Image via WikipediaI am a huge fan of the freemium model. Keep the basic product free, get lots and lots of deeply engaged users, and monetization will happen. But that is not the only way. Some great services charge right away. Whatever floats your boat. You can delay making money, but not forever. Shorter the delay, better it is.
How To Monetize Your Social Web Startup there really is no secret sauce to making money on the social web: you’re either selling ads or selling a product. ..... While it’s possible to generate revenue through a number of models, there are really only a few core monetization models. ..... Since ownership of mass distribution channels is becoming fragmented, advertisers are looking for targeted audiences that are most likely to purchase their product. ...... Whether it’s an information product or a physical good, there are massive opportunities to generate revenue from selling things. ..... Brand advocacy in the world of social media is something that has many marketers drooling but rather than spending all your time monitoring the conversation, try developing a high quality product or service. .... many internet entrepreneurs pretend as though there is a secret monetization model that they’ll release in the near future. There isn’t one.
When you succeed with Free, you are going to die by FreeThey will be Facebook to your Myspace, or Myspace to your Friendster or Google to your Yahoo. ....... For Google, who lives and dies by free, we dont know who their BlackSwan company will be. But we all know it will happen don’t we ? The only question is when..... The same will happen to Facebook, Twitter, pick any company who lives off of free. ...... Their better choice would be to run the company as profitably as possible, focusing only on those things that generate revenue and put cash in the bank. ........ ecognizing that they have a better chance of beating Facebook by investing in a company they think can pre empt Facebook than by trying to reconfigure MySpace to be that company. Free vs Freely Distributed
First, there is no free. When you make money from ads, you are still making money. TV shows are free, but they run ads and make money. Is that free? I don't think so. If you are making money without directly charging your users, I think that is a tremendous business model.
And then there is free as in free but in the process you help build a brand. Step one, build a brand. Step two, monetize. Later. That is not free. As in, it is not business stupid. You don't make money on day one. But you make gobbles of money later.
Free is good. You get to cast your net wider.
People pay with their time, their attention. They give you mindspace. They pay, just not with money.
Google Search is free, but last I checked they were making ridiculous amounts of money. Are they stupid to not charge me two cents for every time I conduct a search?
Free is smart. But free is also the future. Free will win. The best offerings online will be ad-based. New forms of ads will emerge. For example, I take it for granted that Twitter will some day go public and will have a market valuation in the billions. You can bet it is not going to run banner ads like Yahoo in 1998.
And as a user I have no desire to pay for Twitter. Go figure.
Free is how Google beat Microsoft. Free is for winners. Free is smart, free is good, free is for the ages.
Free makes for a lean and thin business machine. It is a hassle to have to collect money from millions of people. It makes so much more sense to collect money from a few (or many) advertisers.
Or you can offer something for free, get a lot of people to use it, and sell it to someone else who might attempt monetization. You still made money when you sold. Why are you complaining?
Free also means you can go global, instantaneously. That is what the web is all about. The Internet is not America online. It is the humanity online, it is the World Wide Web. Pay attention to the first word: World.
Free means you don't have to deal with many currencies. Free means you don't have to worry if a user might have a credit card or not. As long as they come online and use your service is all that matters. Free is sweet.
There is free and then there is super cheap, and then there is below cost price, and then there of course is free free. You should be able to sell something below cost price for the same reasons you can offer stuff for free.
Mindfood - books, movies, music - is best served free, I think. Run ads, but offer them for free. And the web is the best distribution mechanism ever for mindfood. Technology has run leaps and bounds ahead of business models. You can't fight free, but you can make truckloads of money going along with it.
i’m a big fan of free, freemium, and business models based on some form of free access to web services.
i agree with you that technology is a fast moving industry and there is always a company around the corner who is going to take you down.
but i don’t think that free makes you more vulnerable.
in fact, i think paid makes you more vulnerable.
craigslist hasn’t done much in the history of the company on its platform and UI and yet it continues to beat all comers in internet classifieds. why? because its mostly free.
if it was mostly a paid service, i think it would be way more vulnerable to new entrants.
i’m a big clayton christensen fan and he talks about how the companies that are going to take you down always come up from below. there isn’t much below free
Big fan of your blog Fred. I agree there isnt much below free. And that Craigslist, for now, is a stellar example of free working. On the flipside, MicroSoft and Oracle are longer term examples of companies who have battled free software for the ages. If you remember, MicroSoft Office, was all but free whenit was first introduced. You could upgrade from competitor products for nothing and buy the whole suite for 99 dollars. Then they evolved to paid and have survived. This of course could fall into your category of firms that live off of paid upgrades. Which IMHO, is the best model.
Im a big fan of give them a free taste, then make them pay for upgrades. It is why I am still involved in a nicely profitable company, Filesanywhere.com, which competes with a company I used to be involved with, Box.net. Both offer online backups. One charges and uses that revenue to differentiate with upgraded services and customized services. The other used to charge (which is why i got involved), but now is facing the challenges of being primarily free.
There are companies on both side of the argument, but I would rather be invested in a company that can afford to continue to invest in their products without depending on advertising, incredible volumes of traffic or raising more money.
Image via WikipediaI am a huge fan of the freemium model. Keep the basic product free, get lots and lots of deeply engaged users, and monetization will happen. But that is not the only way. Some great services charge right away. Whatever floats your boat. You can delay making money, but not forever. Shorter the delay, better it is. 
mark
i’ve been writing a lot about this topic over the years and posted my thoughts on gladwell and anderson’s recent efforts yesterday
http://www.avc.com/a_vc/2009/07/freemium-and-freeconomics.html
i’m a big fan of free, freemium, and business models based on some form of free access to web services.
i agree with you that technology is a fast moving industry and there is always a company around the corner who is going to take you down.
but i don’t think that free makes you more vulnerable.
in fact, i think paid makes you more vulnerable.
craigslist hasn’t done much in the history of the company on its platform and UI and yet it continues to beat all comers in internet classifieds. why? because its mostly free.
if it was mostly a paid service, i think it would be way more vulnerable to new entrants.
i’m a big clayton christensen fan and he talks about how the companies that are going to take you down always come up from below. there isn’t much below free
fred
Comment by fredwilson — July 5, 2009 @ 8:37 pm
Big fan of your blog Fred. I agree there isnt much below free. And that Craigslist, for now, is a stellar example of free working. On the flipside, MicroSoft and Oracle are longer term examples of companies who have battled free software for the ages. If you remember, MicroSoft Office, was all but free whenit was first introduced. You could upgrade from competitor products for nothing and buy the whole suite for 99 dollars. Then they evolved to paid and have survived. This of course could fall into your category of firms that live off of paid upgrades. Which IMHO, is the best model.
Im a big fan of give them a free taste, then make them pay for upgrades. It is why I am still involved in a nicely profitable company, Filesanywhere.com, which competes with a company I used to be involved with, Box.net. Both offer online backups. One charges and uses that revenue to differentiate with upgraded services and customized services. The other used to charge (which is why i got involved), but now is facing the challenges of being primarily free.
There are companies on both side of the argument, but I would rather be invested in a company that can afford to continue to invest in their products without depending on advertising, incredible volumes of traffic or raising more money.
m
Comment by markcuban — July 5, 2009 @ 9:28 pm