In the wake of Ning abruptly eliminating its ad-supported free networking service (and slashing 40% of its employees), there’s some chatter about the much-ballyhooed “free” falling out of favour.
It’s an expected reaction given Ning’s high profile and how its success in attracting users was so celebrated – some of it may have to do with the fact Marc Andreesssen of Netscape fame is an investor.
But the fact is free ain’t going anywhere any time soon.
As much start-ups need a way to make money other than counting on gettings lots of users that will attract advertisers, the idea of offering a free service is too easy, too compelling and has too much potential to discard.
There’s an inherent belief that free is just the way it is these days – a theory celebrated by books such as “Free” – and that consumers won’t pay to use online services. At the same time, a lot of people believe free has the ability to attract a critical mass of users that, in turn, will drive a start-up’s value from zero to 60.
Every entrepreneur and every investor believes this model is so compelling that to walk away from it would be idiotic. Just look at the growing number VC deals announced in recent months of free services.
As long as free is seen a high-octane growth engine (at least from a user perspective), it will continue to stay alive and well – buoyed by optimistic entrepreneurs and bullish investors.
That said, the upside of Ning’s decision is maybe it incites more discussion of the need to have a business beyond beyond just free. It could mean that freemium (a free basic service and a premium option for more features) will get more love and attention. Or it could mean that some online services – heaven forbid! – simply cost money to use.
Free ain’t going away but more people are discovering that the ugly, downside of free means it doesn’t generate any revenue to keep the lights on.
For more thoughts on how start-ups need to have a real business model, check out another one of my recent blog posts – “We’ll Figure it Out Later is Not a Business Model”.
Nothing wrong with FREE, as long as you don’t take advantage of the people later on.
Okay, so here’s my confusion…
I get a team together and create a service, it takes us each 50 hours a week to build, maintain, develop and grow the team of 3. This service is offered for free.
Where does the revenue come from? What money pays me? What money pays my electrical bill? What money pays my team? Advertising doesn’t cover it, and frankly, it will always hamstring me, because I’m outsourcing my entire revenue stream. My company and my team are focused on producing a service, not an advertising network.
I happily use Slackware and pay the company behind it for the DVDs, and do my best to support the FLOSS world out there, but seriously, NOTHING is free. Everything costs something. Money is just the system we’ve grafted on top of reality to help ease trading of things of value. It can be ugly and twisted, but it’s all we’ve got…
The real problem is hiring a lot of people without a clear way to pay for their salaries. It’s sad and irresponsible.