seeing a little more of the “set a trend and then follow it” standard by Internet Service Providers. Otherwise I think we’d see offers higher Internet connection speeds. The speeds are there, you can get it for businesses, but for residential Internet connections, the offered packages are subpar.

It’s the same with cell phone providers. I got my first cell phone back in 2000 (yes, I was a late adopter), and my plan back then was 200 minutes a month, free nights and weekends for about $40 per month. Flash forward to 2010 and my cell phone plan it a little bit better but nothing spectacular.  I used to think that by now we’d see unlimited minute plans for $30-40 per month but it’s still not here. I know that there are some providers that have a version of that plan, but it’s not mainstream yet. You’d think that competition would have created these great service packages but the competition hasn’t been as fierce as we’d like it to be.