Wednesday, October 18, 2006

"Freemium": Services that Start Free, Charge for Services

I worry about new online businesses that seem too heavily reliant upon advertising as their only source of revenue. Actually, what I worry about are services that launch with no ads whatsoever, but with the intention of inserting ads at some point in the future. I don't see any real value in pretending that you're not in a profit-making business when, in fact, you are.

A great alternative to all this, is the idea of giving away a basic version of your service, then trying to upsell a more valuable version. CNN has a story about this today, along with a clever new buzzword: "Freemium". They give some good tips on the business model. My personal favorite:
6. Harness the collective intelligence of your users. MÃ¥rten Mickos, CEO of MySQL, says customer suggestions can help speed up product improvements or inspire ideas for premium services.

Holy CrowdSourcing. That's great: the idea of giving away the service can naturally create a community of people that are clearly involved with the concept and can help to establish the core group of consumer-advocates that can be critical to success.
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Anonymous Anonymous said...

I don't understand not doing this for any intangible product to be sold on the web.

I've declined to pay for something that I may have been very happy with a great many times because there were no free samples or decent previews. I'd buy an expensive business report, for eaxmple based on table of contents, a page of excerpts, and an author(s) bio, but not on a title alone.

The biggest problem for me as a consumer in this new economic model for selling intangibles is that people decide that if what they have is very valuable they don't need to give anything away free at all. So they end up selling to their own inner circle only at a resulting much higher cost.

Conversely, not being sure of the monetary value of your commodity, and giving too much of it away, or all of it at the beginning, will get you a lot more customers but most of them won't be willing to pay anything later.


12:57 PM  
Anonymous Anonymous said...

Hey Gary,
Long time, no see. For more on the origins of this "clever new buzzword", check out Fred Wilson's blog... :)

12:29 PM  
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