So-called Freeconomics, or the business of giving stuff away to get people to buy added-value services (known in the internet business as “freemium“) – may work better than some think in a downturn. The accepted wisdom is that startups which offer too much for free will have to monetise faster in a down market. If they don’t, and their audience still expects a lot for nothing, perhap based on an advertising model, then this leads to a death spiral. But when those startups are competing against expensive incumbents – which have big overheads and slow moving business models based on real-world distribution – they may have an edge after all.

That appears to be the experience of UK small business services startups Businessitonline.com and TactileCrm.

Businessitonline.com supplies an integrated suite of web apps for business software applications like tracking cash flow, sales management, invoicing, scheduling, file-sharing and marketing. They say they have had a “100% month-on-month increase” in customers of their services, just as panic rocked the financial markets. Their free version appears to be being used by the inevitable smaller startups, tech and non-tech, who are emerging in the downturn, says CEO David Cruickshank. Now, although we only have his word to go on with this, I’ve met Cruickshank, and this is not really a guy given to superlatives. So for him to say something like that suggests to me that there really is something going on here.

Likewise, Jake Stride at Senokiam, the agency which came up with TactileCRM, says they too are seeing more people signing up (and paying). While he says that cloud-based small business software such as the type TactileCRM offers is “more efficient”, it’s clear businesses are also attracted because these apps are basically cheaper than licensed desktop software in the traditional model.

Clearly this is not for everyone, but any startup that can capture a significant proportion of this market will be on to something, and with a paid business model to boot.