The internet has been flood with a fremium model for everything - how can traditional products evolve in this new world.
You know, it’s amazing — the slogan “The Wonderful World of Disney” no longer makes me think about Disney. I have since destroyed this one fantastic childhood slogan that was instilled in me from the age of about 3 and replaced it with “The Wonderful World of Free”. Yes, it’s perhaps a little sad but working on a technology startup tends to do that too you when you are trying to establish viable revenue streams for your business.
You see the world of “Free” has really taken over the Internet. Content is now consumed on the Internet at a rate that has never been witnessed around the world before, and people who access the Internet expect this content to be free. The predominant reason for this is that people pay for their access to the Internet and believe that this is the ceiling point for their use of products and services on it. Take content for example, I read an article on the NY Times website from a fantastic author regarding the state of the Internet. If this author intended on charging me to read the article — I am presented with two options:
- I can simply pay for the article because the authors writing, style, opinion and experience on the topic supersedes any other content available and the value equation of his writing exceeds any other content available (or that I can find).
- I can simply scour the Internet looking for similar articles which comment on adjacent subject matter that is relevant to the thought process I am attempting to collate in my head. If the end justifies the means and I discover relevant content which is free — no need to pay and my value equation is satisfied.
You see Internet users now expect content on the Internet to remain free. The age of “charging” for content — or any products or services for that matter — is only valid when the consumer cannot get that particular content, or that particular product or service anywhere else. The value equation for the user has to reach the climatic point where attempting to search for similar content can, and simply does not, satisfy the users needs. It’s at this point, and I believe only at this point, that a user will cough up some hard earnt dollars in order to satisfy their desire to pay for products and services on the Internet.
If we take another example that is more prevalent in this day and age — Facebook. People use and consume content on Facebook everyday and just expect the services to work. The mere fact that it costs Facebook millions of dollars per month to provide these users with this service is irrelevant to those whom consume such said content and use it daily. After all, the service started out as free and users expect it to remain that way — right?
Of course, that’s right — it’s Facebook duty to monetize their business and ensure that they keep providing their services to their users otherwise they will simply change to another service. It’s important to recognise that Internet users are fickle and perhaps they have every right to be — the Internet has an abundance of information and hands the power back to consumers to find the best offering at the lowest value — whether this be in real economic terms or in ‘free’ terms.
So we come to the question that exceedingly enroaches on my mind daily — how can a service such as Facebook “remain free” ad-infinitum? Surely, an apex point will some day arrive where the cost of running the company entirely exceeds the value equation relating to revenue generation? Or perhaps more probably, the product that Facebook is offering no longer fulfills the desire of the millions of users who connect and use Facebook everyday. It is somewhat happening to Myspace, and it is possible that it will happen to Facebook. Facebook was inherently designed for a specific purpose — to share and communicate with friends — yet such a statement does have its idiosyncarcies. The world we are moving into is one where this statement is no longer simply enough — Internet users now, more than ever, demand real-time and up-to-date information in a format that Facebook might not be able to provide moving into the future. Even the design change on Facebook took months, if not a full year, to implement and users are still unhappy about it. But I digress from the purpose of this post (and perhaps this topic deserves another seperate post in itself)
They key question I am really trying to answer is what about all the other products and services out there who simply do not have 1/10000th of the financial capacity of a company like Facebook?
Well, it’s clear that such companies offering these free products and services will simply not cut the cheese in a rescissionary climate where advertising revenue no longer pays for development, hosting, marketing and the like. The days of offering a free product — no strings attached — are long gone in my opinion. The Internet is ruled by a fickle generation of users who demand — no — expect content and services to be free, and if they aren’t — they simply move on. For every paid product on the Internet, 5 more are competing with it that are free. For every service that is launched and becomes popular — another 10 spring up which offer the same service for free.
So how is it ever possible to beat this seemingly caustic like trend?
The answer is simple — continually innovate. Also - actually charge money for your product.
There is no other solution to the free problem that to continually innovate and offer features, products, services and content that no one else does, can or has the expertise to provide. Consumers will only pay for products when no other solution exists that meets their value equation. More poignantly, consumers will only pay when for products when no other solution exists that meets their value equation, and the solution that does exist exactly satisfies their needs. There is just no point in producing a great product that no one else has which simply sucks — you wouldn’t pay for it and neither would anyone else (me included). The ideology that needs to be entrenched in all companies (startup and Fortune 500 alike) is effectively this — why pay Peter when Paul is standing around offering everything for free? Well, I contend that if Peter has something that Paul can simply not offer then Peter gets a new revenue source. If the converse holds true, Paul rears his ugly opportunistic head and takes Peters earnings.
I believe this really is the unfortunate — nay, perhaps the realistic and capitalist minded truth. Innovation is the key to a great product or service, and a great service is the key to profitability. I believe it’s true to contend that the three are symbiotic in nature — that is, the correlation between innovation, great products and services and profitability is extrodinarily high. The dominance is, however, in my opinion innovation — loose that, and the other elements wilt. The consequence?
Darwinian theory tell us that something else will take it’s place.