Overhype

by Mike Masnick


Filed Under:
business models, free, freemium



Using Free In A Business Model More Than Just Waiting For A Business Model To Show Up

from the this-again? dept

Charles Cooper, over at News.com, has a long history of being quite skeptical of business models involving the use of "free" and, at times, likes to poke fun at us who believe such models are a key part of the economy and innovation. This might be seen as particularly ironic, since Cooper works for a company that gives away most of its content for "free" and makes money via the business model of advertising. That said, he's got a thought provoking piece asking if the current financial crisis will spell doom for the "freemium" model, which is one of many "free" models.

It's a good question, but I think the analysis is a little bit off. First, he narrowly (and, I believe, incorrectly) seems to define Freemium as offering a free version now with the idea of offering a premium version later. But that's not what most freemium models do. They tend to offer both a lower level free version, and, at the same time, a more advanced premium version. While those models can be risky if they are trying to offer other infinite goods in the premium version, many premium offerings actually focus on scarce goods (bandwidth, server time, support, etc.).

Second, Cooper's thesis seems to be that the "Freemium" model is really about giving things away and then praying that a business model shows up. While this may be true for some (poorly thought out) businesses, it's not necessarily true across the board. Plenty of businesses start out by recognizing they need to grow attention first, before that can be turned into a business model, but that's different than using a "give it away and pray" business model.

Finally, Cooper seems to assume that most VCs won't take the long term view on the companies they invest in. Again, that may be true in some cases, among weaker VCs. But good VCs are actually more likely to see the value in doubling down and building up core business during any expected downturn. In the end, Cooper's attack seems like a random attack on "free," based on a few faulty premises not backed up by what's actually happened in the market.

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  • identicon
    Thanatos, 3 Oct 2008 @ 7:39am

    this-again???

    Seriously beating a dead animal here. It's not so much a matter of hope, as it is a separate, hard-working department created to gather advertisers. I see no change happening (except in those willing to advertise). Also, can we define when a business model is considered one and when it's not? "...the "Freemium" model is really about giving things away and then praying that a business model shows up." wtf?

    reply to this | link to this | view in chronology ]

  • identicon
    Ppitstop, 3 Oct 2008 @ 7:51am

    It does work sometimes

    I see the main reson for allowing a free limited version.

    You are a small company look for a chunk of market to get you and your product known (just don't give away too much).
    You will build a loyal fan base that will spend.

    reply to this | link to this | view in chronology ]

  • identicon
    Mark Regan, 3 Oct 2008 @ 7:51am

    Business Models

    Maybe I'm on the wrong site. I thought "business models" had something to do with Sarah Palin's next venture after she strikes out in national politics.

    Seriously, during a downturn, such as the current Bush Recession, advertisers still have the need to advertise, they will simply do it more effectively and efficiently, cutting that which does not work as well out of their budget.

    Those companies such as Google and Sun Microsystems which offer both free and premium products as well as valua which makes paying for the premium product worthwhile, will continue to prosper.

    And advertisers will stay with what works -- in Google's case Ad Words apparently pulls better than newspaper classified ads, so now is the time for newspapers with on-line content to link up with Google. And so on.....

    reply to this | link to this | view in chronology ]

    • identicon
      Idiot Responder, 3 Oct 2008 @ 8:37am

      Re: Business Models

      ...Bush Recession...

      The government, right or left, has us right where they want us. Bush, Cheney, Pelosi, Clinton...it is all their doing.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 3 Oct 2008 @ 9:27am

      Re: Business Models

      Bush Recession?
      You mean the recession caused by community organizers saying everyone should have a house no matter what their personal finances dictate. And the mortgage companies giving risky mortgages, and no one having any personal responsibility. Clearly Bush's fault. You know what. I will take all blame if you can honestly justify blaming stupidity and greed of the American people on the president.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 3 Oct 2008 @ 9:28am

      Re: Business Models

      So you are saying, if I understand it, that Bush was the only factor in the current economic problems; and had he not been there then none of this would be happening?

      Cause it seems to me that there are a lot of democrats who had thier hand in the Sallie Mae, Freddie Mac cookie jars taking thier contributions to leave things status quo. You know, status quo, telling people that they should borrow as much as they can on a house they can not afford and then giving them the loans to do just that?

      Hey, didn't John McCain try to introduce some legislation to address this a couple years ago? You know, the guy that if you vote for is going to be W's 3rd term?

      Oh, forgot, all of that happened in a vacuum and it is all Bush's fault. Sorry, I must have been thinking again.

      reply to this | link to this | view in chronology ]

    • identicon
      koresho, 3 Oct 2008 @ 9:51am

      Re: Business Models

      It is the people's fault. There are millions of people with thousands of dollars in credit card debt collecting welfare checks and getting bailed out by the government. These are the type of people that cause recession, not the President. If anything, it would be the fault of the entire government, not one specific administration or person.

      reply to this | link to this | view in chronology ]

  • identicon
    Ima Fish, 3 Oct 2008 @ 8:13am

    "Charles Cooper, over at News.com, has a long history of being quite skeptical of business models involving the use of 'free'"

    Broadcast television?! Radio?! Google?! God, is Cooper an idiot?!

    reply to this | link to this | view in chronology ]

  • identicon
    angry dude, 3 Oct 2008 @ 9:32am

    T-Shirts !!!

    Every punk here should start selling T-shirts
    LOOOOOOTTAS of t-shirts

    Mikey said so

    reply to this | link to this | view in chronology ]

  • identicon
    Tony, 3 Oct 2008 @ 12:25pm

    "giving things away and then praying that a business model shows up."

    Sounds like Twitter

    reply to this | link to this | view in chronology ]

  • identicon
    luckybleu, 4 Oct 2008 @ 5:12am

    qtrax

    watch qtrax in the coming weeks 7 years of licensing is finally going to pay off global launch iminent free legal p2p

    reply to this | link to this | view in chronology ]

  • identicon
    Allan, 7 Oct 2008 @ 11:25pm

    Freemium

    Freemium is still a viable model. It's even more important if rapid viral adoption is central to a startup's growth plans. Any startup with a network effect shoud consider freemium.

    reply to this | link to this | view in chronology ]


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