Freemium and Freeconomics

This week we saw the release of Chris Anderson's book Free and reviews from the New Yorker (Malcolm Gladwell) and the Financial Times (John Gapper). I'd like to talk a bit about the firestorm that freeconomics (fed by Chris' book) has unleashed but first we need to clarify something.

The FT piece says:

The most plausible contender for an "entirely new economic model" made
possible by the internet is what Fred Wilson, the New York venture
capitalist, has dubbed "freemium".

There was no dubbing by me. In March 2006, I wrote a post called My Favorite Business Model in which I outlined the freemium concept and I asked the readers to help me give it an easy handle. The word Freemium was not coined by me. It came from Jarid Lukin, who at the time was working for Alacra, a company I am on the board of. Fortunately, we've got Wikipedia which has got the story straight.

Now let's talk about freeconomics. I don't believe everything will be free on the Internet. There will be plenty of paid business models. For example, if you want to watch Major League Baseball games live over the Internet, you'll pay for that. If you want to use services like the FT and the WSJ frequently (more than 10x per month), you'll pay for that. If you want to watch HBO over the Internet, you'll pay for that. If you want a Twitter desktop or mobile client, you might pay for that too.

But we also must recognize that the cost of delivering many services over the Internet has decreased significantly from what it cost to deliver them in the analog world. The marginal cost of delivering a piece of content is approaching zero. But the total cost of delivering content on the Internet is far from zero. My partner Albert wrote a great post about this last week. He said:

The price of watching a stream on Youtube is zero.   With marginal cost
zero and marginal benefit zero, from a perspective of maximizing total
social (net) benefit, free is the right price because it does not
preclude any video that could possibly have benefit from being viewed. 
That does not mean that free is sustainable because it obviously
doesn’t help cover the total cost.

And, as Albert recognizes at the end of his post, this debate is not entirely about economics. It is about the value of various participants in the content ecosystem.

Gladwell got pretty negative on Anderson and his book in the New Yorker piece. He said:

It would be nice to know, as well, just how a business goes about
reorganizing itself around getting people to work for “non-monetary
rewards.” Does he mean that the New York
Times should be
staffed by volunteers, like Meals on Wheels? Anderson’s reference to
people who “prefer to buy their music online” carries the faint
suggestion that refraining from theft should be considered a mere
preference. And then there is his insistence that the relentless
downward pressure on prices represents an iron law of the digital
economy. Why is it a law? Free is just another price, and prices are
set by individual actors, in accordance with the aggregated particulars
of marketplace power.

These are the anti-freeconomics arguments we hear from the likes of Andrew Keen and his ilk. Lambasting file sharers and entrepreneurs who rightly recognize that free is the right way to build market share on the Internet might be fun and make certain people feel good. But it's ignorance of a fundamental fact. And that fact is that free, ad supported media works best on the Internet. We have seen it again and again. I'm not going to even give examples.

Once you have built that audience, you can deliver upsells via freemium models, you can monetize it via advertising and you can branch out into other services which are easier to monetize. This post by Silicon Alley Insider on Facebook's revenues this year is instructive:

Earlier this week, we spoke to several sources who each have some
insight into Facebook's financials (none of them know precisely).
Taking the sources' input together, we'd estimate the company's
expected 2009 revenue this way:

  • $125 million from brand ads
  • $150 million from Facebook's ad deal with Microsoft
  • $75 million from virtual goods
  • $200 million from self-service ads.

These numbers are similar enough to others that I have heard that I feel comfortable republishing them here. Facebook has 200mm+ monthly active users worldwide. Let's say they are doing $50mm per month in revenue. That's a revenue per monthly active user of $0.25. Low for sure, but enough to operate at breakeven. And I expect the self service ads and the virtual goods revenues to grow strongly in the next year, more than making up for the likely loss of some of the $150mm from the ad deal with Microsoft.

And the next move for Facebook is to generate transaction revenues with its payment service and off site ad and transcation revenues from its Facebook Connect service. I'm pretty confident that Facebook can take its revenue per monthly active user to at least $0.50 and maybe higher in the coming years.

Facebook is a perfect example of freeconomics at work. A woman who works for a major media company was in my office recently. She quoted her CEO as saying "why doesn't Facebook just charge a monthly subscription fee, they'd be making money hand over fist?". Well I believe that if Facebook did that, they'd be vulnerable to other networks offering a free service. And certainly not every one of those 200mm+ users are going to cough up a monthly subscription. But by offering a friction free service, they have built a powerful and growing network that they are now starting to monetize in various ways and that they will monetize even further in additional ways. And they are super hard to compete with because they are free.

I like to keep my posts short, so I'll end here with the observation that the Internet allows an entrrepreneur to enter a market with a free offering because the costs of doing so are not astronomical. And most entrpreneurs who take this approach will maintain an attractive free offering of their basic service forever. But that doesn't mean that everything they offer will be free. That's the whole point of freemium. Free gets you to a place where you can ask to get paid. But if you don't start with free on the Internet, most companies will never get paid.

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Comments (Archived):

  1. ryanleecox

    Very well written!(@Coxymoney)

  2. paulhart

    With apologies to Scarface: First you get the market share, then you get the revenue model, then you get the money.

    1. fredwilson

      Nice line

    2. narendra

      and of course there is Homer Simpson’s version – first you get the sugar, then you get the power, then you get the women.

      1. fredwilson

        These are great lines!

  3. Phanio

    Nice post – I agree. Being free is just a means to an end. Facebook is a good example – so is Google. I pay nothing to Google to use their products – free search, free blog, free analytics – yet this company realized $21.8 billion last year.

  4. gian fulgoni

    Fred: Thanks for a very interesting post.While many companies have certainly suceeded with the freemium model, I belive there are many more that have failed financially. And in today’s online ad world where ad networks are getting paid CPMs of only $1, I think it’s becoming even more challenging to execute the freemium model successfully. As an illustration of the challenges of monetization today, I happened to take a look at an analysis you did a few years ago of YouTube’s financial potential:…Plug into your model the CPMs that one can get paid today instead of the $15 you used and you can quicky get to a very uncomfortable position where the revenue doesn’t appear to even come close to covering the bandwidth costs of running such a service.I believe that competition in the online ad market coupled with an explosion of inventory makes the simple freemium model a lot more challenging today than it used to be.

    1. fredwilson

      That’s right Gian. But what if YouTube, like craigslist, started charging for certain videos but kept a large portion of the service free? That’s the freemium model and they wouldn’t get that opportunity if they hadn’t started with a totally free service

      1. gian fulgoni

        Agreed. I’m just saying that it’s becoming more diffficult, more time consuming and more expensive to execute the freemium model in the online ad business. I worry that many more companies will fail than will succeed.

        1. Vivek Kumar

          but with the amount of companies out there and the business model they operate in – shouldn’t more companies fail

          1. gian fulgoni

            Yes, but I think the ratio is changing in the direction of an increasing PROPORTION of companies failing who are basing their future on the freemium model in the ad business

        2. fredwilson

          Me too. We’ve got a portfolio full of ’em

    2. Keenan

      Gian, you are correct. But as I say to my kids, just because it’s hard doesn’t mean you can’t do it. We are going through an economic model change. The fundamentals are changing. The costs of distribution, production, storage, and even marketing to a degree have plummeted. This changes the playing field. It is going to take some time for our heads to turn as well. But they will and some very smart people will show us they way. Then, someday we’ll all talk about how crazy it was, that we did business any other way. It’s just the law of us crazy human folk.

      1. gian fulgoni

        I remember hearing the same argument that the model is different and that all you need are eyeballs back before the 2001 Internet implosion :)The challenge today is that online ad CPMs are under huge pressure. They are falling far faster then the costs of distribution, production, storage and marketing. Something has got to give. Either am increasing proportion of companies will fail or someone needs to prove that publishers can charge higher CPMs for online advertising if they can show a branding ROI and not just direct response. At comScore, we’re trying to show that the Internet is terrific as a branding vehicle. That is sorely needed if we are to prevent further price erosion

    3. kidmercury

      i agree although IMO that is more of an indication that CPM/CPC pricing models are set to be disrupted — not that freeconomics is unviable.

  5. techarea51

    there appear to be just two business models in the universe; you pay or they pay. cable tv seems to have done a reasonable job of combining both. subscription + ads. what are the most successful online models re revenue besides google’s black box ad model?

    1. fredwilson

      I’m a fan of virtual goods or ‘user pay’ in games

      1. cemilturun

        What if the virtual goods sales you made today could buy coffee in Starbucks or a pair of jeans at the Diesel store? The economics for this kind of activity is becoming real in Turkey. There is a huge loyalty card market, 6-7 brands fiercely cannibalizing each other, tons of good database programmers and hundreds of excellent marketing ideas since 1999. A mobile operator used the loyalty strength of its 15 million 26- users on brands like McDonalds and Gap (local version) and users bought two menus for the price of one. Second hamburger and the second coke totally free. Believe me, McDonalds is happy too.Now is the time somebody did the same on the internet.

  6. Kevin Stecko

    The best example of this is They started in 1995 according to wikipedia. The function of the site is very similar to how Facebook started except it was meant for alumni instead of current college students (obviously FB opened up and the two both service just about anyone). Does anyone think has even a little bit of long term chance for survival? Why not? Because they chose the subscription business model first. I firmly believe they missed the opportunity to be Facebook only because of the subscription model they used.Whether or not Facebook can successfully become profitable is beside the point at this time. They have a chance to become huge, while they have given Classmates a death sentence in the process.

    1. kidmercury

      yes. totally agree.

    2. narendra

      Well, it looks like Classmates revenue was up 13% YoY in spite of massive Facebook growth so it seems their business is still doing fine. On the internet the biggest battle is more often the 6 years of limelight and then flat to decline.

    3. fredwilson

      We made the same mistake when I was on the board of Marketwatch went free and we went paid. We lost

  7. Keenan

    Didn’t TV take this approach? TV was free and still is free, unless you want ESPN, HBO, CNN, TLC and a better picture (this has changed a little now that we’ve moved off the analog spectrum). TV was and still is, at the local level, a free add driven business model. You didn’t pay for TV for years, it was completely free for 25 years. It wasn’t until cable and MTV came along that we all decided we would pay for something that we used to get for free. It feels to me the internet is going through a similar process. We’ll pay, but as you said, each of us will have to determine what is important to us before we do. This is the game changing part. Who is the next “cable” equivalent? Who is going to make us “want” to pay for what is free today?

    1. fredwilson

      Good question keenan. I wish the free debate was organized along this dimension.

      1. the build

        I talk about it all the time. 🙂

    2. cheeky_geeky

      Smartest short thing I’ve read on this. And to answer your question, the “next cable equivalent” evolving right now is probably online porn. What’s after that? Maybe sophisticated real-time news.

  8. Ben Atlas

    Fred, Facebook is a bad example. It speaks to a large gorilla that sucks all the air from the competition. Think MSFT. Goggle, etc. For sure we have already proven that dominant centralized web model can deliverer huge internet scalable profits. Big f-ing deal!Internet was supposed to be a decentralizing force. A force that allowed bottom up players and instead it is more value concentrated that the corporate economy that preceded it.Fred, when you use the term economy you are confusing the benefit of a tiny group of founders and investor with an economic model able to deliver livelihood to people. Perhaps an occupational hazard. Question is not if you can translate free scale into profits, no one argues that. The question is if a person can make a living from the toil of his own creativity without giving it over to Google or Facebook. Or the creator just supplies Google, Facebook or Twitter with free content so that a few founders and investors can make out like the bandits. That’s not an an economy.Regardless if FB charges or not, people give it the most valuable asset it has, i.e content, photos, personal data, links for free.

    1. fredwilson

      Well both facebook and twitter started out fairly recently with a small group of developers hacking something together. You make a good point that the Internet is a ‘scale game’ but anyone with the right idea and the right team can get to scale

      1. Ben Atlas

        Fred, we are talking economy here, not ‘monopoly’. The industrial age didn’t scale as well as the internet but it did scale. I.e. the Ford Motors was also started in some garage by an engine hacker. It then proceeded to provide a livelihood for millions of people over the past century. I am not defending the tedious industrial age jobs but it did give you and nice pension for a while.So far the Internet has proven that it is a disruptive paradigm. Millions of people lost jobs to outsourcing, etc. Can it create jobs and the new economy? I don’t know. But FB is a terrible example, all it proves is that a tiny group of people can benefit greatly from scaling. Who cares if they started last year in a basement? The point being the question on the economic model is still unresolved.

        1. Dare Obasanjo

          There is an economy of people who make money from Google (SEO experts, advertisers, etc) and from Facebook (app developers, etc). Similar economies exist around other web companies as well (eBay, Amazon, Etsy, Yahoo!, etc).The interesting question is how big these economies will get not whether they exist.

          1. Ben Atlas

            The number of people who make a living off AdSense (and related SEO) is very small, the vast majority can only count on supplementary income at best. By living I mean actually being able to support a family. Google on the other hand makes billions by scaling this. Even Techcrunch stopped all Adsense ads. This is not an economic force by any stretch of imagination. Small number of people who make a living gaming the system. There are more people who make money of poker. For real!

          2. Mark Essel

            The number of microbusinesses spinning up on the web is growing. More opportunities are catching the eye of startups in a variety of different industries. Have you considered an economy with thousands of smaller businesses employing handfuls of people at a time? That’s the way the future is looking from my crystal ball.

          3. Ben Atlas

            Mark, I hope you are right.

          4. kidmercury

            great point. IMHO the economies will get huge, larger than the GDP of any country. in this way technology platforms will create a new governance paradigm that transcends us beyond the nation-state system. how long it will take is in my opinion the real question.

        2. fredwilson

          They’ve got a lot of employees. So does google and ebay and amazon. I’m not sure its true that the ‘scale’ internet businesses will employ vastly less people. Different people for sure, but maybe not less

    2. fredwilson

      Also, I would point to the app stores on iPhone, Facebook, and Boxee as places the small guy can still make something happen

      1. Ben Atlas

        Most popular iPhone apps are “free”. I would be curious to see the stats for the paid apps but my guess is that like everything on the net – top ten are making money with vast majority making nothing. Once again we know it can scale but can give people jobs, can it create an economy?

        1. fredwilson

          I know of some facebook apps companies with large and growing revenue streams. It is possible that businesses will be built on top of facebook that are larger than facebook itself. Same with twitterThat’s an economy not a monopoly

          1. Ben Atlas

            Fred, the original article is concerned with monetizing of content. Facebook, Twitter and Google are aggregators, they collate, scale and store content that people provide them for free. They don’t create any content; they are a content depository. The Facebook example says that a scaling machine can get paid. Ok, but what about the content creators?Yes FB and Google have employees but the number is obviously negligible. Imagine Detroit at the dawn of the automobile. Google etc. should be ramping up like crazy now; instead they lay off people like everyone else.

          2. fredwilson

            My post is not about content. Nor is the book free.

          3. Ben Atlas

            It seems that everyone speaks about selling. It might be text or microwave ovens, whatever. Even Andrew Keen, Godin, Malcolm they all speak about selling (or giving away) of content of some sort. Your FB example speaks about the power of scaling engines that benefit from free content. It doesn’t explain how this content will be monetized.

          4. fredwilson

            Advertising, like it always has been. The issue is the ‘analog dollars turning into digital dimes’. But if you take out all the costs inherent in the analog model, you can make just as much profit on digital dimes. I see the profit and loss statement of blog networks frequently. There’s a model for content out there

          5. Ben Atlas

            Good point about the analog ad dollars moving over.But Fred, your job leaves you at a great advantage and disadvantage. On one hand you see at a lot of statement on where the rubber hits the road. On the other hand, things that bubble up to your desk might not be an accurate presentation of the action in the middle. There is a blogging crisis now:…Twitter and Facebook have sucked the oxygen from blogging. No one clicks on the links anymore (thanks to Twitter). People don’t comment as they used to. The surviving blogs are legacy.I have a friend, he is blogging for 12 year in a niche. He was even on 60 Minutes once. And all he can master is a complimentary income from the ads. The time will tell if there is a model for content. But for now it’s a stretch.

          6. fredwilson

            I hear you Ben and you are making great points. But this blog now gets more visits from twitter on some days than googleAnd there are blog networks that are doing very wellMy two girls (18 and 16) get almost all of their news and information from what we would call blogs. But those blogs are businesses not hobbies

          7. Ben Atlas

            Fred, in regards to Twitter as a traffic source. Surely you must realize that it has nothing to do with Twitter or even with your great blog but everything to do with the fact that you are an semi-celebrity internet banker. I mean for all I know Perez Hilton get thousands of clicks from Twitter and it has nothing to do with any internet trends naturally but everything to do with some bonehead at Twitter placing him on the suggested list. Speaking about the suggested list, nothing did more to destroy the trust and he confidence in Twitter social graph and ecosystem. All for a short term only publicly gain. I mean Mashebale gets all the Twitter clicks but it says nothing about the state of blogging or about the experience of an average user.Finally I gave up and posted about this very topic on my blog. I am being a bit critical of you; hope you accept this as constructive. This was my intention. I do respect you great deal for the forum that you provide.

          8. fredwilson

            ben, the suggested user list was not done for publicity. it was done as a short term fix for the horrible first time user experience. it has helped enormously. and it will get better.i’ll click thru and read your post

          9. Mark Essel

            Hey it was worth the click through, thanks Ben. Followed the arcs of discussion you linked to and got a clear image of where the various view points were coming from.My guess is that the monetization model will evolve independent of what we propose (even the super influential folks). One of the few things we can do to help the situation is develop tools that allow content creators to cash in on their fine work, and to receive credit for their efforts.

          10. Ben Atlas

            Mark, I agree with you virtually on all points, but I think you underestimate the decisive power of the “super influential folks”. The decisions are made on the executive level without the benefit of crowd sourcing and they do gamble and define the direction forward.

    3. Prokofy

      I agree with Ben Atlas on this point. The Freetard republic counts on a power curve — 10 percent of the users enthusiastically making free user-generated content that makes the other 90 percent stick around — and the exploitation of that power curve for the oligarchs at the top who either pay out a pittance to that 10 percent, or just keep them around with perks and special favours.Even Twitter — especially Twitter — has that power curve of a tiny percentage of people supplying the lion’s share of tweets followed and read by the millions of others. Fred, you know that to be true.In Second Life, a tiny percentage of 10 percent make content for the other 90 percent, of that 10, only 2 percent likely make any major income — and yet there is a much longer and fatter curve for people to make at least something to monetarize their time, unlike any other social media or service which only takes money and attention, and never gives anything back. Will Wright cited this power curve for online gaming communities around and the Sims. You can find it everywhere in games and social media — everything is free, everybody comes for free, there is a long tail of content, but a tiny percentage tend to make most of the content — and of these, only a very small portion get paid or gain favour with the devs as an in-group that then gets to test software ahead of time, etc.With blogs, there are a million blogs with free blogging software, or very low-cost freemium blogging services, free if you try for 30 days, or free if you don’t have bandwidth or storage or other capacity. Then, out of these people, only a tiny percentage make any money; and a microscopic fraction make a living wage.Ben is absolutely right that it is only the developers and their venture capitalists who make money, and these days, they don’t make it from IPOs and publicly traded stock, but from just buying out a company and then perhaps trading it to their friends, so that they’ve got a free R&D department. If Google and MSFT buy all the free enthusiastic widgeteers out there, all they did was save their R&D costs and exploit geeks. if the only stock market is secondary private stock held by employees, what kind of bubble is that?! Stock given out for free to people who stay fanboyz while employed — how can you call that a proper valuation? (The decision to give them stock as part of compensation is utterly arbitrary).Meanwhile, there isn’t any business model for an economy that lets all kinds of people make money — there is only the tiny handful of oligarchs on the top. That’s why I call this “technocommunism” because it’s like the Soviet Union, forcing everyone to be free, collectivizing everyone’s value and labour and products, and then enabling only the rulers to make a buck themselves and live lives of privilege while everyone else sits with exploding TVs sets and no sausage in the stores, or in jail if they tried fixing TV sets or selling sausage outside the free economy. (“We pretend to work; they pretend to pay us.”)It can’t last, any more than the Soviet Union lasted.The reason I cite Second Life as an example is that it is freemium — it has free accounts, but paid accounts too, with incremental sizes depending on how much server space you need. And you can make and sell content or develop the server space and rerent it and make a living. While its virtual, increasingly, there are products and services inside it that are not virtual, but tie to real life, like education, job placement, language training, etc. In time, it will be a model for the Internet that could sustain more people than just the devs and the VCs.You seem at least to be a sincere technocommunist, Fred, not a cynical one; surely I can appeal to your conscience here and get you to care about the working class and the little guy and the people in the collective farm. They need to make at least enough to buy sausage; they can’t live on the potato they grow on their private plots inspite of the collectivization and the free.

      1. Ben Atlas

        I am not sure how you can agree with me when I believe in brevity, clarity of thought and dislike anonymity.

        1. Prokofy

          Awful thing when someone agrees with something you say when you viscerally hate them for no reason, eh? Grow up.I am not “anonymous”. I have an SL avatar and blogger’s name easily and quickly linked to my real name on my blogs. I’m entitled to have a pen name as much as Mark Twain or O Henry. Furthermore, I sure don’t need to provide my real name for people like you to harass and intimidate me — which they often do by phone calls to my home and hate mail. I usually find that those complaining about “anonymity” are people who simply don’t like what I say, and those invoking my real name are trying to intimidate me with the threat of “Google bombing” or “destruction of reputation” — please, I’m way past caring.I note that “egoboss” and “kidmercury” don’t post with real names here, either, but they haven’t engendered the visceral hate that someone like you can incite against someone like me. Stop it.As for clarity of thought, I think my thought’s pretty clear, and fairly original and insightful. It can take awhile to debunk all the memes and prejudices that exist in the geek world.I’m not required to serve your attention spam by “brevity”.

          1. fredwilson

            Ben – I thought the same thing the first time prokofy commented here and I took the same tack you took. Then I started to read the comments and eventually we went out for coffee and chatted. We don’t agree on much, maybe nothing. And the comments are long and dense. But there’s an opinion worth hearing in there

          2. Prokofy

            Well, thanks, Fred, that’s thoughtful.The fact is, acceptance of my opinion without being savaged by bullying geeks shouldn’t be contingent on my giving my real name, any more than most of them ever give *their* real names, nor should it be contingent on me writing a bite-sized post for their ADD-limited attention spans — but whatever.If you have time to pay attention to anything today coming from me, I’d advise it to be this (short form):…and this (longer)http://secondthoughts.typep…and this (very long form of the U Mich study itself)http://www-personal.umich.e…Because it proves with research and scholarship — unlike Andrew Keen, who is anecdotal, or Kevin Kelly, who is religious — that distributing things for free along friendship networks only disseminates them half the time.The other half — more than half, actually — items are distributed when they are sold in publicly open stores or given away as loss-leaders in stores where people are encouraged to buy as well.

          3. fredwilson

            I’m about to take off on a cross country flight so I should have time to read all of thisThanks

      2. fredwilson

        The people I see harmed by this trend are the big media companies who raped and pillaged for years. I’m sorry that I’m not crying for them

        1. Prokofy

          Remind me again how the New York Times or the Washington Post or even the Wall Street Journal, which may not be to your political liking, raped and pillaged anyone.Even if you mean in fact something more big and commercially rapacious like Disney or Warner Brothers or something, I still think “rape and pillage” isn’t what you could apply reasonable to media entertainment companies.Even if you are going to concoct some rabid leftist extremism here about “The Man”, Fred, which I don’t think you’ll be doing, you could still concede that ordinary journalists or newspaper truck drivers do not deserve to be harmed for the sake of Kevin Kelly’s religion to come true.I guess I personally am feeling more pillaged by JP Morgan Chase right now than any media company, given their huge charges, poor customer service and appalling practices which amount to the heinous tactics of pay-day loan sharks, really. Yet I imagine this company’s pillaging troubles you less.

          1. fredwilson

            I attended an offsite for a big media company recently and one of the top execs bemoaned that they can’t get paid four times for the same piece of content anymoreWell you know what, they deserve what’s coming to them.When was it ever reasonable to make me pay four times for something I bought the rights to the first time?That’s what I’m talking about. Raping and pillaging causes revolutions and this is one of them

          2. Prokofy

            Well, Fred, I understand you feel strongly about this, but revolution really happen when the real masses are involved. So far, your revolution is more like a coup d’etat, with an elite class of tekkies and their funders who have always been early adopters and influencers for tech rebelling because of some user issues that most of us find arcane.We buy i-tunes for the i-Pod, and we don’t bemoan that we can’t put them in three other devices because…we don’t have three other devices. We aren’t rich. We don’t need to crack them, nor do we feel put upon “buying them four times” to put them in three other things, a car stereo, another record player, whatever. So…this issue is one that is — not relevant.Your inability to have a copy of something for your 4 devices isn’t raping and pillaging in my book, but I do understand that it feels that way to you.If the price for you not being able to grab your 4 — or endless — ripped copies of everything is that my newspapers get to stay on line and my neighbours get to keep their jobs, hey, I’ll ask you to make do with your one copy or buy something 4 times if you have 4 devices.

          3. fredwilson

            When 90+ pcnt of all music on iPods was not purchased, I’d say that a mass revolution

  9. jarid

    The reality is without your anointing ‘freemium’ as the name, the name clearly would not have taken off, so I’m happy to share the credit.As for freeconomics, the real key to success is where to draw the line. i.e. What features are free and what are premium. The free offering needs to be compelling enough for users to engage with, but the premium features need to ‘makes sense’ in that users understand why they should pay more. For example, Flickr and Gmail nailed it. Users get why they need to pay for ridiculous amounts of storage space that most other users don’t need.Anyway, looking forward to reading Anderson’s book. Chris, if you’re out there, send me a free copy. 😉

    1. fredwilson

      I’ll make sure chris sends you one Jarid. You earned it

  10. Vivek Kumar

    Really interesting read. Companies who offer a unique advantage to the masses – Google search, facebook connect etc, do get a the option of operating as “freemium” because people start to depend and trust on the service. Currently because of the glut in online free services and the recessionary markets there is a more pressure put on the model but this is where the lean-ness and innovativeness comes into play.

  11. goldwerger

    I agree completely.I would add the following nuance – that Freemium models are best suited for products and services that have very low user acquistion cost. For example: due to strong network effect (as social networks), highly viral, or other.They provide the best ROI to their investors when the free base can be established rapidly, and at reasonable total cost, so the upsell of opt-in premium has a wide base, and a reasonable time-horizon to break-even.A great post!

  12. rajjr_tx

    I agree with you. I think that we have to remember that because of the ubiquity of the Internet, another similar service is only a few keystrokes away. I don’t even have to start the car.It would be hard for anyone to have a purely paid model because, as you know, someone will come in and offer it cheaper/free.I think a free component is a necessity (especially at first) and that value should dictate if a consumer wants to upgrade to the paid service/content.

  13. Guy LeCharles Gonzalez

    That a fee-based Facebook would be susceptible to a free competitor speaks to the primary flaw in Anderson’s premise: his devaluation of content. In an ad-supported model, “free” only works with massive scale, the very thing that has led to plummeting CPMs (online, and in print).”Freemium” is simply a marketing hook, and it only works when there is something of legitimate value behind it, something people would actually pay for. ATMs were once free for everyone; now they’re only free to “paid members”. Washington Mutual used a free ATM campaign for 5 years to build market share. It worked, but it wasn’t sustainable, and now they’re a footnote in the lessons learned from the most recent economic collapse.I agree with Ben Atlas: “free” benefits investors and certain middlemen more than it does the content producers. A comment left on Anderson’s weak response to Gladwell’s review offered a nice breakdown of the oft-used music myth:

    1. David Semeria

      Exactamundo.There’s a massive difference between letting users try your service for free – which makes complete sense – and letting them use it for free.I call this Kamikaze Marketing because you don’t just blow yourself up, but also those around you.

    2. Ben Atlas

      Thank you for the endorsement.Everyone is trying to create a narrative around the way they do things now, no one is suggesting an economic model for the future.

  14. Michele Clarke

    The most helpful post on this all week – thank you. Agree or not with Chris Anderson’s take, he seems to have touched off the seminal debate on the topic. Hopefully we can all have it – and move on. There’s no singular path to value in any industry, and would be great to see all this intellectual energy redirected to matching the right models with the right companies. The window on transformation won’t be open forever.

  15. kidmercury

    killer post boss. thanks for putting the smackdown on the youngsters who don’t see free as a marketing strategy, somebody needed to put those children in their place.but i do have some issues with the way freemium is often presented. basically, the common argument is that you can use free as a marketing tool to sell premium services with more features. flickr is a prime example, they offer free accounts with X amount of storage and than paid accounts with more storage.this obviously can make money and create a healthy and profitable business — at least for now. ultimately, though, it’s a crippleware strategy that relies on artificial scarcity. i also think it creates a mindset where free is viewed as a cost to sell premium services, rather than viewing it as the cost to earn trust to gain influence and private customer information. the latter is particularly important: once we have customer information, we can connect these customers and create personalized services. it is personalization and networking that are the truly disruptive forces freeconomics will unleash, in my opinion, and thus that is where i think most of us would be better off does free properly, in my opinion, and while my dislike for them is growing by the day i have to give props where props are due. by making it free to get indexed, google is able to access a wider data set and innovate by analyzing this data. and by making it free to search, and by making all sorts of free services (gmail, google reader, etc) google is positioning itself to know everything about you, so that it can best personalize the world for you, so that it can intermediate all of your commercial transactions. that in my opinion is freeconomics at its finest.

    1. fredwilson

      Right on as usual Kid.

    2. the build

      I don’t know that this is necessarily new or novel, though. I can think of instances of the same in the analog world.It is the same world, different platform. Free will only work so far and for so long online.

    3. ShanaC

      You still need a huge amount of humans in the stream in order to interpret the data- even once you do number plugging. Numbers mean very little without humans chugging along right along side. Google works because it harnesses human power.The quick question I have about Googole is at what point should I let them know everything? Or what things do I want them to know? Even though you can put everything on a supply/demand curve- not everything can be fairly monetized because of equity issues. With more data out there- equity issues will pop up just as likely as if the data were not. It just creates more subtle parts of the curve as more groups break off…

    4. Prokofy

      I’m not a child, for example, but you are. Do you have a job?People who don’t see destructiveness and copyleftism as a good “marketing strategy” aren’t children, they’re adults.I find so little real research goes into studying this topic, which is religious in nature on all sides of the discussion.I point to a simple poll on my website that points out the following:32 percent of respondents say that Creative Commons helps them to share their works for free, but get credit27 percent of respondents say that Creative Commons helps them to share their works for free, *and* make money from their creativityThese are the people you always hear about, you always celebrate, you always bless — and I didn’t mind if I would up hearing from them first in my questionnaire, and if my blog, that is read by a lot of geeky and indy types who favour copyleftism, would produce these results.That’s ok. But read further:28 percent see there is *no reason* to use Creative Commons when there is already copyright law.13 percent say they do not wish to use Creative Commons because *it does not help them make money from their creativity.*Imagine if this poll could get a wider hearing — in SL I have it put out with slightly different questions, and one of the most frequent answers is:”I never heard of Creative Commons”.”I don’t make things so I don’t care”.Those last two categories of my poll — not needing Creative Commons at all because they have copyright law, or not using CC because it really doesn’t help you get paid, as you can’t charge for copies thruogh it — today happen to be slightly less; many days they are slightly more. And that’s why I worry about all this Free crap, and that’s why I question it, and that’s why I saw that it is not a business model FOR ALL OF US.Your notion that there is something benign about Google “knowing everything about you” so that it can “best personalize the world for you” is really quite chilling.You’d never, ever, ever in your life say that about the United States of America’s government, because you would assume that has evil intent when it attempted to gather everything about you.What made you sanitize this action for Google?!What’s hilarious about your extremism is that you even view the more moderate version of copyleftism that Fred touts, the freemium, as “crippleware” that is, um, preventing everything from being freed up for “teh ppl” I guess.Who pays? There are only four sources for this self-indulgence of yours:1. Your mom.2. The government.3. Your big IT job.4. Private venture capitalists/private foundations.I think it’s great if you can get one of those four sources to pay for your personalized enhanced time online. The rest of us have to work for a living.

      1. kidmercury

        lol, yes, i have a job. i run a company that publishes professional quality content for free that is CC-BY licensed. we are profitable and cash flow positive (very small, just two founders and a network of independent contractors, as well as crowdsourced labor we get from our community, whom we compensate with our virtual currency). we received a grand total of zero dollars from the four sources you claim pay for freeconomics. so i talk the talk and walk the walk.IMHO to understand the inevitability of freeconomics you need to understand disruptive strategy. fred understands it very well, that’s why he and i are on the same page on most of this stuff. more importantly, we’re also cooler and better looking than those who do not embrace conveniently ignored the part where i said my dislike for google is growing by the day. the reason for this is that while google is brilliant in many ways, they are not democratic enough. they need to treat me with rights like a citizen. right now they can delete my gmail account or turn my data over to the feds and create a lot of problems for me. it is my contention that “the next google” will behave more like a country, and will take us past the nation-state system in the process. as you are a virtual world person i think we would be in agreement about a lot of these views. but i don’t think that world can happen without freeconomics, it won’t be able to generate the wealth needed to accomplish that if it uses a closed strategy, which will generate less money. but like i said, to understand why closed strategies will generate less money, you need to understand disruptive strategy. if you did that, you’d probably be in agreement with me and fred. although we would still be cooler and better looking. sorry.

        1. Prokofy

          I personally would take a hugely weather eye to your operation, but this blog isn’t really the space for it.I find it reprehensible that people like you “crowdsource” labor — it’s exploited labour — and rely on people to keep working to you for free for ridiculous perks like “virtual currency” or other tokens (t-shirts, meetings with the devs, fan conferences, etc.). I think it rots.And the customer service you get from freeware opensource etc is uneven. Give me a company that sells me a license to their software that includes a contract for me to call and troubleshoot and find people who show up at work any day of the week to software that is made by geeks with “help” as and when they feel like it on their busy schedule of playing WoW and hacking and surfing the net. No thanks.The problem with your business model is as follows:o it relies on crowd sourced free labouro it relies on harvesting that labour, and your own compensated labour, to sell to buyers of your consulting.I think that’s all pretty shakey, and it’s lasting for 10 years in this particular slice of time we have with fascinated exuberance over the Internet will not last. I think the original guy Mark Cuban who prompted Fred’s outrage here in his post was in fact right: this stuff will bottom out, like all free harvested labour bottoms out when people get tired of opensource being refabbed and resold as essentially the wrapper to consulting on how to use the wonky stuff that isn’t intuitive for users, or worse, selling special licenses that even violate the ethic of opensource even if technically they don’t violate the dual source licensing of this or that regime.Freeconomics is also just for freaks who make software with other’s free slave labour in exchange for tokens — like the grand masters of the British Empire or Soviet empires or early US plantation owners used to harvest the slave labour of people they pressed into service.It’s not a business model beyond the meme of software-as-slavery production. It doesn’t work for other kinds of production, even other kinds of digital production, like online news content. It’s just NOT VIABLE. And we are seeing that as one sector after another falls and gets gutted of its value.Starting with banking, which everyone thought would get better and cheaper by being moved online and becoming faster — but which in fact became far less accountable, and far more open to fraud.Ending lately with media, which is copied to death and devalued.All of this came about because software slaves and big IT were positioned to make a killing for the few at the expense of the many, with the same kind of shill that the Soviet communist gave about “free”.I didn’t “miss” your claim that you are more and more unhappy with Google, I simply saw that you didn’t really express any unhappiness if you were able to say you were happy that these folks “personalize” your online experience.The biggest fallacy that all the copyleftists and social Darwinist geeks like yourself bring to the table now is the belief that your experience in your goofy opensource sect is something that can and should be replicated through all aspects of life, everywhere.There is nothing to say this is true; there is mounting evidence that in fact the closed society of “open source” and ‘free” are merely a new form of totalitarianism that sucks out human value and freedom.<imho to=”” understand=”” the=”” inevitability=”” of=”” freeconomics=”” you=”” need=”” to=”” understand=”” disruptive=”” strategy.=”” fred=”” understands=”” it=”” very=”” well,=”” that’s=”” why=”” he=”” and=”” i=”” are=”” on=”” the=”” same=”” page=”” on=”” most=”” of=”” this=”” stuff.=”” more=”” importantly,=”” we’re=”” also=”” cooler=”” and=”” better=”” looking=”” than=”” those=”” who=”” do=”” not=”” embrace=”” freeconomics.=”” this=”” is=”” why=”” i=”” tend=”” to=”” call=”” you=”” people=”” fascists,=”” if=”” not=”” technocommunists=”” (i=”” vary=”” from=”” day=”” to=”” day=”” as=”” i=”” analyze=”” it).=”” you=”” pretend,=”” like=”” the=”” soviet=”” marxists=”” did,=”” that=”” your=”” ideology=”” is=”” “inevitable”.=”” inevitable,=”” my=”” ass.=”” you=”” are=”” one=”” big=”” old=”” fashioned=”” east=”” coast=”” blackout=”” and=”” one=”” big=”” old=”” fashioned=”” west=”” coast=”” earthquake=”” away=”” from=”” total=”” irrelevance=”” and=”” failure.=”” you=”” also=”” pretend=”” that=”” only=”” a=”” special,=”” smart=”” elite=”” –=”” a=”” superior=”” race=”” –=”” can=”” understand=”” this=”” “inevitability”=”” and=”” those=”” that=”” criticize=”” it=”” or=”” “fail=”” to=”” get=”” with=”” the=”” program”=”” are=”” just=”” “losers”.=”” at=”” what=”” point=”” will=”” you=”” become=”” really=”” dangerous=”” and=”” coercive=”” with=”” these=”” really=”” bad=”” eugenics=”” ideas?=”” there=”” is=”” nothing=”” “inevitable”=”” about=”” something=”” that=”” gets=”” its=”” way=”” only=”” through=”” coercion=”” and=”” destruction=”” –=”” which=”” is=”” what=”” “free”=”” has=”” been=”” doing=”” to=”” many=”” of=”” our=”” industries=”” –=”” all=”” so=”” that=”” fred=”” can=”” have=”” four=”” i-tunes=”” on=”” four=”” of=”” his=”” toys.=”” as=”” for=”” “more=”” importantly,=”” we’re=”” also=”” cooler=”” and=”” better=”” looking=”” than=”” those=”” who=”” do=”” not=”” embrace=”” freeconomics,”=”” i=”” can=”” only=”” say=”” in=”” response=”” to=”” this=”” sort=”” of=”” infantile=”” and=”” flippant=”” attempt=”” at=”” humour=”” (i=”” hope=”” it’s=”” a=”” joke,=”” and=”” not=”” another=”” indication=”” of=”” incipient=”” totalitarianism)=”” that=”” i=”” hope=”” the=”” recession=”” will=”” come=”” and=”” bite=”” you=”” hard,=”” as=”” it=”” has=”” bitten=”” hard=”” on=”” me=”” and=”” my=”” family.=””>

          1. kidmercury

            lol, c’mon man, i was just joking about the cooler and better looking comment, so don’t take offense. i apologize if it offended you, i was just playing around.a few points:1. if you want to diss my business model, which i welcome as i am always up for discussing my business and value anyone who is going to take time out to give feedback, you should check it out. here it is.2. crowdsourced labor is not exploitative, no one is holding a gun to their head. if anything we should probably be paying them less if anything at all, half of them are doing it because they love us so much. why do they love us so much? because we give them what they want FOR FREE.3. the virtual currency is pegged in value to the US dollar (for now, at least) and we do offer convertibility as well as the ability to purchase real goods and services from our store with it.4. there are a few bazillion problems with my business model (and that’s not even counting the ones i’m not aware of), but your critiques are not valid. check out the site and i think you’ll have a better idea of what we’re doing.5. calling me fascist is humorous, albeit not true. i dont know what technocommunism is so maybe that’s true. i prefer to think of myself as an old school capitalist who believes in limited government and sound money.6. implying i’m a eugencist is even more humorous, as my business model is designed to disrupt the international banking cartel, who actually ARE eugenicists. watch the movie endgame, which you find on google video FOR FREE (as authorized by the creator), to understand how the eugenicists operate. i am literally dedicating my life to stopping those people so to accuse me of being a eugencist is truly hilarious. and i dont think disruptive strategy is hard to understand, or that only special people can understand it. rather i think it is like 9/11 truth — simple to understand once it is pointed out to you, though hard to spot until it is.7. whoa, buddy — you can’t diss fred like that. i mean you can diss me all you want, i’ll get a kick out of it, but remember i’m the bouncer up in this piece, so i gotta step in and ask you to be a bit more respectful to other members of the community, including the community founder, fred. and besides, get your facts straight, fred isn’t a youngster who is a crapple fanboy, crapple doesn’t understand freeconomics. fred’s living large with sonos and rhapsody. and try not to hate on rich people who earn their money honestly, that’s exactly what we need more of in this world. in fact if that’s what ruled the world there would be no recession/depression.8. i’m sorry to hear the recession has hit you hard. although if you’re feeling it financially perhaps you can appreciate businesses built around free strategies, as such strategies will help you save money. and if you ever need work, feel free to sign up for my community and do some work to earn our virtual currency. you’ll then be able to invest the virtual currency you earn in our virtual gold (well it’s not available yet but it’s coming soon), which is pegged to the price of real gold. i highly recommend gold as an ivnestment and have produced a good bit of professional quality content FOR FREE to help earn the trust needed to sell you gold, and to explain why i think gold is such a great investment opportunity in our current times. if you did do all this, who knows, you might find that freeconomics will get you out of this recession!

          2. Prokofy

            1. You’ve already explained your business model, which I’ll sum up as follows: ‘You information wants to be free; my information is available for a consulting fee, however.”2. Crowdsourced labour is *too* exploitative because in fact those 4 sources of support for labour I’ve identified prop that up — so you are ripping off Mom, the government, and big IT indirectly by sucking it secondarily using free labour. That’s why you’re so destructive and harmful to economies.Furthermore, your loyal fans may not stay that way once any of their 4 sources of income dry up, or they tire of getting peanuts from you, even if your silly virtual currency cashes out for a fraction of their labour value (like it does in Second Life where wages are constantly depleted by the game gods printing the currency to keep it at an artificially low exchange rate).Business models that rely on people loving you as they provide slave labour sound awfully silly, emotional, and cult-like. People like to get paid for their work because they still have to pay for food and shelter until Ray Kurzweil can, um, get up inside the neural networks to deceive them into thinking they have all those things by manipulating their cells with nanobots lol. Until then, they need money, and that comes from…somewhere that you aren’t providing.3. Your business model “We provide consulting on top of our geeky hard-to-use software that we make opensource for free with free labour” is one replicated with tiresome predictability all across the the Internet. If you make money with it for now, great, but…not everyone like you can, nor can ever other sector outside the geek domain use this model. Not even musicians use it. It’s not even a model for all digital content, period. For every one person like yourself bloviating with ill-supported and even vindictive glee about their “busienss model” selling software-as-slavery, there are 99 who didn’t get it to work yet but keep working the slave part.4. You’re not an old-school capitalist or social democrat, so don’t pretend that you are. A real capitalist doesn’t destroy his customers, or expect his customers to work for free so he can sell a widget — unless of course, he’s a plantation owner or running the East India Company or a Soviet collective farm. You seem to think that because this imperialist or totalitarian exploitation is dressed up in groovy cyber clothing that it is ok. It’s not. And it cannot last. Even for you.Your ideas are indeed fascistic if you reach for these old memes like declaring something as “inevitable” and declaring yourself and your buddies as “the enlightened ones who get it” and pronouncing everyone else as “losers”.If this is so inevitable, um, why do you have to work so hard at declaring it and bringing it about, for one?For two, if you brought it about by destroying value, and demolishing businesses and “disrupting” everything but yourself with “disruptive technology,” who will be your customers?When this recession gets done, there won’t be people online in the large droves you imagine doing things like buying your Facebook widget or your Netflix.Capitalists who exploited labour over the years would be curbed and restrained by socialists or communists or other capitalists who competed and provided better working conditions. Not only are you one paycheck away from a blackout or an earthquake, you’re one paycheck away from the next guy who pays his software engineers AND finds a way of selling media to ads AND provides free/freemium content. And the field is littered with such examples. Remember that was going to “hold all our photos unlimited for life for free”? Remember when YouTube and Flickr were independent companies? Now they are cost centers for the big companies that bought them.Sound money? Where? Infused by VC capitalists? Infused by a short list of consultants who could turn on your tomorrow? With the entire thing shored up by “crowdsourced” slave labour? And all of it relying on Mom/government/your big IT company that lets you goof off/old money from the last century in foundations/new money from people like Fred/etc. to shore it up. How long will that last? These are all non-renewable resources.5. If you aren’t into eugenics, then you’ll refrain from writing so cockily that everything is “inevitable,” that only you yourself are smart enough to see that it is inevitable and that everyone else who doesn’t believe this or shows some skepticism is “a loser”.6. I find it touching that you have such concern about international banking cartels, which of course, are in big trouble these days. Can you show that sort sort of robust indignation about other giant things like Big IT, Google, etc.? Google is just a bigger walled garden, the sort that you folks always want to jailbreak out of.7. Oh dear. Am I dealing with one of those nutters from the 9/11 “Truth Commission”? Then I’m dealing with more of a cultic loon than I thought, and there’s no point in continuing this discussion.8. Oh dear AGAIN. Fred made you the bouncer on his blog LOL? that’s…risable. I think Fred can take care of himself. Fred does appear to be a rich dude who came by his wealthy honestly, with hard work, smarts, luck, etc. That’s all great. That doesn’t mean that I don’t get to challenge his ideologies and his ethics. This is America, bub. Knock it off with the techno-thug crap on a blog.9. Oh me oh my AGAIN AGAIN! Is your “business” in fact reliant on “selling gold on the Internet”? Then…I truly am done with this conversation. Bye!

          3. kidmercury

            lol, no worries man, to each their own. just one last point i wanted to make for others who may be reading this, is that i’m not actually cocky, sometimes i may write that way because i think it is amusing, it is just my sense of humor. but i know humility is what separates those who are great from those who are good, and that humility, like truth, is essential to maintaining and developing creative vision. i want to be the best i can be so i know the importance of humility and remind myself of it constantly (which lucky for me is easy because i make many mistakes).

          4. Mark Essel

            I learned much from the juxtaposition of your opposing views kidmercury and Prokofy. Our ideologies are iteratively refined by our experiences if we leave ourselves open to viewpoints other than our own.For example I have long been opposed to the concept of labor unions, but recently had the pleasure of a long discussion with a gentlemen who was underpriced by a remote construction company. I’ve got a blog post brewing about it (recording and empty post as a reminder to get ‘er done). But the gist is that local cost of living and support (local property taxes for schools, shopping at this business for decades) by this construction guy can’t possible compete with cheaper labor being brought in from a lower cost of living state/area. If this trend continues, locally we lose his expertise in the field and become reliant on remote construction.This vulnerability (to being unable to make large repairs without looking for remote help), and disruption to local services doesn’t consider many cascading effects. Humans take time to become masters in a trade. He can’t simply pickup and move to a cheaper area due to his wife and children’s lives here.If we truly believe in widescale disruption in the name of efficiency, can we do so with a hint of compassion. Local training and community support for disrupted industries to start off. Would we fail producing in the name of efficiency if we spent time considering the ramifications of our actions?Obviously I have much more to learn in this area. As a simple man, I’m still baffled that philanthropy is so despised among our labors that is least financially rewarded. Is this an error in our concept of value?

          5. kidmercury

            regarding the situation you suggested, personally, i think capitalism is a bit harsh some times, and that’s just the way it is. it screws us all over some times, but i still think it’s the best system to manage an economy and i hope we can return to it some day.with that said i understand the problem you noted is very real. in my opinion the solution is education: for isntance the local construction company needs to think more about their business, and find a dimension that they can compete on that the remote construction companies cannot (i.e. customer service, better knowledge of local businesses and environment, developing new product/service lines….i’m not in the construction biz but there’s always a way to innovate, in my opinion, and so the destruction of existing value chains can be thought of as prodding businesses to innovate and become better).what gets me a bit riled up is the broken education system. most construction companies aren’t going to understand lots of these ideas simply because they have not been educated in them. they haven’t been educated in them because the education system is a complete mess. if you could go to school and get a real business education, which frankly i think you should be able to get in high school, we’d have a world of entrepreneurs who better understand how changes in the economy and their environment affect them, and how they need to reposition themselves accordingly. the good news is that the internet can solve this problem; for instance i learn things all the time from the fantastic community here at, i view it as like my ongoing education as an entrepreneur. more useful than college, and a lot cheaper too.

          6. Mark Essel

            Thanks kid, I respect your love of pure capitalism and have my own spin on a compassionate capitalism in the post I linked below.Of course I worry that an overly concerned version of free trade/competition would be undercut by entities unburdened by empathy for their disrupted competitors.

          7. fredwilson

            That’s why I’m so jazzed about what marc canter is doing in NE Ohio

    5. Mark Essel

      Well said kid “free is viewed as a cost to sell premium services, rather than viewing it as the cost to earn trust”. A good question is how far can we trust a business to know everything about us? They’re ultimately trying to make revenue. If the business is completely transparent (as much as is safe) we can monitor how “good” the business is acting.I’m working now on a project that searches public feeds for info (customized ads). But it’s based on users opting in, or any public user id. My brother brought up some good counter arguments to having a business data mine all his likes and dislikes. Although I think the data being public info trumps most of them. He’s not 100% comfortable with a computer breaking down the meta data of his social interactions online. Plus he mentioned he really enjoys the process I’m working on making automatic (grabbing product ads related to his interests). I told him it will make his job even easier, the latest products in his interest areas will just show up in a “looky here” box.Maybe the best space for a personal searching tool/assistant is in the hands of the user with full control over the privacy and what information it can pass to other web services.

      1. fredwilson

        My partner brad has always wanted an offer in box instead of a random ad unit

        1. Mark Essel

          Brad and other web content consumers (all of us) will be in luck soon. Proof of concept in the works.What I have know is simple php script that grabs a users latest status (twitter) and gets back some semantic keywords from Zemanta (API).Next stage is firing up an openx server and popping up an ad. (this afternoon’s task after getting some exercise walking)Then packaging it within a wordpress plugin. (hope this doesn’t take too long)Was hoping for a quick “enter twitter username here” and bang, have it work out of the box. Zemanta wants users to have their own API key, so they’ll have to get sent there to register before the plugin would become active (each zemanta key has 4k uses per day, open calais has 10k uses per day).Later on: add some cool bells and whistles so users can customize which tweets the plugin uses (stored in browser cookies and a database I setup), and choose their semantic keyword client or a merge of multiple algorithms (more work later). Have a user profile page so people have full control over their info, even though we’re grabbing it from public streams, they can do with it what they wish (wipe it, restart it, manually add their favorite topics/keyword tags). Eventually have the simple plugin contact the database host and get back personalized topics and an ad to pop up. Eventually I’d like to datamine the user profiles. One idea is to create suggested topic communities (hey you guys all love the same stuff). Another favorite idea: dynamically created web pages based on sucking in info (temporally fresh) related to their favorite tags.I think that’d be cool for me since I blog about wanting tools like that all the time, making one for selfish reasons that other people can enjoy would be sweet.Although the standalone software lives in php, I hope to move it into scala for later database support/utility scaling.

          1. fredwilson

            I’d like to see it when its working. Do you want an intro to the zemanta folks? People tell me their api is better than open calais in terms of relevancy and accuracy of tags although I have not done any comparisons myself

          2. Mark Essel

            Sure, you can try it out after we kick the tires. Met Bostjan and Andraz from Zemanta, had a good chat with Bostjan only met Andraz briefly before they both had a meeting. Really enjoy their algorithms and tool (using their API now).There’s a divide between getting something working (almost there) and making it into a product many web sites/businesses will benefit from. I think the “smart” user profile/database is part of that bridge.

  16. Hemi Weingarten

    Fred, as a VC you are looking only at companies poised to become web giants with millions of active users. But what about the long tail? Is there no room for niche players? Web properties with 50,000 subscribers, paying happily for what they get from day 1?The most prominent example is smugmug, with 100k users paying $40+ per annual subscription. Nice profitable business, but not for VCs.

    1. fredwilson

      Agreed. Very few businesses are appropriate for VC investment. And very few of them are appropriate for IPOs

      1. mattschulte

        businesses that can get to scale, also provide an ecosystem for smaller players to swim in and develop for, with lo/no cost.

  17. Carl Rahn Griffith

    If your business has the cash-reserves/backing (and patience) to evolve over a period of time with longer-term sustainability being predicated on a free model pending the acquisition of significant numbers of users and in parallel developing external income sources, all is fine and dandy – as long as you’ve also got pretty damn rigid milestones/metrics (well enforced) in place to ensure the potentially very long cash-burn period is always understood to be an investment …. and not a black-hole repository.The biggest fear I have is when we lose sight of the significance (and dignity of) of good old simple profitability and our focus becomes some esoteric academic discussion with a whole new lexicon. This is – potentially – the same perfect-storm mix that led to the collapse of the financial markets.

    1. fredwilson

      Agreed. That’s why I like to focus on revenue per monthly user. I figure most businesses can get to ten to twenty cents once they turn on monetization. So if you keep your costs lower than that, you’ve got a model

  18. timraleigh

    While I agree that “Freemium” works; TV and Google are great examples, I am not sure Facebook is. Isn’t the cost of providing and maintaining an ever increasing quality service to an ever growing (demanding) audience the reason why Facebook continues to spend more than they make?

    1. fredwilson

      I don’t believe they do. I’ve heard they are ebitda profitable and have been so for a while now

  19. Dan Cornish

    How about the idea of taking a product people pay for and then offer it for free. You could call it pre-free. Enterprise Software is a wonderful place to remove costs. Take a $1 billion market for a particular enterprise software vertical and turn it into a $50 million market.

    1. greggdourgarian

      Dan, we are an enterprise software company ( doing exactly that. We offer the underlying legacy crm/recruiting software for free and upgrade users to services like payroll processing, lead generation and payroll funding.But is this the same freemium that Fred is talking about? For us we are replacing one free for another. We used to give away the consulting (aka software sales, trade show booths etc). Now we give away a base service.

  20. David Esrati

    Fred- the part that’s missing out of all this “Freemium” and “Free” discussion is what the user is paying with: it’s not cash, it’s time. And all of us know that “Time = Money”- the question is how will the “Freemium” service take advantage of your time: by gathering data about you to target you for advertisers- who will subsidize your time with the “Freemium” service- or profit by partnering- ie not pay per click- buy pay per purchase.Google and Facebook know more about you than most of the members realize. When it comes to connecting people with products- sites like these will be the only game in town. That’s why content producers will be king again when this all sorts out.The middle men in this transaction used to be the mass media- now it’s the social web. Get used to it.

  21. timcohn

    Is free the new barrier to entry?

    1. David Semeria


    2. Carl Rahn Griffith

      Lol, spot-on … some while ago I asked whether an Entry Strategy was becoming more of a challenge than an Exit Strategy … 😉

    3. fredwilson

      I think its is how long you can sustain free. That’s why we love companies like zemanta, disqus, heyzap, etc who can build, deploy, and maintain great web services with very small teams and burn rates

  22. John Sharp

    I think one of the most important factors in the “freemium” argument is being missed. To borrow from a phrase oft-used by married couples, that factor is “quality time”. Take this line from Chris Anderson’s most recent blog:”newspapers [have] lost their monopoly on consumer attention”When I think about “consumer attention” and my own personal “attention span” in the context of why I keep my Economist and Wired subscriptions active, it’s easy to understand why I let my local newspaper subscription wane.The Economist and Wired are both (still) capable of holding my attention for a good few hours. Hours – try doing that with your local newspaper! The clutter won’t let you – the editors simply don’t permit you to spend “quality time” with the medium.”Quality of programming” is usually the reason touted as to why HBO and premium sports channels have been able to attract audiences for premium products and services. But, having spend several years inside the medium of television, I think “quality” is only half the story. “Time” is the other, rarely-mentioned co-factor.I think what is happening when a consumer flips to a premium medium is they are saying “I have a few hours to spare and I trust that your brand will provide me with something of quality that I can consumer over a period of time that correlates to the amount of time I wish to consume.”This sounds right, doesn’t it? An expectation of “quality over time” is the real reason we continue to subscribe to quality programming on cable TV or quality paper magazines. We have time available and we want to spend it as productively and/or as enjoyably as possible.Facebook’s challenge is that it needs to improve not only the “quality” of its content but also the amount of time we spend consuming it. In other words,he kick needs to go high and long at the same time. That simple analogy suggests an exponentially large problem.Sorry Fred, this is awfully long for a comment – I’m going to continue these thoughts here:

    1. fredwilson

      Excellent thoughts. I”ll check out your post

  23. PKafka

    Fred, I’m hung up on your “what you’ll pay for” examples, which is why I’m always hung up on the marginal cost argument. Marginal cost of delivering all of that stuff is also approaching zero (with the possible exception of MLB live stream, but that will change soon enough), so why would I pay for any of it when I can get it for free? And if providers are able to put strong enough locks on the product so that stealing it becomes a pain, then why can’t other providers do the same?

    1. fredwilson

      You can always pirate content online but if a stream is available and it is reasonably priced, I think most people will take the stream. MLB has the added benefit of a live event. The WSJ and the FT are no different from the NYT and Techcrunch for most people, but for some, they are a daily must read. I think the latter group will pay for their content but the former group will not

      1. David J Bland

        When you are younger, you’ll spend those countless hours searching for pirated content because there is almost zero chance of affording it.As you grow older, you have more $$$ (hopefully) but less free time, so you are more inclined to pay for reasonably priced content instead of pirating it.When you are 16, maybe you have the free time / patience to search for a movie, download it and burn it with a chance that it’ll die on you somewhere in the process. Now that I’m older, not so much…

  24. Vladimir Vukicevic

    I hate to bring this conversation to the base level, but Internet porn seems to be a good indicator for how content producers have dealt with this issue – this industry faced the same problems more than a decade ago and is now facing it again with user generated content.The first time they tackled the problem with various forms of freemium business models. Now they are upping the ante by offering a “higher-quality” product – essentially attempting to answer the question that Keenan brought up: Who is going to make us “want” to pay for what is free today?

    1. fredwilson

      They also are great at spam. Fuckers

      1. Vladimir Vukicevic

        I don’t know if “great” is a good word to describe their spam 🙂 But they are pioneers of adoption who are usually the first content providers to deploy new technology – i.e. VHS, the Internet, DVDs, and now they are adopting immersive/virtual reality technologies.

  25. Jamie Lin

    Great post, Fred.I also wrote an analysis earlier from Eonomics point of view and basically came to the same conclusion that freemium is the best model and very sustainable:

    1. fredwilson

      Thanks for the link. I’ll go check it out

  26. Alex Wilhelm

    I have a deep love of recurring cash flow. I will never take on another project where the revenue potential is mass scaling of users followed by adsense.

  27. paramendra

    There is no free. If you are serving ads, you are making money. If you are drawing people’s attention and building brand in the process to monetize later, that is not free: you are building a brand. Immediate, cash transaction is not the only way to get paid. Google Search is not free. They serve those text ads. I pay to use Google Search.

  28. marshal sandler

    I agree with Mr Wilson I use Zemanta Tumblr and other free apps since they are able to promote others for example I found Faviki thru te Zemanta Blog it is a great booking site that uses Zemanta to create tags-

  29. Ian Betteridge

    “Low for sure, but enough to operate at breakeven.”And yet Facebook continues to operate at a loss, only *hoping* to break even this year despite increasing its revenues from an estimated $300m last year to $400m this. (Both figures from Venturebeat, btw).The problem is that with free services, especially social networks, growth (and thus overall costs) can spiral out of control.

    1. fredwilson

      I’ve heard they are profitable. Do you know the actual numbers?

  30. Flying Leap

    This comment is about Zemanta actually. The contextual links on this post are just SPOT ON!

    1. fredwilson

      That’s because I manually placed them.Zemanta is a recommendation engine for the blogger. It gives me about a dozen choices for related links and I click on the ones I want to place. Same with hyperlinks, tags, photos, videos, etc

  31. Andrus

    Has anyone read Chris Anderson’s book Free?It is not the cheapest book and I am wondering is it worth the time and money?

    1. fredwilson

      I’ve got a copy. I got it for free. I’m not kidding

  32. slowblogger

    Freemium, or some kinds at least, may be against customer loyalty, compensating free riders and charging more from loyal customers.…What do you think?

    1. fredwilson

      That’s very true. But the most frequent customers (or power users) often extract the most value out of a product or service

      1. slowblogger

        Of course power users extract the most value. That’s almost self-evident. But we are talking about users who also give back the most value to you.Loyalty, defined as contribution to you, may not always be longevity, though there usually is correlation. For example, if you have a new product, the ones who dare to adopt it early must be thought of as loyal and should be appreciated. They are new users, but they add to your credibility and spread the news. They should be treated as loyal.However, the issue is that some freemium models do not seem to distinguish between the early contributors and pure free riders. They then have the risk of becoming a free-rider heaven and exploiter of the heavy users/contributors.Or, maybe I am wrong and those free users who don’t seem to contribute (no word-of-mouth, no sharing of UGC, etc) do have real contribution…Thoughts?

        1. fredwilson

          I wonder if free riders are just a cost of doing business on the internet, like spam, phishing, viruses, etc

          1. slowblogger

            No, they are not. It must be necessary to identify both gives and takes from a free user, to really understand what’s going on.Let say someone reads New York times online a few times a week. He does not leave any comment, does not link or talk about the article at his blog. I don’t know how much of the free users is like this, but I know they exist.What this person receives is clear (news), but what does NYT get from him? A datapoint added to the userbase, so that NYT can publicize its popularity? That implies people are attracted by size, popularity, or move like a herd without independent judgment (“I like what others like”), which I don’t like. Anything else?

  33. longbourne

    Facebook, et al, is in the business of delivering customers to advertisers. What better way to do this than provide a free service that everyone wants, and is easily scalable?

  34. ShanaC

    First real post: (expect changes)Time is a precious luxury, information is like sand, and knowledge a jewel found in the sand, but only with time.

    1. fredwilson

      You kidding me? You just started blogging? Your comments here have been blog posts. I always imagined you as a long time blogger. Anyway, I like the idea of doing your comments as posts and then leaving the links here in the comments

      1. ShanaC

        I briefly used to be paid to blog actually under another name on one of the Large Jewish Blogs out of SF- though I was there at the time to set up a blog for them in a different city. I’m very tempted to go back to blogging under that name, since I still comment on blogs that relate to that topic under that name for continuity’s sake- and I scare some of the bloggers who I am friends with because It even got me published in a small run book with Etgar Keret.The gig collapsed because it was a non-profit trying to expand too quickly as the economy was falling. They ended up merging with another non-profit. Though the idea was a good idea: Local Jewish news and events for the age group of 21-35. Pretty damn awesome gig if you want to know every Jewish gig from the art scene to where the little torah study groups by all the independent minyans are.There are also some other comments floating around by me on the internet from when I was in high school on my rabbi-friend’s blog, before he switched to twitter- but you really don’t want to see those. I was a little pisher then 😛

  35. iamronen

    read the post, read the comments, had many thoughts, spent 5 hours writing … and dumped it all…just one thing made it through this process, the one thing that started it all for me… Fred I think this is the first time I have witnessed you slander someone (Andrew Keen) personally… and that just didn’t feel right… it was a violent act… and it resonated through me into 5 hours of violent and judgmental writing… yuck!”Free” to me is giving from the heart without any intentions or expectations for fruits or consequences.This really drained me… going to rest.

    1. fredwilson

      I didn’t slander him. I dissed him. There’s a difference. I don’t like his ideas and I think he’s dead wrong and reactionary and dangerous

      1. iamronen

        OK.. dissed him… no offense/accusation to you intended in that.I tend to agree with you, he is reactionary… feels like a word worth sinking our teeth into. I didn’t take in too much of him until I read your post, then I read the excerpt of his book. I could relate to some of his reactionary ideas (I was wearing my fringe-artist-in-a-digital-world hat) and to some of the forces to which he is reacting… I think his heart is in the right place though (much like yours), his conclusions I think are off the mark. With that in mind… I feel that many (tempted to go for most!) people in hi-tech (well, to be fair, of those that I encountered) have their hearts in the wrong place AND are completely off the mark.Ironically when I read your “money posts” (a private category I have invented inside my head when reading your blog) I experience dissonance. I am investing much thought, effort and attention to this – trying to get my head&heart around these issues – because I feel there is a huge gap and that I can benefit greatly and learn a lot by bridging that gap. In complete contrast to most everything else your write about which interests me, inspires me, gives me hope, draws me in… when it comes to the “money-posts” I get a feeling you are dead wrong. I can see the logic of your thoughts but I want to desperately ask you – “isn’t there a bigger picture, a more meaningful context then money?”. Because it seems to me that when money becomes the end (after all you are and I am more of a it justifies some pretty destructive patterns. It boggles my mind how people can talk about Free and consider it a healthy practice – a business model? I see exploitation, pollution, waste… and I can’t figure this out.I know you can’t be dead wrong – I choose to believe you can’t be dead wrong. So I sat with this post into the night, got up in the morning with it, spent half the day writing, spent the other with a headache and I am now nearing midnight again and still at it.Even if he is dead wrong and reactionary. How do you get from that to DANGEROUS? How? Why? The more I invest energy in this post the more I get a feeling that a bone is buried here. In dangerous do you mean – that he threatens something you personally believe in greatly? that you believe he has leverage to hurt something you care about deeply?I think that many economic/business habits and paradigms have proven themselves way more dangerous then Andrew’s reactionary position.We’ve gone from care & purpose to dissing and dangerous. Something is cooking.I apologize for any emotional undertones, I am aware of their presence and trying to keep them checked.

        1. fredwilson

          Great set of comments and this is a discussion I’d love to have face to face with you.Re: money – well I’m in the money business. Its part of who I am. I try to keep it in check but it peeks out from time to time.Re: Keen – yes, he scares me because he wants to change the basic architectural and value systems of the Internet itself, something I love and care about very deeply

          1. Prokofy

            But you’re the one who wants to change the basic architectural and value systems of reality itself, Fred, that’s why YOU are scary. He’s actually one of you, too, merely a milder and more critical form.

          2. iamronen

            Thank you, I look forward to that face-to-face.Re: money – I know and it’s partly why I am here.Re: Keen – I strongly believe you and him both know that no one person (at least neither of you) has a hold on the internet, and that is what it’s all about… I also believe you will both rally together in a split second against anyone who threatens that!this is what became of yesterday’s hours of writing – after my system settled:

          3. Prokofy

            While it might seem like a nice safe, airy and pious liberal platitude to sooth people who disagree, it’s simply not true that “no one person has a hold on the Internet”.Indeed, those with money and power and influence DO have a hold on the Internet, and increasingly, this is in private hands, and the public commons with its old protection of the First Amendment is actually diminishing and even disappearing.Any of these private companies like Twitter, Facebook, Plurk, Disqus can, under their TOS, “for any reason or no reason” kick us off the service, and/or apply overbroad/vague/even unlawful language to restrict speech for corporate interests.The kind of discourse that Fred Wilson tolerates on his blog is routinely scrubbed on many other blogs of this nature run by power elites. It is routinely airbrushed out of many corporate social media sites. And yet, we’re on his sufferance as he is a private individual who can do what he wants and/or a private company that can do as they want even though commanding the attention of millions of people — and owning the user-generated-content of thousands.So I’m simply not as passive on this as you are. Someone like Joi Ito who invests in and who is a prominent figure in setting Internet standards and supporting things like Creative Commons or questionable projects like open spimes is just that sort of figure that in fact has way, way too much unscrutinized power. As does Sergey Brin or Mark Zuckerberg.

          4. fredwilson

            I hope that “tolerates” is not the right word. I’m trying for “encourages”

        2. ShanaC

          A brief thought on the idea of copying:I’m an art student- and this is what they literally train us to do”Good artists copy- great artists steal” -Picasso

          1. iamronen

            Shana – this is a small glimpse into my thoughts/feelings/experience of art:…I hope one day to spend more time on this… but for now this is what I have to offer

        3. Prokofy

          Fred is the more dangerous of the these thinkers, and Fred’s intellectual soul mates (Wired’s Kevin Kelly, Chris Anderson, Jeff Jarvis, Clay Shirky, etc.). That’s because they get value, and no one else does; they get influence, and no one else does; they get power, and no one else does.The Anti-Christ of Silicon Valley (AJ Keen) might get some lecture gigs and might have a new book on deck but he has nowhere near the influence and power of any of these other folks.What kind of car does Tim O’Reilly drive, and what kind of car does Andrew Keen drive?

          1. fredwilson

            I drive a five year old honda minivan in case that matters to you. But mostly I don’t drive. I like the subway and my scooter that takes 2 dollars to fill for a week or two

          2. Prokofy

            I aw that coming which is why I didn’t mention *your* car, which I figured you wouldn’t use in NYC because it costs as much to park it as to rent an apartment.I walk or take the bus because the subway always has the danger of someone pushing you on the tracks or halting in the dark, while a marginal risk, I prefer to reduce it.

      2. Prokofy

        You didn’t libel/slander him but your dis of him is very visceral and mean-spirited which just doesn’t seem like you, as usually you are very thoughtful and considerate.I started out liking Andrew Keen’s *book* but as a professional amateur myself, I knew that his world wasn’t inclusive of me, and that I’d be left out of his monoverse. And sure enough not longer after I tried to debate him on Twitter, he follow-blocked me. I began reading more and more of his posts and blogs, and I agree that at times he is reactionary and just plain nasty and arrogant. However, he’s called it right on this big hoax out of Silicon Valley that says a few people can profit while everybody else wastes their time on social media — and gets nothing out of it. It can’t last.You need to find persuasive arguments against him rather than calling him “dangerous” which sounds like some sort of conservative senator on some committee against something.

        1. fredwilson

          I accept your criticism. I’ll work on something more concrete and less mean spirited

  36. TMG

    Fred – Freemium works when you offer services for which users have yet to discover the real value – or a real value proposition presents itself. Using your Twitter as an example – you have often stated – still trying to figure out revenue models – and that’s because Twitter has yet to determine what it means to users in terms of “real” value.People put up with ads on broadcast TV – because the content delivered was “relatively” superior to the choices available and users have placed a value on that medium. Then along came Cable – and then Premium Channels – HBO, etc. And it delivered a “perceived value” to the user. But that does not mean MSOs don’t pay fees for acquiring the content. NOTE – the MSOs, – and not subsidized by the content creators as is assumed in the Freemium model – flawed!In the world of professionally produced content – premium content – copyrights laws underlie everything across the spectrum – from analog to digital. In fact while marginal costs for digital delivery approach zero (they do not get to zero). That’s where you seem to leave it to the imagination of your readers. IT WILL NEVER BE ZERO – you know it – so let’s be fair and state it at such.Read up WIPO treaties and copyright laws – and this fact (and many facts about digital mediums stare at you in big bold letters – debunking the myths propagated by the Freemium school of thought). I bring up the point on copyrights (or more aptly contractual obligations) – because the focus, at least in these types of discussions seems to be on the delivery costs (which is the least of the costs – and that applied even in the physical world).The real costs are contractual obligations in the ecosystem of the content producer – the people who toil to produce premium content and take the associated risk. SHOW ME WHERE GOOGLE HAS PAID TO PRODUCE THE CONTENT IT WANTS TO PUT ON ITS SEVERS!!! That’s how this ad-model works – no risk, only gain. The content business is a for-profit business, an assumption totally ignored by the Freemium school of thought.In fact the more people consume / sample for free the more marginal costs go in the other direction – you have to allocate those freebies (costs) across a limited pool of users willing to pay – and then you have a much larger unit cost per subscriber. The ones that don’t pay and will not pay are never called into consideration when a media company looks at revenues.So while you may advocate the Freemium approach – it is an approach to a limited market of “yet to be valued” (user perspective) set of mediums of consumptions in the digital realm.You do your readers a dis-service if you do not state the underpinnings of copyright laws – and the viable business models that have originated from these copyright laws. Ask yourself if you would have great American companies like Disney without the basics of copyrights and Freemium business models.The problem with the Freemium school of thought is it pre-supposes zero value for the underlying content and as you have assumed – marginal cost for delivery approaching zero – both of which areFLAWED!.

    1. fredwilson

      That’s just not right.Read the post. I say that people will pay for MLB, WSJ, FT, and HBOI don’t mind taking the heat for the truths as I see them but please get my truths straight before you start blasting away at them

      1. Prokofy

        Your nod to these paid services of WSJ and FT just don’t fly as sufficient nods, Freds, that’s why people seem to you to keep “not getting your truths straight”.WSJ and FT are papers for elites, for business that can afford to pay the cost, and goes on paying for it, as it is content it needs for business, delivered on time and in full. Citing it as a model then is not enough because not everything is elite, and not everything has customers who can pay a fortune.It’s like the music site that has everybody put up all their music for free, and download it for free, and counts only on rich people making ads for products to buy the rights for jingles. And where are they going to be doing that? On dying commercial TV that no one watches anymore? So that can’t last as a model. It’s like all these people who raise money for causes on Twitter, who actually raise it because they use old-school TV or old-fashioned community hard-copy newspapers who run articles saying “Woman Raises $20,000 on Twitter for Cancer” lol. THAT is how SHE does it. The 10th person to try to use that formula of “first one on Twitter” using old media won’t get it to work.As for HBO, this may be a demographic thing, it may count on the habits of older customers. Kids today go to YouTube and suffer through watching pirated movies in 10 or 30 parts of 10 minutes (the limit on uploads). It’s all they have attention for anyway. Or they go to hulu or various movie sites for free.

        1. fredwilson

          My kids use a paid service, netflix, to watch movies and tv shows over the internet. They chose it, not me. They could pirate. They know how. They choose an affordable easy to use paid option instead. I am optimistic about where we are headed

          1. Prokofy

            I don’t give my kids the use of my debit card on the Internet. If they do chores, they get $10 occasionally to go out to the movies, it helps expose them to a fraction more vitamin D/sunlight than they get staying inside to watch Netflix.

          2. fredwilson

            You can watch netflix outside. My daughter did this weekend. And she doesn’t use her debit card. “Watch instantly” comes with our basic netflix subscription which we’ve had for years. Its just one of many things we pay for on the internet

  37. im2b_dl

    Fred great post. The question is size and growth is double edge sword in an economic model that is about to go through a big change or two in the next year. Social organization and it’s monetization next corner and threshold is about content construction and that is a venture that organizations and VC investors who have made money on the technical design/architecture bets…are not comfortable with or good at for that matter. Interactive and it’s instigation… and purchase instigation relies on the emotional and biological drive of humans more than not… (because it is going to level out to a purchase based ad model…mark my words…ads teamed with purchase activation…which only can occur via emotional architecture and drive of content creation teamed with interactive design).Technical social architecture doesn’t address those…and the financial resources of an NBC, CNN etc may be great but their scale and contractual signatory status’ limits their ability to financially turn this corner on that individual emotional, biologic human.Credibility and natural emotional arcs…where the story is protected (whatever that “story” may be) will not happen unless you have a company founded on the protection of such content creators… If you push a coke can in the middle of a music video and say buy this it will not be effective.but post is best you have ever written

    1. fredwilson

      Wow. Thanks

  38. Facebook User

    RE: Cable/TV analogy: What role does/did censorship of free OTA broadcast TV play in creating the demand for paid TV services? Willing to bet that’s as much of a factor as flight to quality.

  39. Dave Hendricks

    I dunno Fred.You’re right about ‘free’ being a great way to enter a market. Ultimately it’s better to have a subscription model or something that is recurring and plan-able. Freemium sites are lucky to work with VCs who have the patience to wait for a model to ‘develop’.Meanwhile, display ad rates are cratering. Content takes money to produce, even curate. Not every site is YouTube or Facebook, even though many sites are now primarily UGC.All this ‘Free’ stuff sounds like 1999 all over again. I love it and benefit from it, just wonder whether it leads to monopolies that tie up large audiences with free and then Poof, up go the gates to the UGC that you’ve created…in the absence of a liquidity event it seems that is the logical next step for these sorts of sites.Freemium seems to me to be reliant on patient investors, underpaid staff who are incentivized with options, a legion of users who are loyal and contributory, and a phase-two that exits before the music stops. It assumes ad rates and large numbers of uniques and category domination.Sounds pretty much like this model is only long-term viable for what you refer to as ‘default’ services.

    1. fredwilson

      Or niche content sites that keep their costs low and monetize with advertising

      1. Dave Hendricks

        What is the size definition of niche? 1 million uniques a month?

        1. fredwilson

          Well anything under 1mm uvs seems niche to me. Anything over 10mm uvs seems mass mkt to me. In between, its a judgement call

  40. kenberger

    “And that fact is that free, ad supported media works best on the Internet.”Online ads have the potential to actually add massive value to the user some day, as opposed to the broadcast-style ad value in commercial TV and radio, where ads are more perceived by viewers as being a cost.But online ad technology has got to get better and smarter. MUCH better. It does seem to be on its way– Google and Gmail ads seem like they are slowly becoming more relevant, for example– and USV seems to have some bets in this area.

    1. the build

      “Someday” is the operative word. Right now, they are not. A study was released last week that said it takes longer and ads need to appear more to move internet audiences. By the time that ad technology lands where it should, devices attached to the internet will improve and we’ll see the entire landscape of communications in our country finally shift where everything’s over one platform, the web.The internet has this capability now, so it’s devices and users holding it back. That’s a match that’ll completely change the playing field — and it can come any time.

    2. fredwilson

      I love when gmail sees an address in an email, they give me a gmap link. That is hyper relevant advertising

      1. kenberger

        It will be even more hyper relevant when it offers me the right *thing* near the right address, but it does slowly seem to be eking its way there.There is so much more innovation to be done in this field, and it is so monetizable.

  41. the build

    I love this post and your perspective, but I wouldn’t say that free, ad supported content is necessarily working online. Not enough to make a solid argument that this is what the future should look like. Plus solely ad supported, free content has existed in the analog world and it has always been fairly bad quality. I think that’s what we’ll see in the future with the free model. It’ll usher in subscription content all on its own.I wouldn’t say the cost is zero to watch video — if I understand correctly, carriers are picking up the tab right now for bandwidth, and last I had heard, that was starting to become an issue of concern. I’m not familiar enough with this to make a solid argument, but I have heard musings of it being an issue in the ISP/telecom world, who own the pipes.Customer attention is far easier to get online than people think. It is not driven by free, but by someone being able to use the right strategies to attract an audience and marry it to their site. The sole reason newspapers have “lost consumer attention” is because they refuse to adapt to the new platform in their market (the internet). But, I do not for a second believe that if one came along with the right approach, they’d have just as much audience as any other site.

  42. David Semeria

    I don’t really like free or freemium – and have made that (perhaps too) clear here over the last few days. However, I do admire the fact that Fred is willing to let dissenters have their say, especially considering free is such an integral part of his company’s investment strategy.So, to balance the books as it were, I thought I’d list a few cases where free & freemium really are great business models.1) Totally Free – Wherever the network effect can be monetized. In exchange for your use of the service, the company reserves the right to monetize your presence. I’m not really thinking about adverts here. The best example I can think of is linkedIn. If it didn’t have many users, linkedIn would not be able to sell premium services such as search. Their huge base of free users represents a valuable property which can be monetized in many ways. I think FB should be thinking more along these lines, for example selling aggregated profile information to MR companies, etc.2) Freemium – whenever the free and premium products are aimed at different demographics. 37Signals, the company most often held up to be a shining example of anti-free, actually has a number of free plans. These are useful only for tiny teams. But tiny teams sometimes grow into bigger ones – it makes sense to nab them early. The free offering is also useful for letting bigger companies try out the service before taking the plunge. For freemium to work, the functionality of the premium service must be significantly higher than that of the free version, and hence justify the jump from free to paid. This situation happens most often when free is for individuals, and premium is for companies (linkedIn again)I’m sure that there are many other situations where free/freemium can work, and I agree with Tim O’Reilly’s recent tweet which said that the discussion around free is frequently too polarized.That said, I still think too many companies are chasing market share with free without having any idea (or hope) of monetizing. They are not only doing themselves a disfavor – but also their competitors.

    1. fredwilson

      I like tim’s comment that there is always more than one way to make something work too

  43. jonsteinberg

    I’m wondering if we could add “Extended Trial” to the realm of Freemium. There are numerous services that I use and have used extensively and am addicted to but don’t pay for. I would list in these, techmeme, Google Reader, dropbox, and tumblr, among a bunch of others. I also don’t opt in to any of the upgrades and conceivably may never go “pro.” I think there’s an opportunity for many such products to say “6 months is enough.” This especially makes sense for products which don’t benefit from network effects, i.e. there isn’t any content that I’m contributing to the dropbox, techmeme, or dropio communities. This might not work for a tumblr or twitter because my engagement and content adds to the services’ value.The risk of course is that with a limited trial period, people would never try such services. However, with an extended horizon (say 6 months) maybe such apprehension could be avoided.

    1. fredwilson

      Why isn’t the usage model better in these situations (flickr’s model) where once you use a certain amount of storage per month, you have to go proI think is a perfect case for that

      1. jonsteinberg

        There should be multiple axes for moving someone from “free” to “mium.” is a complicated example because there is no identity tied to drops. I use lots of 100meg drops and don’t opt for premium drops.With Flickr, vimeo, or dropbox, I may never hit the monthly volume (megs/gigs) caps. I may be happy with the volume allotment that comes with free. Yet I’m getting ongoing value for a long period of time – I’ve been hooked by free. Why should these services give up on monetizing me just because I don’t hit the one metric of “mium” that they’ve chosen: volume. Or in the case of some service “premium upgrades.”It would seem that they should also employ duration in addition to volume as trigger for moving someone from “free” to “mium”

        1. fredwilson

          Excellent points Jon

  44. Holden Page

    Freemium FTW

  45. Joseph P Jackson

    There are some good exchanges in these comments but for the most part everybody seems to be missing the really big big picture. #1 Bandwidth doesn’t have to be expensive. Think for a bit about the history of our telcom industry. A great book on this and larger issues is Peter Barnes’ Capitalism 3.0. Basically, when the Titanic sank, aspiring communications monopolists used this event to pass legislation creating the FCC to save us from the “chaos” of unregulated spectrum which had been used by amateur radio operators. This was the beginning of imposing artificial scarcity on our public airwaves commons, and this model–charging the citizen/consumer by renting us the use of what we already own–has been the basis of Telcom ever since. The Disney empire, CBS, NBC, etc are all based on this gigantic public giveaway. Barnes calculated that even a .5% tax on the Trillions of dollars generated by this industry could have been the basis of an American Dividend fund (perhaps similar to what Alaska does).Also see Tim Wu’s Opec 2.0, why Broadband is the Oil of the digital economy and how we can avoid repeating history (hint, its probably too late!).…Summary: It is technologically possible for entrepreneurs to provision low cost bandwidth and/or local governments (municipal wifi) to invest in it as a public utility. Entrenched incumbents have no incentive to allow this to happen. Think AT&T.#2 The discussion of Freemium, digital media, etc, needs to take account of the very radical changes that are going to transform the entire economy during the next 30 years. I refer to the idea of Agalmics or “post scarcity economics,” meaning what happens when we harness the ever increasing power of automation to create abundance for everyone instead of concentrating resources in the hands of a few. Short term we’re going to see another industrial revolution as 3d printing and Fablabs usher in an era of personal and community based manufacturing. The “Open Source Currency” or community currency movements are poised to transform finance. Local Exchange Trading Systems, Mutual Credit Clearing and Direct P2P lending will replace the “Money as Debt” paradigm that is ultimately the reason for inflation, the business cycle, and all sorts of dysfunctions that orthodox economic theory can’t seem to fathom.Anyone interested in these issues can get involved with the recently launched Abundance: The Journal of Post-Scarcity Studies. Our wiki is at The journal is hosted at and I am opening calls for submissions to the first issue, which will present a history of post-scarcity thinking and “resource based/futurist” economics. Hope to have Issue 1 out in Sept.

    1. fredwilson

      I am so with you on all of this. You are way out in front of the general public but you are spot on

      1. Joseph P Jackson

        Thanks Fred, I have talked to Chris Anderson a bit about this as far as trying to get an effort underway to shake up economics by making abundance a field of study. As seen just from the responses to his book so far, 99% of the planet will not understand or will dismiss this as fringe immediately. Fortunately, the main task is to build the enabling infrastructure for abundance (killer apps for alternate currency creation, cheaper tools for personal fab) and it should scale rapidly. A good google group to follow is here… Will be great if you’d like to get involved in these converging movements.Joseph

        1. iamronen

          I have said this before here and I will say it again… the conversation here is very Americanized/Western…Nothing is going to change any “entire economy” because there is no such thing. You are living and writing from a bubble and ignoring vast if not most of the people who live on this planet. “Your Greedy Economy” fucked up the pension of funds of many people in “Other Economics” as well as “Your Economy”. I am living in Israel and connected to the internet not in Africa and rummaging for food… and I am telling you, friend, you are leaving me behind! What you won’t do EFFECTIVELY out of personal choice 7 responsibility your government will eventually do INEFFECTIVELY. Fred can tell you more about this… listen/read to Hacking Education…All these great ideas are not only ahead of the of the general public… they are so far ahead that they are potentially dangerous for it.Please open your mind and open your heart… whether or not your recognize you it you are bound (morally & economically) to a bigger picture, get with that game… please

          1. Joseph P Jackson

            iamronen I encourage you to read about RepRap and other developing examples of personal manufacturing.… Groups from MIT’s Center for Bits and Atoms have already taken Fablabs to Kenya and other countries for field testing. None of this is futuristic or science fiction–the tools have been here quite some time and are constantly getting better and cheaper.… Neil Gershenfeld and others are trying to create a global network of community based learning centers so that people can learn to use these new productive tools You probably heard about Grameen Bank and microcredit. The astounding thing about this is that it is merely a return to basic principles of social lending that used to be common practice before centralized banking became dominant.We’re in a very difficult period right now but the next 15 yrs could bring the foundations of a new era of sustainable, universal prosperity. Yes, Silicon Valley is complicit and has participated gleefully in some of the worst hype/bubbles promoting inappropriate technologies. No, the iPhone is not going to save the world. But the idea of projects like One Laptop per child is to get appropriate technologies into the hands of those who will benefit the most. IT alone is insufficient. But combine this with democratized tools for physical production and new community based investment mechanisms to build and maintain wealth locally and you may be very surprised at how much better things can get, relatively quickly. On the other hand, pandemics, systemic disruption, and even major wars are quite possible. It could go either way!

          2. iamronen

            jpjacks – thank you for those links, they were interesting and fun to learn about, but haven’t struck a chord with me… so I let the silence reverberate a bit.. and came up with this…I would love to find an active, applicable project that is (1) in the spirit of “making the world a better place” and (2) a good business investment. Something that Fred, as a VC, can get behind and support?Any thoughts?

          3. fredwilson

            Etsy was thatWe are looking at kickstarter, a few personal manufacturing opportunities, some hacking education opptys, and some hacking banking opptysI think all of them fit into your criteria

          4. iamronen

            Thank you!(a) I would be happy to hear more about such companies. (b) If/when it is possible – I would love to learn more about how your business-oriented perspective meets and connects to these companies’ visions and missions. How socially oriented companies fit into a VC perspective!

          5. fredwilson

            One laptop per child is the right idea but the wrong platform. It should be one iphone (or one mobille smart phone actually) per child

        2. fredwilson

          We do want to get involved and invest

          1. iamronen

            I don’t feel it (and I think I am paying attention)… I will try to think if there is something I can do to help… if you think of something I can do please let me know

  46. Sourabh

    Consumers will eventually recognize that “Free+Ad-supported” = “1/3 chance that I’m going to get scammed with { teeth whitening, Get Google Cash, Weight loss, stacked downloads, identity theft, swine flu scam #213, etc. } “. I buy music from iTunes now because I was trained through multiple hour processes trying to get adware associated with Limewire, Gnutella, etc. off my computer ten years ago: its not worth saving $100 to deal with that much headache, I’d rather just pay for the stuff.Half of the internet population, after getting training on this “Gotcha Capitalism” will gradually see that “Free” is NOT “Free”, its “GOTCHA!” for the 1-2% of the people who fall for this. Even the smartest of us fall into the 1-2% never really knowing what is at the end of the tunnel. Last incident for me was clicking on “Do you want to install Adobe Player 10.7.2” => click “YES” => Instant Facebook Spam.Whoever suggests service X should be Free as in “Free+Ad-Supported” rather than “Free to build user base” are either (a) naive about the suffering they cause for X’s user base or (b) know they will cause Xs user base to suffer, but accept that X should go for the money anyway. Some companies just go “Free to build user base, minimal ads” (Facebook, Playfish) when they have some other form of support rather than “Free+Ad-Supported” (Zynga, Myspace).Site/app publishers now routinely go up the learning curve of (a) => (b), faster if they hear from their user base in open forums as they fall for the Gotcha!But as consumers get trained, like me on iTunes, they may decide to pay their $0.99 or $4.99 to avoid getting screwed with some Gotcha. The easier it is to do (buying poker chips on Texas Hold Em instead of some Gotcha offer in a BS Virtual Currency Platform, buying the Paid version on the AppStore vs the Free one), the faster people will learn that paying for stuff isn’t really that bad.

    1. fredwilson

      I agree with your basic assertion that nothing is really free. You just need to figure out how you are paying

  47. Prokofy

    I was so relieved that Malcolm Gladwell’s piece debunking the Free hoax finally appeared, and that significant circles of East Coast intellectuals at least can now start to marshal themselves with the arguments they need to stop the continued destruction of media and value by the Freetard Republic spawned by Silicon Valley.Every study of “Free” neglects the deep vested interests in Free — those who sell the ad space around Free and sell the APIs hinging on the availability of Free. So Google has every reason to insist all the value be sucked out of everybody else on the Internet so that everything is free — except its ad space, which costs. They can then afford to be a little generous with the pennies of Ad Sense that represents a microscopic aspect of their own revenue. Widgeteers or API engineers also demand freeness of FB and other platforms and jailbroken phones because they have a vested interest in having their workspace and marketplace space be free to everyone — so that they can sell their widgets on top of that.If people’s content or people’s attention or people’s membership in free social media stopped being free, the problem isn’t that Facebook or Twitter or Google would “lose customers” — the problem is that Google itself and those engineers of APIs would lose business. That’s all. Let’s call it by its right name, please — a vested interest that would lose income, and therefore is deflected that obvious fact on to this discussion falsely by claiming “the public won’t pay”.This vested interest can’t be allowed to dictate all the public policy around the Internet and destroy everyone else’s value. It’s only one vested interest among many, and it continually duplicitously hides behind the cover of “public interest” claiming public “needs” free. It doesn’t.Fred, your own claims need re-examination given your tendency to blend Free and Freemium. Twitter doesn’t have Freemium, it only has Free (unless there are some big secret contracts for corporate data scraping of the firehose we don’t know about). Facebook doesn’t have Freemium, unless you count the ability to buy the dollar birthday cakes or the ten dollar game pieces in various games installed either by FB or various widgeteers. This isn’t at all developed yet — it might take off, it might not. Not enough time has elapsed to definitively make the claim that offering everything for free and not covering costs by anything but pushing ads will sustain media.As you must surely know, the revenue for the online ads on the New York Times, for example, is a fraction of the ads that it even still gets for its hard copy newspaper edition.Craigslist might be free, but it’s also more and more mired in scandal, as it makes its income from prostitution ads. This can’t last forever.Don’t merge free and freemium models in this discussion. Make it honest, as Andrew Keen at least does, despite your sneering at “him and his ilk”. He looks at a list of bands who put up their music for free on MySpace. He sees that the the few concert gigs they get barely keeps them in pizza.You haven’t cited a single business that only provides Free, that only sells ads, and that makes enough revenue to cover its costs — and make a profit. Please call when you do, and we can assess whether this is a business that in fact won’t be put out of business tomorrow by somebody who also does free — but does it better, which was the premise of the guy whose blog you objected to.

    1. iamronen

      If there is a fault I can assign to reactionary energy such as Andrew’s it is unpleasant aggression. Nobody likes an attacker, let alone listening to one… or embracing his/her wisdom.Wisdom offered in aggression will usually miss it’s target… and that is a huge waste. I find embracing takes me to deeper, more refined insights – but it can be hard and time-staking work and usually comes with a price. But hey – that’s just me…You managed to put in words some great ideas… I’d love to hear them coming from your heart and not your frustration.

      1. Prokofy

        I think it’s wonderful that Andrew Keen summons up and pitches back every bit of sneer, cynicism, and hate that is spewed at the world by arrogant Silicon Valley tekkies who are either unaware or unconcerned about how they come across in the world beyond their borders.He gives them a good taste of their own medicine, and I’m all for that. The debates around the uses and abuses of technology are indeed a cultural and political war, and it needs to be fought, and fought hard. I note that your call on one side (Andrew Keen and his ilk) to be a wuss — is not matched by your call on the other side for any restraint — meh.I find that cynical and nihilist geeks often do not understand *anything* but force, and the most strenuous pushback with the most animated and colourful language one can manage. Everyone has to endure the sheer Internet insolence, hate and cynicsm from (now folded into and — and there is little alternative, except for smaller blogs like mine.My critique of the technocommunists does not come from “hate” or “frustration” but indeed “from the heart” because I refuse to stand idly by while they take away our freedoms and destroy our value and exploit our work. And that is indeed what they are doing in ways that I never imagined in my worst nightmares 10 years ago when I began to focus on these issues.Many of us are now really helpless content serfs whose every digital action is captured and scraped by huge entities like Google or Facebook for their commercial use without any democratic government oversight and without any guarantee of basic civil liberties. Why should I sit still for that? I don’t sit still for it when the U.S. government or the Russian government intrudes on freedoms — why would I think it’s ok because it’s cyber-cool and comes from Google or Facebook, owned and operated by cynical young nihilist geeks?Good for Andrew Keen that he can at least prompt someone with a great deal of hubris like Fred Wilson to think of him as “dangerous”.

        1. iamronen

          Fred I apologize if I seem to be steering things off-course… after all I am writing in your home… though I may stray far… my intents remain focused on the topic.Prokofy – I thank you for all the energy you have poured in with your responses, I am embracing that energy and moving forward with it. Many of the things you say I almost agree with, I almost said them myself… but they slid off my consciousness, they didn’t stick long enough for me to back them.”DO NOT UNDERSTAND *ANYTHING* BUT FORCE”I live in a country where that is the moto for almost everything and everything is failing. War has been raging here for 60 years and the potential for war is what governs every-day life… and it’s a poor life to live. So, though it’s very tempting, I cannot buy into that approach. Having said that I believe War is only effective if you can envision the defeat of your enemy and deliver a killing blow. No one is poised to do that on the Internet.FACEBOOK & MARKFacebook is a beautiful representation of society (maybe because so much of society is on it). Andrew Keen wrote about the holocaust-deniers afair on Facebook, and called out to to Mark Zuckerberg to become a more responsible individual. Again Andrew is missing the mark (ok … some pun intended). I apologize to Mark for what I am about to say, but this is what it looks like from where I am sitting, I would love to talk to you and gain a deeper perspective.Purpose is a very special substance – it seeks out empty spaces, invades them and persistenly sticks. If you are on Yoga retreat this can be a great thing and can change your life. It seems to me that Mark lacks purpose. His command of technology leveraged him into a position where he met some people who do have a sense of purpose – they want to make vaster amounts of money from the vast amounts of money they already have. I don’t think this is an interesting or worthy purpose… but it is a purpose. And purpose will be purpose… it found an empty space in Mark and it has filled it. Now this purpose is driving him, even though he may show signs of resistance to it.I am amused time and time again when people are outraged at Facebook’s behavior. Don’t you people get it? It has nothing to do with you. The purpose and intents that are driving Facebook are not about meeting lost relatives. They are about monetizing every possible personal aspect of your life. If meeting lost-relatives can be monetized – then you may experience a passing alignment with Facebook’s objectives. Facebook is not serving you, you are serving facebook. I believe Facebook will not refrain from abusing users in every possible way that is not punishable by law.How does Facebook do this? The same lack of purpose that has enslaved Mark to money-making intents have enslaved it’s users. Everything you do on Facebook is geared toward making money for the people who funded it. Purpose is unrelenting. This is just one example of the DEVASTATING PRICES OF FREE.Prokofy – you talk against Facebook. Are you using it? Are your friends? All the people who blew hot air against Facebook and it’s position on Holocaust deniers, are you still there? To the best of my knowledge Facebook didn’t change it’s position in any way. And, you all did a wonderful job in getting the the attention of even more haters who probably didn’t even know about facebook, but are probably celebrating on it as we speak. By the way, Prokofy – can you feel something changing in you as I slightly elevated my writing into an attack?Prokofy – there is no us & they (technocommunists)… there is We and we are all in this together, in one way or another. Years ago I realized that the only thing I can do (within my capacity) to make the world a better place is to get on my Yoga mat. I did not want to on living with that set of defaults that was driving me.PURPOSE & II don’t know much about business, freeconomics and what not… I departed from that world a few years ago. I don’t have a Facebook account (I had one but hardly used it and shut it down). I don’t consciously use any social aggregation services (neither as a provider nor as a reader). You will find me only on LinkedIn. I do not use gmail, and consume as little Google as possible. You will be hard pressed to find an online image with me in it. I use Twitter lightly – but that too is fading.I have spent the last 10 years of my life vacating a space so that a sense of purpose I believe I was born with can surface and give my life a meaningful context. I have and continue to make huge personal sacrifice (money included) to create and maintain this space. Purpose is a wonderul thing, but I had and have to work hard to stay in touch with it.Prokofy – I feel and share your pain & fustrations. I have found that when I can connect to my heart (without surrounding quotes) – judgment is suspended and criticism melts away and I have a capacity to contain and embrace. I don’t feel I need to call on Fred Wilson (the other side) for restraint because I feel it is already present. I don’t know of another place, hosted by a “money person”, where I can voice my odd thoughts & feelings (including telling him I believe he is dead wrong) and have them displayed, read & replied to. The care, time and attention you and I and many others have placed here are some indication of Fred and his sense of purpose and intents. I am here because I want to learn and through that maybe partake in change. I have faith.Thank you for this conversation.

          1. fredwilson

            Thanks for the compliment and the comment. It was heartfelt for sure

          2. Prokofy

            Er, I don’t have any “pain” or “frustrations,” so please *do* shed this hortatory posture where you get to be All the World’s Bide-A-Wee Home, okay?I really don’t care for warmed-over treacly Westernized Buddhism, where people cherry-pick certain ideas they like from them — oh, karma, or indifference or whatever it is that floats their boat — and then impose this imported framework on another person in the Western world.What’s *most* reprehensible of the fake Buddha stance is its *coerciveness* — so unlike the actual Buddha. That shows up in spades with statements like, “can you feel something changing in you as I slightly elevated my writing into an attack?” It’s a deep-seated belief on your part that you can coerce other people by adapting this deeply, deeply false posture of “calm” and “dispassion” and all the other things that Westerners think they understand about “the Orient”.I don’t know where you’re getting all your mumbo-jumbo about Facebook, but I’ve been on Facebook for some time — I don’t find it very interesting as the same friends on there are on Twitter or Second Life, so it’s like going into an echo chamber going there, which I don’t need. Still, it has its occasional uses so I keep it up.I deplore the Facebook indulgence of the Holocaust deniers. This was morally wrong and ethically wrong — and frankly against their TOS, which has language restricting the uploading of content that incites hate or racism. So either they come under the First Amendment, which I’m all for these services to do and stop trying to have it both ways, OR they should abide by their TOS. But they are selective, discouraging anti-gay expression and tolerating anti-Holocaust sentiment.Take a hard look at yourself, if that is possible, and note how judgemental you are, under the guise of an enormous amount of Buddhist gunk. You assume that this one or that one is too caught up in their technology, or the ego, or whatever. It’s silly.Try this. Notice your feet. Feel them. Now, try to walk across the street. Try to mark the moment when your mind wanders and you forget to sense your feet crossing the street. Try also not to get hit by a car.Ultimately, there is an us and them, there are principles and there are morals, and it’s more than fine to identify them, to draw lines, and to decide which side of them you’re on.I’m willing to bet dollars to donuts that yoga/Buddhism/meditation is not part of the religion of your nation or your ancestors. Naturally, I could be wrong about this, but I find that it is usually Westerners who tell other Westerners — by implication, with not-so-subtle coercion — to “go on their yoga mats” — not Buddhists themselves, who never feel any of the need to tell others what to do.Proseltyzing is a particularly American feature of religion, and combining it with Buddhism is an unhealthy combination.My wish for you would be that you go out and have a cigarette. And if you quit smoking, well, have a Twinkie. Just one. Celebrate the passing of the man who invented the Twinkie, and eat a Twinkie.Then, take a ride in an SUV, read the Bible, and stop for McDonald’s on your way to a tractor-pull rally.: )

          3. iamronen

            well.. at least we gave it a try! this feels like a good place to stop. thank you.

    2. fredwilson

      Twitter has spoken publicly about its intention to create premium services for businesses, brands, and celebrities who ‘do business’ on twitter. That’s a freemium model right there

      1. Prokofy

        Well, call me when they do it, and you make bank, Fred.BTW, I’m not the one banging on the freemium model, kidmercury is. I more or less accept the freemium model, although I think it has a lot of built-in problems.A model like Twitter’s that relies not on millions of people paying a $9.95 a month subscription as you might pay to a Time Warner Cable or a Netflix or whatever is not a company that ultimately feels any real responsibility to the millions of people in the public.If they give them something for free, they don’t respect them, quite frankly, and feel they have the right to change the service abruptly or as and when they wish without accountability.They then serve those big-tag customers whom they let scrape all the customers’ data for free, in order to sell stuff to them “better”.I guess I continue to find that model creepy and troublesome.In the old days, I would pay my $10 or whatever to cable, they would send me TV, and on that TV would be an ad for a Kotex or Irish Spring soap or whatever. I would tune it out, or it would actually influence my shopping. It was a kind of social contract — I pay you a small fee, you give me content that is worth more than that, but in exchange, I supply you eyeballs that *might* be influenced to buy the soap. And by and large, people bought the soap, and it worked. Then, I guess Tivo, the Internet, etc. came along.So now, they want another model: I put up pictures of my kitty and my kids, I pour out reams of personal communication in which I might mention some fragrance I like and then “the devs” scrape all that and pitch back to me organic free trade hibiscus soap or whatever the hell.And while kidmercury might be delighted in that “personalized touch” that he got from sacrificing his privacy, I have to point out that so far when these services scrape me and serve back up stuff, it’s wildly hilariously off the mark, like bad machine translations of real human organic languages. And even if it gets better — it’s intrusive.It seems to me in the first model, more people paid less — but paid something — and advertisers paid more — and got sales — and media thrived — but in the second model, media projects in fact have a terrible time trying to thrive. Only a few win — there is no diversity. They win by ruthless spamming and scraping and connecting up to the most ruthless hard sellers.We end up with less rights, and no normal news with some pretense at objectivity because it is fractured into a million friends’ news, or whoever grabs the helm on the Twitter attention space with the most autofollowers, etc.

        1. fredwilson

          We are transitioning from one outdated model to a new one. And the transition is messy and things arent working right just yet. I’m the optimist. I plead guilty to that

  48. paramendra

    Free Is The Future: Picking A Fight With Mark Cuban…

  49. Guy LeCharles Gonzalez

    Free = ad-supported, demands scale; freemium = user-supported, demands quality, requires niche. They are NOT the same thing, but seem to be getting confused in this debate.In print, most B2B magazines are built on the “free” model, with “qualified” subscribers getting the magazine free because it’s subsidized by advertising. Most general consumer magazines are effectively the same, too, where “practically free” subscriptions are used to gather maximum eyeballs for advertisers’ benefit. Publishers have found advertisers are increasingly fickle lately, though, and online publishers haven’t been immune with CPMs steadily dropping as “free” has flooded the market with low-quality inventory driven by commodified content.A “freemium” model is only sustainable if both the free AND premium content (or services, in the case of Facebook, Twitter, et al) are worth paying for.

  50. GiordanoBC

    Free as a model emerges from market conditions most of the time. Meaning, companies would gladly make people pay for their services, but people are unwilling, or competitors that don’t emerge and force them to change. The online game business in China is an example: only 2 products (one if World of Warcraft) were ever able to get away with a subscription or pay per use model, based on the strength of their brand and of the game itself. Everyone else had to adapt to a market where piracy represented 100% of game consumption, and came up with a different model, which in this case was the free-to-play microtransaction-based model (or “freemium”), which is now being adopted in the West too.Resisting to market forces is always a losing proposition, as is trying to change users’ behaviors. Smart companies come up with ways to thrive in the new scenario. If a few dinosaurs aren’t able to adapt and fall dead in the process, it’s simply called evolution.

    1. fredwilson

      I love the microtransaction model. I expect we’ll see it applied to things other than games soon

    2. ShanaC

      I’m not totally sure about changing user behavior… We have certain behaviors that are innate and certain behaviors that are adaptive to the environment. We change our environment as much as the environment changes us.A slow change would be possible, but not some sort of radical upheaval. People tend to disengage from that.

  51. Prokofy

    Just one other point: read the latest University of Michigan study that shows through Second Life modeling that a product SOLD or given away in public, open stores disseminates MORE than a product give away only to friends. Social media marketing sells stuff TOO, but the moral of this story is that it does not sell AS MUCH.http://secondthoughts.typep

  52. JeffreyJDavis

    As I tell my kids frequently, “NOTHING is free”. Freemium and Freeconomics are very cool buzzwordy concepts, but at their core, the two concepts of “Free” and “Revenue Model” are mutually exclusive.I think the real play is the segregation of which constituency is the “User” and which is the “Customer”. The “User” supplies the eyeballs, the traffic, and hopefully the Ad Clickthroughs. In this model, The “Customer” supplies the (Ad Placement) Revenue. In a true for-profit enterprise, there is no Free Lunch from the Customer’s perspective.

  53. William Mougayar

    Fyi- the book Free is now available for free on Scribd Also, if you’d like to stay on top of this topic, I configured this comprehensive news aggregator on Free, Freemium & Freeconomics using the Eqentia platform (shameless plug, but 100% relevant to the topic).

    1. fredwilson

      You knew that was coming!

    2. RichardF

      More correctly and perhaps ironically, free to read on Scribd but not download

  54. Jonathan van de Veen

    I don’t get why there is so much fuzz about services online being free. In the analog world there are plenty of services that are free already. You can whatch TV without having to pay, listen to the radio and, at leas in the Netherlands, we have free newspapers as well. All of them pay their bills primarely with advertising.So why is the internet special for offering this type of business model? The only difference is that startup costs are lower then for normal media.

  55. arisey

    Hi Fred,Thanks for this thought-provoking post. Free can be confusing, depending on which side you are at. Sure social networking sites are free for consumers, however it costs more for big brands to monitor / engage / manage because of media fragmentation. Mass marketing used to have captive audience with singular messages while social media marketing allows more precision targeting to much smaller audience through infinite channels. Free, to me, is really a cost re-distribution between brand and

  56. S. Pandya

    @ prokofy@ ben atlasYour arguments are impressive, but they contain one flaw – that individuals don’t derive value from disruptive technologies, and that additional value chains are not being created on top of disruptive technologiesA few thoughts:> People don’t get “brainwashed” into crowd-sourcing opportunities. People do it because they derive value from projects of a communal nature.” You put information on Facebook, so that you can build strong ties with your friends and continually stay in touch with your network, not because you want to enable Mark Zuckerberg to make another billion. And the reason Mark makes another billion is because he *allows* you to effectively accomplish *your* agenda.> If individuals prioritize open-source *projects* and *hobbies* (such as Facebook, Youtube) than their professional/student lives, and in doing so put their survival at stake, those individuals are ripe for social darwinism in the first place. The only exception is when the individual is already in unfortunate circumstances (unemployment for example) and is using the crowdsourcing/collaboration as an opportunity to escape those circumstances (LinkedIn for example)> If companies are dying from disruption, it’s because they are inefficient to begin with. Remember “water always settles at the lowest level.”

  57. stanleyyork

    interesting how you linked to the “paid” version of Chris’s book, not the “free” version

    1. fredwilson

      I’m not against people charging for content. In fact I think its important that there is paid content as I mentioned in my postAnd I didn’t know about the free version when I wrote my post

      1. stanleyyork

        oh, it wasn’t so much a criticism, just an interesting observation. i agree with you tho.

  58. Ben Atlas

    Pay up time!. Note this press release: ASCAP Seeks Royalties on Embedded YouTube Music Videos…

  59. mariew

    Great to see the new tools to easily share the entries! I just posted this one on my FB page and wrote a little on it on my blog. Popular posts is also a good way to pull readers in and “extend the lifecycle” of your entries, so it’s great to see that too!

  60. Name

    i like the idea of free things on the internet.i’m just hoping Chris Anderson makes his available for free download.Kundeshi,Accra,Ghana

  61. Martin Thomas

    Hi.. Your post got me thinking… What is more valuable for a software company (like facebook or flickr). 1,000 paying users or 100,000 non-paying users? What are your thoughts? View my blog post here:

  62. Matthew Warneford

    Great discussion. I’ve just finished creating a template virtual world business model (complete with spreadsheet) on my blog:…Although it was made for a virtual world, its really freemium model, so I’m hoping that its useful as a kicking off point for others.Presently the spreadsheet accounts for subscriptions and micropayments, but would love to see the model extended. Anyone want to help!I’ve tried to factor in how the conversion of paid customer acquisition and your viral growth will fall as your start to ‘saturate’ your addressable market. Indeed, seeing how the addressable market size effects the growth and revenue was possible the most interesting part of creating the model!The other area thats often over looked, but included in the model, is paid customer acquisition. Its too easy to focus on viral growth.When we talk about viral growth we often think of exponential viral growth, the kind of growth that Facebook has seen. To be exponential growth you need each of your players to invite and convert more than 1 new player. That is, for every player who joins, they bring another 2 new players with them.With a solid conversion to subscription and micropayments you can afford to spend money on advertising or other marketing activity. In contrast, social networks (monetized through advertising) have to focus on the low cost viral growth.With an ARPU of $1, and an average life time of 3 months we find that the players LTV is $3. But, each player we acquire is actually worth much more. Lets say we have a viral growth factor of 0.8 (Each new player invites 0.8 other people), the we actually find that our player brings 1 / (1 – 0.8) = 5 new players.So we can really afford to spend 5 x $3 = $15 to acquire a new player! For a game or virtual world thats a great spend!I hope the model will be useful to others – maybe a kicking off point for their own model, or just a way to understand how the freemium metrics interact.Matthew Warneford

    1. fredwilson

      Thanks for the model. I’ll check it out

      1. Matthew Warneford

        Thanks Fred. Any feedback is greatly appreciated! I’m hoping that the model will help other entrepreneurs get a feel for the metrics involved, and how they interact.

  63. ShanaC

    I second this,Iterating is fine- even abandoning completely and pulling the plug. Just stop half baking and leaving it out there. It is really annoying from a UI point of view. It leads to waste of mental/physical space and a whole lot of stress.Except in the case of brownies. That’s fine.

  64. fredwilson

    I like that post from Om