One of the big trends of Web 2.0 has been the expectation that web-based services should be free. Hundreds of services hoping to gain prominence on the web in the past several years have either been completely free or used the Freemium model, charging for premium features on top of a simpler, free version.

As a follower of the web start-up scene and VC activity, especially in the local and fairly active Boston market, I've seen many web-based startups demo great products. The fact that it's completely free is often a central theme. "Why wouldn't everyone use it, it's free!" And from a demo audience of investors always comes the sardonic question: "What's your revenue model?"

With Google providing consumers with everything they could dream of on the web for free, it's hard for young entrepreneurs to get their head around charging for something. They're fooled by the belief that anything on the web is really free.

EditMe has always bucked this trend and, while offering what is certainly an inexpensive product, it has never been free. It's not because Freemium doesn't work - this model has a strong track record as a business model. Since we get the indignant, "You don't have a free version?!" question with some regularity, an explanation seemed in order.

1. Free web sites attract an unseemly bunch.

Now, I'm not saying anyone who uses a free web service is unseemly. What I'm saying is that any company offering free web sites that can be indexed by Google is, by definition, going to spend a great deal of resources either supporting or fighting spammers. Search engines give more credit to a site with more inbound links than another, so SEO "experts" often will create a large network of interlinked web sites with dummy or just slightly different content on it and link them all together. Aside from the SEO bunch are the even less seemly folks who distribute software loaded with viruses who need a free and anonymous way to do so. By charging even a small amount, and thereby requiring a credit card and verification of identity, these folks turn around and walk the other way, which is fine by me.

2. Ads on non-consumer web sites make neither sense nor money.

There are two models for supporting a web business with a free product. One is Freemium, and the other is Ad Supported. I'll get to Freemium in a minute, but EditMe has declined offering an ad supported version of EditMe for two reasons.

First, in order to make money on web ads, you need an enormous amount of fairly targeted traffic. EditMe is aimed at smaller web sites focused on a specific business, organization or topic - the focus of which is entirely up to the customer. The economies of scale mean that you need to have Wikia level traffic before you even start to break even. Wikia is an enormous ad-supported wiki farm aimed at consumers and fan sites. They just recently announced profitability with 30 million visitors per month. Whether you'll be able to pull in that much traffic is a huge gamble. I'm not, by the way, saying that Wikia is a competitor. They're in the content business, not the wiki software-as-a-service business, and that's the point.

Second, password protection and content privacy is a central feature of EditMe, and a great number of EditMe sites show nothing but a log in form when visited. Putting ads on a password protected site is like buying ad space in an individual's bedroom.

3. Free service raises the cost for paying customers.

As I mentioned, the Freemium model offers a stripped down free product and charges customers for "premium" features that aren't included in the free version.

Since there is no free lunch, and all those individuals using the software for free cost money, the company has to price gouge their paying customers to make up for it. Statistics show that typically less than 10% of Freemium customers generate the revenue that supports the other 90% - and that's considered a very successful conversion rate. You can see this with some of the older wiki services that started off with enormous numbers of free sites and are now trying to make their money back for investors on lucrative over-priced Enterprise per-user licenses.

EditMe has kept pricing for its legitimate paying customers down to a reasonable level and does not charge per user. Per user pricing strangles adoption in larger groups. The paying customers are, in the end, the important ones.

4. Free is marketing language, often misleading at best.

Especially since the latest recession, Freemium increasingly means the free version is almost useless, and any legitimate use of the product will require a paid upgrade. Take for example, the many "collaborative" software platforms that offer an "individual" version for free. Get the irony there?

Free looks great on a landing page, even if it's utterly meaningless. Not wanting to underwhelm prospective paying customers with crippled versions of their products, many web services that built themselves on word-of-mouth and goodwill generated from a free offering are now burying their free option in favor of free trials of the paid versions.

Don't be fooled - the word Free plastered on a web site doesn't mean you're getting a good deal. One Enterprise wiki product uses a "call to action" (a marketing term for the Buy Now button) that reads "Free Forever - Not a Free Trial". When you click it, you learn that you can use a free single-user version of the software forever, but in order to collaborate (which is the whole point of Enterprise collaboration software) you pay a fairly steep per-user fee.

Marketing studies show that using the word Free in sales copy does magic things, whether it's true or not.

5. Free creates a set of unmet expectations.

Finally, and most importantly, free services lead the user to believe they're a customer. Do you think you're a Google customer? Ever tried to contact them or get support for a problem? You're not a customer. Advertisers are Google's customers, not the consumers. Sure, they need to please both and do a great job at it (I love Google products and use them all the time), but they simply can't afford to treat their hundreds of millions of free users as customers, and they don't.

When somebody uses EditMe, I want to be able to support them. I want them to be able to email somebody and get a response the same day if they have a problem, to strike up an online chat with a human being if they have a billing question. This kind of service can't be free, and that's just not the kind of business I want EditMe to be.

So, for whatever it's worth, that's why EditMe asks customers to fork over at least $4.95/mo if they want to build a wiki or web site with EditMe. Do you agree? Disagree? Let me know your thoughts in the comments.