Chinwag arranged an interesting event called Freeconomics with the following tagline: ‘Free’ rules supreme in the online world, but is Free sustainable?
This was an interesting event and the panel was very good – more of their points and comment later in the post.
My takes is that we, the users, are going to have to start paying for the services that we use sooner or later. The two main questions facing these services are;
1. When should we start charging the users?
2. How much should we charge?
This is not easy to give general answers. But there are few things that businesses should do and consider. First is to keep the user informed when major changes are coming and not surprise the futures customers – never a good start. Another important thing is to do a business case why your user should pay for your service. What will they get for the money? What are future features are the site thinking to implement? And where do you think your business are heading in general? By charging the users, your site need to become more professional and are you ready for that?
The panel at the Freeconomics event was really good and represented different points of views.
* Nic Brisbourne – Partner, DFJ Esprit
* Azeem Azhar – Managing Partner, Open Capital Partners
* Victor Keegan – Technology Columnist, Guardian
* Charlie Blake Thomas – Commercial Director, Huddle
* Alan Patrick – Consultant, Broadsight
Here are some of the highlights but this does not represent all that was said.
Internet lowers the distribution costs and also competition costs. It also has low entry cost barriers. However there are still costs (for instance employment, rent, utilities, hardware, internet connections) involved with a internet business as there are with a non-internet business. The non-internet business can charge its customers and cover these costs and make a profit. These costs for an internet business are paid for somewhere else be it VCs, equity funding or 2nd jobs.
The user should bare in mind that even if the service is free, that does not mean it is free to operate.
One question raised from the panel was, does it make sense that gmail, hotmail to be free? The guy from YouTube (sorry I did not catch his name) pointed out that gmail is making a profit.
Email creates huge value for all its users and it is is free. Would you pay for your email? Well, I am glad to be gmail user! I want to be with an email service provider that is going to be there for the long term. With all the personal information and history stored on the email, it is a major commitment for me to put so much information in one place.
Google search engine (indexing) is not allowed to access the Guardian or New York Times backlog of published articles and hence they are loosing out in getting higher traffic volumes.
While writing this, I am wondering why can’t the online newspapers reach a similar agreement that Google has with Firefox re search?
YouTube takes approximately 10% of internet bandwidths and that is expensive. User experience goes before anything else within Google. The difficult ahead is to serve the right ads to the right users – but they are close to achieving it.
I would probably be more inclined to click on ads if there was a better targeting. But as it is today, I rarely-to-never click on ads.
The problem with free service is that the users do not understand the value points. Salesforce.com are so successful because they understand what their users will pay for.
This is one of the most interesting points that was brought up during this event by Charles Blake Thomas. However, I do think it needs to be joint responsibility from both the business and its user to understand the value points are not and not be one-sided. For the business to know where it creates value, is to know its users very well. This is a crucial point that applies to any business. But for an non-internet business it is easier to pin-point as a value transaction takes place and also being able to analysis the competition value transactions. It is more difficult for an internet business that is operating in a free-economy to get an understanding of the value it creates and to analysis its competitors. However the advantage is if you are doing business on the internet you are much closer to reach your users as it is ‘only’ an email / blog post/ tweet away from getting in touch with them and start the ever-so-important conversation with your users.
There was no micropayment system when the internet business got going and this is how the free-economy developed so strongly. But to say that today’s generation will not pay for anything is completely wrong as they are happy to pay £3.50 for a ringtone. The mobile phone is now becoming a tool for micro payments. With The Kindle, iPhone and Android and coming Nokia devices, a new micropayment system could arise from that.
For a payment system to work there has to be trust between all the different parties. This is one of the problem in today’s financial crises as the banks do not trust each other nor their customers. I am not sure that I would trust my mobile phone operator to run my micropayment system and also that relationship is of a more short term nature then for instance my email service provider. I would rather have Google run the micropayment system since they already have a trusted system with the ads sell. However if they were to go down the route of Paypal with too many & high charges then no.
Free attracts Freeloaders. For instance, who has not tried the interest free credit card deal? And how many today have a interest free credit card? Freeconomics carries its own death warrant as it destroys its value base.
Time will tell. I think there will be a symbiosis with a free and payment model. This route forwards makes more sense to me. This is still a very young business model and environment but the foundation has been laid. Expectations have been set. Innovation on the internet is progressing in fast pace and it is too much to ask for payment models to be implemented before the user knows what the service will be and what the value of it is. The new business has to prove itself before start charging for the services it provides.
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