Free is not dead. It’s the accompanying advertisment model that needs to be killed

[disclaimer: this post is both personal and work related]

Tim O’Reilly (finally) challenges current web 2.0 practice, providing free ad based services. In a post here he is quoted:

“(These are) pretty depressing times in a lot of ways,” O’Reilly said in an address that first had looked like it would simply be a starry-eyed discussion of enterprise opportunities for Web 2.0. “And you have to conclude, if you look at the focus of a lot of what you call ‘Web 2.0,’ the relentless focus on advertising-based consumer models, lightweight applications, we may be living in somewhat of a bubble, and I’m not talking about an investment bubble. (It’s) a reality bubble.”

If you are a regular reader of this blog then you know that this has been my stance from the start. Free is just a cleverly concealed trap. It doesn’t focus on user value. It focuses on having a large user base and ensuring the value is monetized on size. It’s an indirect business model that by default makes it hard for the service provider to provide real user value to the user. It might give a service provider distribution because teh service is free. But the advantage of distribution is diminished by the lack of revenues. There is only one company that has succeeded in the advertisement business model, and that’s Google. They take up over 75% of ALL ad revenues in the on-line market. The rest is taken y the thousands of free ad based initiatives leaving most with bread crumbs.

I prefer a business model where the user gets value, and you monetize on that value. It’s the cleanest and best business model there is. Ask yourself this. Would you prefer a few hundred thousand enthusiastic customers that pay for the value that they receive, or would you prefer millions of users that get a free service, aren’t really getting the value they deserve and end up with advertisement too because you need to make a living?

If you are an investor or fast web 2.0 entrepreneur  you will likely choose the second model. It’s makes you feel you can rule the world, beat Google, Facebook and the likes. The model is meant for that. Great distribution (it’s free), and revenues are created by enlarging the user base. A win-win situation right? Well, not for the customer. Because the focus of that model is on growth, not on user value. If you are an entrepreneur that is concerned with his customers, you will never choose that model. It’s that simple.

That doesn’t mean FREE isn’t a great business model. Just don’t mix it up with advertisement, especially if you are in the social media or social networking business.

I’m currently preparing a consumer launch for Glubble. We’re about to release Glubble for Families, a great set of on-line activities that involve the entire family. Glubble provides parents convenient tools to help their children discover the web and social networking without worrying if they are safe. It makes the web change from an individual activity into an experience that connecting the entire family.

This is an example where FREE ads based business models would never work. For this simple reason social networks such as Facebook or MySpace can never target the family market. When you are in that market, you need to be on the side of the parent and the family. You need to provide them value and ensure their experience is both fun and safe, without advertisement.

It’s for this reason we have chosen for a business model in which there will always be a fully functional safe and fun service for free. At the same time we will offer great premium services that will provide families even more value. This model allows us to focus on one thing only, to provide customer value. With Glubble the Family Social Network has arrived.

ps. if you want to join our preview of Glubble for Families, drop me a line and I’ll send you an invite.


About vanelsas

See my about page, ;-)
This entry was posted in business model, free business model, social networks, user centric web and tagged , , . Bookmark the permalink.

6 Responses to Free is not dead. It’s the accompanying advertisment model that needs to be killed

  1. Pingback: What I am Reading RIGHT NOW! |

  2. Pingback: Monday reader « Public sphere++

  3. Josh says:

    Everything you say is true for 95% of the cases….

    But a simple fact is that for something like MySpace or Facebook consumers are NEVER going to pay.

    Sure, they may not be making a huge amount of profit, but they are making profit… 900 million or so for Myspace (?)

    However yeah, 95% of web 2.0 companies that pop up should never rely on advertising…

  4. Josh, they won’t pay mostly because the services don’t provide enough value, in combination with the fact that we all have been spoiled with free ads-based models. Its a bit of a lose-lose situation if you ask me. MySpace makes a profit, but who really gets the value? The user, the advertiser? I doubt it.

  5. Pingback: The best business models focus on user value « Alexander van Elsas’s Weblog on new media & technologies and their effect on social behavior

  6. Steve Harold says:

    Free has alwaus been a bit of a trap let’s face it. In fact it has been used so much it immediately makes you suspicious.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s