Growing Your Business With The Freemium Revenue Model

The Wall Street Journal published an interesting article today on The Economics of Giving It Away. The article describes how, in the past, web startups would use an advertising based revenue model and give away their product/service increasing the size of their audience until they were acquired by a bricks and mortar company willing to pay out the cash for mind-share at a premium. The global recession has changed the efficacy of that game where VC, advertising, and acquisition money has pretty much dried up.

Since the classic exit strategy is no longer available, new ventures need to generate revenue in other ways. It's not as simple as charge for the service for two reasons; the culture of the web now has a tradition of free services so people are hesitant to pay there and people have less discretionary money to spend.

So, what's an entrepreneur to do? The author suggests going the so-called freemium route where you build your network with a free service but allow users to upgrade to a premium service which gives them access to more features. First time and casual users are not likely to pay for your service but passionate users are. You continue to build social capital with the free version but also build economic capital with the premium version.

Blogging Considered Harmful

As a blogger, I feel compelled to blog about this NY Times front page article on the health perils of blogging. Apparently, some high profile bloggers have recently suffered heart attacks. Without benefit of any kind of scientific or statistical research, the piece attempts to paint a world where bloggers and smokers share the same fate.

I blog as a hobby and not for pay so I am not exactly an expert on this subject. One of the reasons why I do not attempt to blog for pay is precisely what the article addresses. There is little to no money in it. To make a living off of it does require long hours.

It's not unlike the economics of food production. The person who picks the crop and the person who rings up the purchase makes the least amount of money. It's the people in between who stand to earn (or lose) the most for their bottom line. The blogger is like that person working in the fields. It's the content aggregator or publisher who stands to make (or lose) the most amount of cash in that world.

There is a book entitled Wikinomics that I consider as the sequel to The Cluetrain Manifesto. I'm sure that you have heard the phrase "content is king." These books make the case that the new content that is king is user supplied. This world is not about the cult of personality which is why blogging alone is a very hard way to get rich.

The Blurring of Advert and Content

I recently ran across an article on how to write better headlines. Yea, I thought, I'll improve my blog by writing better blog titles. So, I read the article.

Basically, the gist of that article is this. Make a big, explicit promise in your headline to attract more readers. There are variations on this theme like phrasing the headline like a how to get something desirable or avoid something undesirable. Other suggestions include using popular keywords and using numbered lists, all in the service of attracting readers by promising something for nothing.

I recognized this advice as techniques used in effective advertising. I realized that, to the writer of this article that I read, all professional blogs are advertisements cleverly disguised as content.

I remember seeing this billboard back in the 80's. It was mostly blank with the following words. Advertising, because without it, you wouldn't know. The trend to blur the distinction between content and advertising has continued to escalate ever since.

Why? Well, back in the 80's people generally tended to view content as desirable and advertising as a necessary evil for getting content for free or almost free. So, you get to watch your favorite TV program but at a cost of having to watch the commercials or you get to read news over the web but at a cost of having a banner ad display along with it. I believe that when content and advertising is framed separately, people get annoyed at it and learn techniques for avoiding the advertising. TiVo or popup blocker, anyone?

The advertisers don't want to be avoided. They paid good money for mind share. So the media channels, wanting more advertising money, work out ways to blur the distinction between the desired content and the annoying advert. Ergo, product placement or, apparently, blogs (gulp).

Some blogs. Not all blogs. I still believe in the blog as opinion piece rather than puff piece. Opinion pieces are what you will see here. Pieces that share my observations, hopefully in a way that invites you to think about what's important to you. That is why I have a blog titled What Does it Mean to be of Service instead of How to Beat the Repairman at His Own Scam.

Of course, if the advert was desirable, then the blurring of advert with content would not be so annoying. Perhaps that is the promise of targeted advertising. The cost might be the loss of privacy as your consumer patterns would get shared like your email address does amongst the spammers.

What do you believe? Should advert and content be separate? Is convergence with targeted advertising OK? Should your consumer patterns be considered private knowledge or public domain?