It’s tempting (particularly with today’s sour economy) for technology companies to market free products and services to consumers while hoping to cash in via advertising and other forms of revenue. While Google makes billions from its advertising-supported search engine, the company is now challenged to come up with a commercially supported second act. Unless you’re marketing a once-in-a-decade killer application, there is always a price to be paid for being free.

“It’s all right to give something away,” explains 37signals CEO Jason Fried, “as long as you can sell that customer a better version later on.”

It didn’t take long for 34-year-old Fried and his partners to realize the value of their company’s Basecamp project management software after its debut five years ago. Originally a Web design firm, 37signals in 2003 developed Basecamp for internal collaboration purposes. A hit with clients, the next year 37signals had the modest goal of earning $5,000 per month licensing the Web application to anyone else interested in using it.

After the annual target was hit within six weeks, Fried says “it just continued to grow from there”.

While he understands why companies shift price burdens from consumers to third-party advertisers, he believes this practice almost always brings more distractions than benefits. He added: “You don’t focus on your customer. You focus on selling ads. The important thing is the connection between the people who use your product and the people who pay for it.”

Enough people and institutions are paying between $24 and $149 per month to make 10-person 37signals a multimillion dollar company. Although Fried does not disclose financials, he did say that web applications comprise about 90 percent of his company’s revenue. Advertising is sold on the company’s popular “Signal vs. Noise” design-focused blog, and 37signals generates approximately $40,000 per month publishing job listings.

The company has earned $400,000 from its “Getting Real” self-published book, and in 2006 welcomed the world’s most innovative bookseller Jeff Bezos as a minority shareholder. Newer products are showcased on the company’s monthly newsletter, which appropriately is distributed at no cost. Fried added: “Free is OK as long as you have something to sell.”

Dialing Up a Drink

Though there are thousands of spirited watering holes in the greater Chicago area, it’s nearly impossible to know which ones are truly happening at a particular point in time.

Up until now, there have been few ways to bypass the buzz kill of walking into a dead bar without any warning. A round goes to Grayslake, Ill.-based Alpha Dog Entertainment for tapping into a solution. The company recently launched HowsTheBar.com. It allows users to rate in real time the status of the 10,000 local bars listed in its directory.

The advertising-supported social networking site, which is pioneering the trend of “Internet bar hopping,” encourages its members to text their friends the bar status while they are waiting for their orders. Perhaps the next social networking innovation in the space will prevent anyone from actually meeting somebody at a bar or talking to friends who are physically in front of them.

Before too long, pickup lines might be reduced to 140 characters.

Nominations Open

The ITA is seeking nominations for its 10th-annual CityLIGHTS gala, which will be held at Union Station on April 23, 2009. Categories include CEO of the year, rising star and the CityLIGHTS Award, which recognizes an individual’s overall impact on the Illinois technology community. Nominations are due March 6, 2009. More info can be found here.