I read a good post over the weekend of one of my favorite bloggers, Kevin Kelley. The post is entitled “People want to pay”. Kevin has written a number of posts on the FREE business model and good alternatives for it and has argued before that it takes only 1000 fans to have a good living on the web. In this post Kevin refers to a survey in the UK where music lovers have indicated to want an unlimited download service of DRM-free music for a monthly fee.
Kevin provides us a few reasons why people do want to pay for web services:
Yes, everything will be free, but in my experience people want to pay. They really do! People, mobs of them, will grab stuff that is free. They will try stuff for free that they would never touch if they had to pay. They will always gravitate, on average, to the lowest price, and what is lower than free?But, but, if people have resources they prefer to pay the creators of products and services they like. Payment is
1) A way of connecting.
2) A sign of approval.
3) A vote.
4) It indicates an alligence with the maker.
5) It feels good to the payer, to support.
I have written a lot about the FREE business model. While I do understand it has many advantages for the investor, advertiser, the entrepreneur and even the user , it also comes at a cost. Kevin Kelly and Chris Anderson (the king of the long tail) inspired me once to write a post “Would you be willing to pay for a web 2.0 service that provides value?”. The reactions were mixed. Most would pay and do so already, some won’t. But those that do used the arguments Kevin mentioned above often. I miss the value reason. People will pay if they are provided with value. It’s that simple.
Why does the FREE business model come at a cost? If poorly executed it leads to:
- Destination sites and Walled Gardens
- The network being more important than the user
- Forced attention on advertisement
- Customer lock-in instead of Customer freedom
The success of web 2.0 is the FREE business model, but it’s also it’s failure. Every social service seeks to be a new “Facebook” or “MySpace”. Every new web 2.0 service goes after world domination. In order to accomplish that the entrepreneur focuses on the great advantages of the FREE business model without taking into considerations its disadvantages (hence the poor execution). They go for the quick, free, penetrating distribution strategy, but then harass the user with things like advertisement or walls around the service. The numbers are quickly more important than the individual customer. How many downloads? Page Views? Traffic? Usage? Click through? Can we make it viral? There isn’t a single user value parameter in that. Advertisement holds web 2.0 is being held in a death grip.
But if you are willing to be successful on the web and not just strive for world domination I believe that it is possible to generate a lot of revenue directly from the user. In other words, make the user pay for the value you provide him. This strategy has one major benefit. it forces the entrepreneur to think only about user value. If he continues to provide value he earns a living. If he fails at it he won’t. An argument often provided against this is that someone is bound to copy your service and provide it for FREE. That may be so, but if your brand, business model, and innovation is aimed at providing the user with value then you simply ensure you evolve and keep that value flowing towards the user. You can leverage FREE tactics and still create direct revenues from your customers. And users will continue to pay for value.
Chris Anderson provides a nice example of how Freemium can be executed well and create excellent revenues. A good recipe from his post:
- Build a community around free information and advice on a particular topic.
- With that community’s help, design some products that people want, and return the favor by making the products free in raw form.
- Let those with more money than time/skill/risk-tolerance buy the more polished version of those products. (That may turn out to be almost everyone)
- Do it again and again, building a 40% margin into the products to pay the bills.
There are so many ways to create user value based business models. But it takes courage from both the entrepreneur and a possible investor. There may be easy money in FREE, but let’s face it. There are few companies that can create a sustainable business case based upon advertisement revenues. Why not try to do the opposite. Try to provide your customer instead of an advertiser with value? You will find that there are enough people willing to pay for it. Remeber, Free is just a clever disguise for a concealed trap.