Charging Is Good... But Only If You Charge For The Right Thing

from the otherwise,-it's-a-disaster dept

With various companies trying to rush to put in place better business models thanks to the financial crash, Farhad Manjoo over at Slate has written an article suggesting that various free online services just start charging. Much of the article is based on the beliefs of the guys who run 37Signals, the online software company, who are strong believers in charging a reasonable price for simple software. To some extent, they're correct, but in many ways, it's exactly the wrong message.

For example, Manjoo suggests that Facebook should just start charging users who have over 200 friends something like $5/month. His admits that there will be revolts and anger, but some percentage will pay, and that will create a nice revenue stream. Manjoo is a smart guy, and I usually agree with him on stuff, but on this, he's way off. The problem is that this analysis is a static one, not taking into account what happens next. And, when it comes to social networks like Facebook, we know exactly what happens next. That's because a few years back, when Friendster was the biggest social network on the planet (during another "down" time in the economy), there were rumors that it was going to start charging, and those rumors fueled the growth of MySpace. I still remember getting Friendster messages over and over again, telling people to sign up with MySpace because Friendster was about to start charging.

Sure, Facebook might be able to retain some users who would pay, but many others would flock to the next big thing, which would remain free... and Facebook would look something like Friendster today. Perhaps it would be making money, but most of the users will have moved on to something else.

So while it's important to come up with real business models that bring in actual revenue, you can't do so by charging for things that no one expects to pay for (or that they've been trained not to pay for). Instead, you have to focus on real scarcities, not artificial ones, or your business model is going to go nowhere. Saying that you should "charge" is nothing revolutionary. But it's misleading. The real trick is in understanding what to charge for -- which is what we've been discussing here for years. It's too bad Manjoo didn't explore that angle, because that's where the really interesting business models of tomorrow will be found.
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Filed Under: business models, charging, economics, free


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  1. identicon
    Anonymous Coward #42, 6 Nov 2008 @ 6:11am

    I don't agree with the "over 200 friends" idea, because that's like charging per node for network monitoring/scanning software, which I despise. The basic service should remain free, but it might be a good idea to start charging small fees for add-on features (and "friends" are NOT features).

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