Tuesday, February 3, 2009

Money for nothing

In the new collaborative social web that we love so much we assume that just about everything is free. People devote months of development work to a new application and then give it away to anyone who wants it. Indeed, for many younger devotees the net is a vast freebie warehouse.

However, in the present economic crisis it's relevant to wonder how long this generosity can last. There are many web applications with millions of members but where's the income? Of course most of them try to fund their operations by having plenty of adverts but the advertisers are noticing dwindling returns from web advertising (how often do you click on an ad you see on Facebook or YouTube?). Will we see many popular services charging their users in order to survive and how will the users react to such radical moves? Would you be willing to pay for Twitter, for example?

This is the theme of an interesting article by Chris Anderson in the Wall Street Journal (2 February) entitled The economics of giving it away. The free services are indeed often subsidised by those who pay for a premium version (described as the Freemium model in the article) and the free services aren't going to disappear overnight. However Anderson does see more services trying to earn more from their products in order to survive.
"Free may be the best price, but it can't be the only one".

1 comment:

  1. What? Do you mean to say that there are ads on web sites? ;) I think that I may have become immune to them because they are just everywhere. Like background noise, we learn to ignore them - filter them out.
    But I do see how the economic problems in today's world can have a pretty big impact on the www. Consider:
    A. Fewer people at work surfing instead of working - lower web traffic.
    B. Less money to buy the newest computer update that runs the newest apps. People will keep limping the old machines along. (In a similar vein, I saw an article on an uptick in car repairs - keep the old one running.)
    C. As you mention, a lack of money to buy the apps if they charge.

    There's the rub. If you start charging now - people don't have the money available and you might just lose your base. What seems more likely to me is that upgrades and new bells and whistles will become "premium" services that have a charge. The "basic" services will stay free. It is not dissimilar to the drug pusher man who gives you the free hits to get you addicted - then ups the ante.