Given the current economic landscape, there are plenty of “Web 2.0″ companies struggling to stick around. Many of them are slashing costs in an effort to make their financing last as long as possible.
Many of these companies have business models built on the premise of offering a free service, and generating revenue from advertising. If you have a compelling service, this model can work but these companies are increasingly vulnerable given that online advertising growth has stalled, and that advertisers are probably looking to be more conservative.
The “free” business model has captured most of the attention and encouraged the emergence of thousands of start-ups. It’s been great for consumers and beta junkies but it is proving to be a difficult model to create a sustainable business for most companies trying to use it.
Over the next little while, many of these free businesses are likely going to disappear when their financing disappears and they are unable to generate enough advertising revenue.
This will not necessarily be a bad thing given it will cleanse the ecosystem, and give healthier companies a better shot at success. This “process” happened during the last dot-com boom, and set the stage for the emergence of Web 2.0.
Seemingly lost amid the fascination with the free business model is how some businesses (Freshbooks, Agroracom, 37Signals, LinkedIn) have thrived by actually charging customers to use their service.
It’s been a somewhat of a radical concept – actually getting people to pay for something – but you’d be surprised by how many people are willing to pay for a valuable, useful service.
What’s somewhat surprising is how little attention these sales-driven companies seem to receive, especially compared with the enthusiastic coverage of new start-ups using a free business model that are trying to grab a foothold in competitive markets.
For some impassioned thoughts on the Web 2.0 business model landscape, check out Agoracom’s George Tsiolis. As well, Fortune magazine recently had an article on the end of Web 2.0, and the emergence of Web 3.0.
Technorati Tags: freshbooks, agoracom, web 2.0
9 Comments
In the 90’s we would have called a web site that allowed you to search through BBS and forums, and had advertisements, a “tool” now people call them “businesses”. The developer would have likely put up an address for sending donations and he or she would have gone to work at McDonald’s every morning.
The problem isn’t the ad supported business model its that we’ve so watered down the criteria for what we call a business.
You are absolutely right about cleaning the ecosystem. As a user, I love getting free stuff (facebook, gmail, etc…) but I am also willing to pay for things I need (basecamp, gotomeeting, crowdsound, etc…).
As a business owner the free-model sucks, I launched a http://www.yonkly.com a couple of months ago following a similar business model as basecamp, ning and so on. So far so good and yes, people will pay for services they need/like.
Yonkly let’s you create a twitter-like network for your niche market, group, team, business or whatever. It is completely white label and there are different price plans including a FREE plan.
Most recently David Hansson of 37Signals and of course Joel Spolsky of FogCreek for many years have been propogating this mantra of having folks pay for software (particularly). Even in the world of Free Software, the RedHats and other distributors of Linux have charged folks for service and support. The very narrowcasting power of the web, rather than the old world ad supported broadcast model of TV, makes it feasible to build businesses that cater to niches. The folks in these niches are prepared to pay for real value. Good reminder for the new year!
I just received an email from Jott letting us know that their free service will come to an end Feb 2.
Why? Economics.
Good morning, Mark. I want to thank you for the mention but – more importantly – I want to thank-you for bringing this issue to light.
While Silicon Valley sleeps by focusing on free, “cool” but doomed models, I see an incredible opportunity for Canadian developers to fill a massive void. Specifically, building valuable services/products that business and individuals are willing to pay for.
This is an enormous opportunity that first requires changing the mindset of Canadian developers. We’ll first need to stop star gazing south of the border and recognize that Silicon Valley is just as flawed as Wall Street.
Then, we can begin building great products, services and companies to dominate the Web 2.0 space for years to come.
If this sounds like a stretch, then consider the example of AGORACOM. I showed up to the inaugural Mesh with little Web 2.0 knowledge but plenty of vision.
Today, we dominate our space, have major content partnerships, launching in Europe and China this quarter and – gasp – making a few bucks while we’re at it.
If I can accomplish this from grass roots, I know what my smart Canadian counterparts can accomplish if we all begin moving in the same direction.
This is truly a massive, paradigm shifting opportunity for Canada’s Web 2.0 space. I hope to see it as a Mesh topic. I’ll gladly lead the charge.
Regards,
George
I couldn’t agree more that a few fewer “free” sites will be a good thing. Having a paid model at LingQ ourselves, we often hear from potential members that “x is available for free here and y is free there and why should we pay for your site?”. The fact is that nothing is free. Somebody is paying, whether it be advertisers, venture capital, self-financing, or the taxpayer. Well, why not the user? At least with a user pay model our targets are quite reasonable and don’t hinge upon being the next Facebook.
People get excited about FREE! FREE is a fun fantasy. Read all about it! Paying for something is boring. You can do that at the grocery store. Maybe that’s why the freebies get so much attention. That being said, I’m trying to take boring to the bank with Time59.
Oh my god! I’ve been saying and commenting that very same idea over and over again at almost any related website. And at last! I want to emphasize especially this:
“What’s somewhat surprising is how little attention these sales-driven companies seem to receive, especially compared with the enthusiastic coverage of new start-ups using a free business model that are trying to grab a foothold in competitive markets.”
I said that VCs and related-websites(techcrunch,gigaom,yours truly..) must be focusing on web services that have a business plan. But instead, free websites, most of which don’t even put ads, get all the attention and getting millions. And of course, people look up to them and create services just like them, with the same hope. It’s just wrong.
JJ, let’s sum it up like the Web 2.0 ecosystem like this:
“Free begets free”.
The Greek
One Trackback
[...] Mark Evans has jumped into the fray with a great post that also refers to this post. You can read my comment and why I believe this needs to become a [...]