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Fact: You Can Sell Online Services

Since the Web came back to life – aka Web 2.0 – there has been ongoing debate about free vs. fee. It’s been ignited again today by a guest post on Silicon Valley Insider suggesting that free services are a bad thing, and that the fault lies at the feet of venture capitalists that are providing money to start-ups with business models that rely on advertising.

It’s an argument that’s entertainment, attracts a lot of traffic, ignites hearty discussion but ignores the reality that free and fee can happily co-exist. If you’re looking for a response to the SVI post from someone who knows, check out Don MacAskill, whose family owns and operates SmugMug.

SmugMug is not only one of the biggest photo-sharing services but it actually has 300,000 customers who pay an annual fee. What I particularly like about Don’s post is he sees free sites as good for his business. Huh? Don suggests free is fine because of the following:

- Free training. Lots of our customers go chew up customer service dollars somewhere else first, learning the basics of how to upload, share, etc, before coming to us. By the time they get to us, they know the ropes and getting up to speed is easy.

- They’ve seen how bad it is elsewhere. By comparison, our product looks amazing. The ‘Wow factor’ is huge.

- Coattails marketing. We don’t have to spend a lot of money raising awareness of the photo sharing concept – other, bigger companies are doing it for us.

- Keeps us on our toes. As if our customers weren’t enough to keep us nimble, big deep-pocketed competitors surround us on all sides. Try slowing down and we die.

These are pretty refreshing thoughts from someone trying to convince customers they should pay for an online service but they make sense.

For companies trying to compete with a free service, it comes down the quality of your service. If it meets the needs of enough customers and does a bunch of other things right (marketing, customer service, etc.), free services can attract enough people to attract advertising, which, in turn, creates a sustainable business model.

For more thoughts on fee vs. free, check out my friend Mathew Ingram who makes it clear that blaming the VCs for encouraging the free model is wrong.

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  • http://www.profy.com Cyndy Aleo-Carreira

    Mark, I disagree.

    Look at how many copycat services launch every week. The mentality of the users is “I don’t NEED to pay for it” because they know that another VC is going to fund a company right behind the Twitter or the Facebook that they can jump to if someone starts charging. With the “build it now, figure out money later” mantra, they have fostered a culture where the expectation is that everything should be free.

    SmugMug is an exception rather than the rule in this space, and I think that Hank Williams is right; we are going to see an awful lot of fails until the situation rights itself again.

  • http://www.markevanstech.com Mark Evans

    Cyndy,

    Unfortunately, too many people don’t see the value in paying for online services – even if these services are superior and more feature rich.

  • http://www.profy.com Cyndy Aleo-Carreira

    It’s true, Mark, and I also think that Google has played a huge part in it as well. When I was first blogging, I used Blogger Pro. I’m one of those folks who paid and got a sweatshirt for my trouble. There used to be an expectation that you’d pay for an application or service you really liked. I paid for my feed reader because I love it and I can do more with it than I can with any free service out there. But that’s becoming “old school” now as people move from one shiny thing to the next.

  • http://www.markevanstech.com Mark Evans

    Cyndy,

    I guess the question is what will people pay for online. How many people, for example, would leave Twitter if it charged $1/month to send more than three direct messages?

  • abusinessman

    Since the free online classified is getting popular, many business owners are seeking every single free marketing channel to help boost the sale, http://www.boxforyou.com is another free classifieds site like craigslist, allow you to buy & sell new or used goods, look for a car or job, find local events… promote your business, and you can do it all for free!

  • http://mrblog.org David Beckemeyer

    Regarding “if [twitter] charged $1/month” I’d bet that the amount is not the main issue – the overhead of another billing relationship is too much for a large percent of their users, whether it’s $1 or $5 or $25. Same for facebook.

    Given that the measure of success is an “exit”, most likely in the form of acquisition, the VCs cannot be charged with making a mistake (yet). If Ebay never gets their $4b worth out of Skype, VCs still win (they already won). Given how many of these companies have been sold BEFORE revenue, of course VCs are going to seek out more such sweet deals. So what if some of those companies fail (particularly if they don’t fail until AFTER they’re acquired). As long as these kinds of startups keep getting sold off for silly amounts, the VCs will keep investing in them. Who can blame them.