Comments on: The Case Against FREE

By: abhishek manocha

abhishek manocha — Tue, 02 Feb 2010 06:37:34 +0000

Very well said, there needs to be revenue model involved. time and again that keeps me thinking. FB is $14 billion on free market, hows that? that’s valuation realistic? what we have got here, big user base, lotsa advertising, almost 100% free apps, social games, leads, corporate media linkups, that shouldnt add up to $14B, right? Something is amiss, don’t take me as nay-sayer, but dont be surprised if you see a bust. World is not that rich to pay FB $14B. Strategy take your kitty and get out.

Clarification: I didn’t mean that FB is not going to make money. It is but not that much what people say.
for other startups on “free” model, that’s gonna bust like anything. Again 1 FB 999 Failed startup ratio.

By: David Semeria

David Semeria — Mon, 01 Feb 2010 20:17:08 +0000

Not only do I totally agree, I also have a solution: http://lmframework.com/blog/2009/07/kamikaze-marketing/

It’s a pity I’m 5,000 miles away from the bay area…

By: Max Hwang

Max Hwang — Wed, 29 Jul 2009 21:21:30 +0000

First of all, I agree with your point on money changing hand. Talk is cheap and unless customers are willing to open their wallets, you don’t have satisfied customers.

In my current start-up, we’ve debated this issue gazillion different times and the best compromise that we’ve came up with is to state the price of the service but give the initial set of customers a long enough of a free trial period that they essentially see it as a “free” service. This preserves the “value” of what you’re providing and set the expectation that somewhere down the line, customers are expected to pay.

-Max

By: manu

manu — Thu, 04 Jun 2009 10:39:06 +0000

@Abhinav: I haven't looked at gifting in much detail, but on first blush, I would say that if Person A is paying to give something (tangible or intangible) to Person B, then money is changing hands, and there may be a viable model there. The question then becomes whether that happens often enough. BTW, In case you are referring to virtual goods and social networks, Bill Gurley from Benchmark has a great post on his blog that is worth a read.

By: P

Thu, 04 Jun 2009 08:35:35 +0000

Also, another reason that mmorpgs havent got a huge user base is they cost too much to make. And publishers want a return and go the conservative way – subscription fees. While that keeps them profitable, someone has to change the model, and shift the paradigm.

If a site offered users to play the game for free, but instead pay through in-game transactions – or micro transactions – through credit, I think it would be game-changing. Also, if a new site started charging users right from the beginning, it would lose out on a whole lot of users versus users who would get engrossed playing the game for a year, and then find it acceptable to pay after a year.

By: P

Thu, 04 Jun 2009 08:32:20 +0000

I think the problem is that while social networks and others have a huge user base, they havent been able to monetize their user base well. On the other hand, mmorpgs and virtual worlds monetize their user base well, but their user base is limited.

Look at the figures: Facebook has 300-500M in revenue (’08-’09) from 200M+ users. WoW has 10M users, but brings in 500-1000M in revenue. The problem is that the classical online advertising model is broken. While multiplayer gaming has fixed it, it has significant barriers to entry such as plugins and software downloads.

Google only makes so much money because of the HUGE user base. Imagine what a 50-100M user base gaming site could get in.

Whoever solves this will rule the internet, in my opinion.

By: Abhinav

Abhinav — Tue, 26 May 2009 06:15:44 +0000

What about the Gift Economy model? Do you think that is a viable option for a startup?

By: Kimber Lockhart

Kimber Lockhart — Mon, 11 May 2009 15:02:08 +0000

One of the biggest problems with freemium is the ever-competing often-conflicting priorities of “Get More Free Users” and “Increase Conversions.” Very rarely is the path to both the same, and it is extremely difficult to do both well. More often than not, you just end up with a severe lack of focus–not doing either right.

I would like to point out that depending on the space, it’s more or less difficult to sell a differentiated product. Ask yourself the hard questions before you get started down that path. Are there several companies in the space providing something even remotely similar for free? Can you be more than 20x as good as they are? 100x? (Hint: your definition of “cooler and better” doesn’t count, you’re biased).

Learn quickly whether the space you’re in supports your kind of premium offering. Of course, the best way to do that is to build for cheap and test the market. If getting traction feels like pushing a boulder uphill, step back, re-evaluate and reconsider.

By: Charles Ju

Charles Ju — Sun, 10 May 2009 21:29:08 +0000

I definitely see this trend on the iPhone. A lot of games do better on the iPhone (bottom-line) because they raise their prices to show that they’re a “quality” game, as opposed to a trash $0.99 game.

Likewise, in the Rails world, most services cost money, and almost all the Rails engineers use them (GitHub, NewRelic, etc.) because they are good applications and provide real value. I agree with you that for the most part, free is unsustainable.

I think another good point about why I think price is good is because it allows companies to bootstrap more easily. Having cash coming in the door makes it easier to build cooler and better things than your competitors that are doing it for free.

Great post Manu!

By: manu

manu — Sun, 10 May 2009 17:50:10 +0000

@Dave Ambrose: Thanks for your comment. Just to clarify my viewpoint:
I like platform plays. They have the makings of a big company. They usually have a bold, change the world, type of vision. A lot of the companies I have invested in are platform plays, but they are platform plays that also have a real business model and even bring in revenue (for some). They haven’t announced their funding and so I can’t discuss them yet, but I look forward to talking about them here soon.
I like your point that “free” should be considered as just one part of a bigger component of the company’s vision for a business model. It is a powerful approach, if used right. My call for caution is to startups who don’t think of it as part of that bigger strategy, and give away their most valuable offering, and then struggle to find a way to actually build a business.