free

The Upside of Non-Free

By Mark Evans in Social Media 1 Comment Tags: ,

Paidfree

It may have happened subconsciously but over the past year or so, I’ve been paying for a growing number of online services. It may have to do with running a business and making sure there are solid roots supporting it. Or perhaps it’s a simple matter of getting over the novelty of getting everything for free…and waking up the reality you usually get what you pay for.

In any event, I don’t think twice about paying for online services. Don’t get me wrong, I’m not showering money around the Web and I try to use discount codes whenever possible. But the idea of coughing up for a good service that will make life easier, more productive or convenient is a no-brainer.

Some of the paid products within my digital portfolio include:

- Skype: a $2.99/month all you can calling plan for North America

- DropBox: After using the free file-sharing service for several months, I upgraded to the $99/year Pro 50 service that offers 50GB of data storage.

- Freshbooks: One of my business’ core service, I’m on the $29.95/month Evergreen service, which offers an unlimited number of clients.

- HostPapa: A green and cost-effective Web host with prices starting at $5.95/month. HostPapa has great customer service as well.

- Performancing: A Web analytics service to track the performance of my blogs and Web sites for $3.99/month. I also use Google’s free Google Analytics service but I like how Performancing is user-friendly and quietly robust.

- WordPress: In the past, I would scour the Web looking for free themes. Now, I’m content to pay for high-quality premium themes that provide great customer services. Some of my favourite theme makers include Themify and ThemeFuse. I’m also impressed with Pagelines but have yet to buy one of its themes yet.

- TweetBot: I have used a lot of Twitter applications for the iPhone but happily paid $1.99 for TweetBot recently because it is easy to use and it’s feature-rich.

- MarsEdit: I’m writing this post using a demo version of MarsEdit but I’ve been looking for a Mac-based blog editor so I’m seriously considering a purchase.

In the scheme of things, the services and products that I have been paying rather than trying to get for free are a tiny part of my overall expenditures. The difference in paid vs. free is based on a free themes:

1. When you pay for something, the expectations are different when it comes to things such as customer service and product upgrades.

2. Paying for a service supports the underlying business so it can build its business and be able to invest in new product development and sales.

3. It encourages entrepreneurs to charge prices for their services rather than simply offer something for free in the hope that it will attract enough customers to generate advertising revenue. I’m a big fan of the premium model because it offers a try before you purchase approach that can get lots of people in the door.

For more thoughts on paid service, check out The Next Web’s post on “Why you should want to pay for apps”.

Silicon Valley’s Obsession with Free

By Mark Evans in Social Media, Venture Capital 2 Comments Tags: , , , , ,

Let’s get the facts straight here: Foursquare doesn’t have to have a business model, it has “only” 1.5 million users in a market that appears to be a more niche than mainstream….but it still manages to raise $20-million in venture capital in a round led by Marc Andreessen and Ben Horowitz.

Call me a skeptic but I don’t get it. It’s hard enough attempting to justify why Twitter has attracted more than $100 million in venture capital but at least it has 125 million users around the world. Nevertheless, there appears to be widespread enthusiasm for the deal.

The reality is none of this really matters to Silicon Valley, which invests in potential and possibilities even when the rest of us are scratching our heads. This is what makes Silicon Valley, Silicon Valley, and probably why the success rates within venture capital are so low.

Foursquare is another example of how start-ups that gain traction with a free service are so difficult for evaluate financially. Even when they are wildly popular, investors need to take a leap of faith in their continued growth and their ability in getting users or advertisers to start paying for the privilege of the service, its users or features.

Sure, there are a variety of potential business models for Foursquare such as local advertising and mobile commerce but it’s just talk until the money starts flowing in.

Silicon Valley, however, loves sexy stories with buzz in emerging markets – even if it is still unclear about the economics of these markets.

Hats off to Foursquare for raising $20-million but the one stark truth is money can’t buy happiness, and as Twitter has discover, it can’t buy a business model that will validate the venture capital being raised.

As much as it might be difficult to avoid the temptation to invest in Foursquare, particularly for anyone who missed out on Twitter, it’s still a risky investment given it is uncertain whether Foursquare is a novelty or business.

When Pulling the Trigger on Premium is a No-Brainer

By Mark Evans in Social Media 2 Comments Tags: , , , ,

For all the talk about the freemium business model, the key issue is how consumers can be convinced to upgrade from free to paid. For many companies, the free-to-paid gap is enormous because consumers are so enthralled with free that paying for an online service is difficult to justify, even if the service is useful and valuable.

Among the freemium advocates, their optimism is based on the belief the model can work because lots of users can be attracted to a free service, and that only a small percentage – 5% to 10% – need to upgrade to a paid service. Of course, this is easier said than done because 5% seems like such a small number, it should be do-able if the service is any good.

The problem is the vast majority consumers find that free meets all of their needs, so premium is an unnecessary move. This leaves a company with lots of users completely content to pay nothing forever.

So, how do companies bridge the gap between free and paid? How do they provide a great service that still leaves room for consumers to justify eventually paying for something more. The reality is there’s no easy answer, which is why freemium is just as much art as science.

I started thinking about freemium after upgrading to Dropbox Pro 50. The free service was terrific but having only 2GB of capacity quickly became unworkable after Dropbox became a key way to do business with clients and partners. There was simply no work to continue using the free version of Dropbox, which made it easy to upgrade to the 50GB package for $99/year.

To be honest, it was a decision that didn’t happen right away. My immediate response to hitting the 2GB capacity limit was to delete unnecessary files and folders. Of course, this was like to trying to stop in a leak in a dyke with a band-aid so I finally sucked it up and did the right thing by upgrading.

In hindsight, it was a no-brainer decision because ROI on paying $10/month for a premium service will be high. In the scheme of things, it’s a small line item within the ME Consulting empire.

It is interesting, however, that I had to think about it before pulling the trigger. In some respects, this epitomizes the freemium dilemma. Even when it’s completely obvious that upgrading to a premium service has to happen, it doesn’t automatically happen.

Free Ain’t Going Anywhere

By Mark Evans in Social Media, Uncategorized 3 Comments Tags: , ,

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”.

“We’ll Figure it Out Later” is Not a Business Model

By Mark Evans in Twitter, Venture Capital 6 Comments Tags: , , ,

I’m in the process of reading Chris Anderson’s “Free”, which celebrates how the idea of paying little or nothing for many digital products and services is inevitable. Anderson makes a compelling argument that includes the belief that free works because it encourages other economic activity. For example, free music allows musicians to attract more fans, who then cough up money for concert tickets, merchandise and sometimes CDs.

While I like and use plenty of free services (GMail, Evernote, Skype, Firefox, Twitter), I’m also a businessman who recognizes that companies need to generate revenue to pay employees, do marketing and keep the lights on. However companies plan to make money – advertising, premium services, consulting fees – they need a plan to drive revenue to make the business viable.

The problem, however, too many start-ups have little or no idea of how they’re going to make money. Instead, the have a “business model” based on the idea that if they attract lots of users, a way to generate revenue will magically appear. After all, this “model” worked for Google, which struggled to find a business model before “borrowing” its pay-per-click business model from Overture, so why shouldn’t it work for other start-ups.

This “we’ll figure it out later” business model is flawed because while offering free services is a great way to attract users, not having an idea about how to make money from some of them is not a viable build a business.

The biggest culprit of this business model is Twitter, which still doesn’t seem to know how it’s going to make money. Sure, there’s been talk about advertising, premium business services or analytics but nothing has emerged yet. Still, it has raised $150-million in venture capital based on the fact it has become a wildly popular communications vehicle with more than 50 million users around the world.

While Twitter may eventually find a way to make revenue, it’s an exception to the “we’ll figure it out later” strategy. The vast majority (99.999%) of companies never attract enough users to figure it out. When the seed capital or venture capital is exhausted, they’re left with a modest number of users but no way to make money. Pretty soon, the pink slips are handed out, the lights turned out and the doors are closed.

So why is that so many start-ups get launched without a clue of how to make money beyond the notion that getting enough users might let them attract some advertising revenue? Why do many start-ups attract investors without even having a rough idea about how make revenue?

Make no mistake, free is wonderful for consumers, and there are clearly ways that free can be used as a powerful marketing tool to drive sales of other products and services. But for many companies, free is un-viable business model. Without an idea of how to make money, they never evolve from being interesting projects to businesses.

Instead, most up of them end up as fodder for the “free economy”, never to be heard from again as they disappear into the digital ether.

The New Battle: Free vs. Fee

By Mark Evans in Media 2 Comments Tags: , , , ,

It is becoming increasingly clear that a business model built on offering free online content supported by advertising isn’t working. It’s economically unworkable – at least as the only way to generate revenue – and unless something more viable emerges, the disappearance of magazines and newspapers will continue to happen.

The cracks within the free model are starting to become more obvious. The Economist, for example, has announced that articles older than 90 days old will only be available to subscribers. It’s not a radical move but a small step towards embracing a business model that makes sense for The Economist and its readers.

The Economist’s move comes shortly after Gourmet magazine closed on Monday after 70 years in business. It will now continue as an online-only entity.

While newspapers will continue to struggle with free vs. fee, my sense is the magazine industry will start to embrace fee. It’s a market that is more fee-friendly because many magazines are not producing content that’s a commodity. In many cases, the writing offers unique perspective and insight, which people should be willing to pay to read.

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