In Defense Of Free

I have written so much about free here at AVC that it should be called AVFree. In fact, I've even written a post with this exact same title (almost exactly seven years ago, the summer we invested in twitter, zynga, and tumblr).

I haven't touched this subject much in the past few years but given that the topic has been in the air in the tech blogosphere, I thought I'd address it again.

First, let me say this is specifically not about Twitter. Folks should be encouraged to compete with Twitter. Competition is good for everyone as we talked about here a week or so ago.

This post is in reaction to the idea that services should be paid to ensure that they are appropriately focused on the consumer/user as opposed to the marketer/advertiser/sponsor.

Let's start with advertising. I do not believe it is evil. In fact, I believe it is a fantastic way to support services that want the broadest adoption and want to be free. Think about the Super Bowl, the World Cup, the Olympics, the Oscars, the Presidential Debates, the news coverage of important events. These things are ad supported and free for anyone to watch who has a TV and an antenna. It is good for society for these things to be available to the broadest audience.

There is a paid TV business and it is flourishing. The fact that at its base level TV is free does not mean that all TV has to be free. Free TV does not commoditize paid TV. They co-exist nicely. But we had free TV well before we had paid TV. Free is the foundation that creates a paid tier. That's what Freemium (a term that was coined here at AVC) is all about.

Now let's examine services that have a free and paid tier. Spotify is a good one to look at. Spotify's core business model is a subscription music service. All you can eat music for a fixed price every month. And yet this is what they show you when you land at for the first time.


Why do they show you that? Because most people prefer free to paid. I don't have the exact numbers but I would suspect less than 10% of Spotify's users pay for music. Why is Pandora so successful? Because it is free. Why is over the air radio still the most popular way to listen to music? Because it is free.

Now let's look at servces where the users provide all the value. Wikipedia, Craigslist, YouTube, Flickr, Instagram, Facebook, Twitter, Tumblr, WordPress, etc, etc. There is no value to any of these platforms if the users don't create the content. The users create the service, curate it, and make it what it is. I do not believe it makes sense to charge users to create the value. We've seen folks try this model. Typepad (where this blog is hosted) charges to host a blog. How well did they do? Phanfare charged to host photos. How well did they do? The list could go on and on but I don't want to focus on failed services.

When scale matters, when network effects matter, when your users are creating the content and the value, free is the business model of choice. And I don't think anything has changed to make that less true today. If anything, it is more true.

I understand the frustration of certain folks about the commercialization of Twitter, Facebook, Tumblr, and a host of other services. I understand the frustration over the increasing lock down of the APIs and the control these platforms are exercising on their ecosystems. I would encourage folks to compete with them to keep the web, the mobile web, and the Internet free and open. But I would not encourage those same folks to build paid services. I think their goals will be undermined by that choice.

#mobile#VC & Technology#Web/Tech

Comments (Archived):

  1. aweissman

    Yes. “Free” does not necessarily mean that value is not being allocated (or exchanged) among the participants in a network in an appropriate or beneficial fashion.

    1. fredwilson

      that’s a great point andy. building large follower counts in twitter or fans in facebook has proven to be quite valuable to a lot of celebrities and atheletes

      1. Carlos Valle

        Craigslist is an excellent example of this as well. Massive network with many types of services, but primarily people go there buy and sell goods with no commissions. Craigslist does have some ads and does charge for certain things but I feel like most users are never exposed to that.The only negative impact I see here is that well-established, large-scale networks are hard to overcome. Craigslist is notorious for its poor design and its reluctance to update that design. However, people keep going back because of the sheer size of the network. Even when third-parties try to innovate and improve upon the interface, they either suffer from low adoption-rates or are squashed by Craigslist’s legal team.So some free services can gain so much momentum that they stifle the growth of other, potentially free and/or potentially better, services.

        1. fredwilson

          that is why we invest in them!!

      2. JamesHRH

        I wonder how transient that value is…….I am surprised that ‘buying a tweet from Big Name Star’ is not a big news story from someone like Perez Hilton.

  2. samstewartnz

    Great post Fred, the key quote for me was: “When scale matters, when network effects matter, when your users are creating the content and the value, free is the business model of choice”

  3. Dan Lewis

    As a corollary to this, Josh Kopelman has a great post from five years ago on “the penny gap” — the jump from free to paid is big.

    1. fredwilson

      that is one of my all-time favorite blog posts. it i had a blog post hall of fame, it would be first ballot

      1. Dan Lewis

        I think you should do that — a blog post about other great blog posts you’ve read. He has two which would make mine, as evidenced by how often I refer to them. (The other one is… — “how to ask for an order)

        1. RichardF

          +1 (which is now by defacto like, until I come up with something else)

        2. kidmercury

          i like this idea too. the comments would be killer as everyone would share their hall of fame posts. ironically we would go meta and the post itself would be a hall of fame post!

          1. fredwilson

            maybe we crowdsource it. #likingthisidea

          2. Abdallah Al-Hakim

            I like that idea!!

          3. falicon

            hrm…perhaps should have a ‘hall of fame’ section…point out the posts/comments that have the most ‘action’ across the network of blogs in the system…or maybe just start with a simple leader board to see what blog posts are having the most action recently…

      2. ShanaC

        that is a great fun friday idea!

      3. PhilipSugar

        Yes that and shrinking a market.

        1. fredwilson

          that one too

  4. chrisdorr

    I could not agree more. The big challenge for ad based services revolves around the potential intrusiveness that ads represent. I will put up with ads to get something free but if they begin to alter the basic nature of the user experience (i.e. the key reason I am there) than the service and the users suffer. Then users will go somewhere else to find their needs met. That is not always an easy balance to find.

    1. fredwilson

      yessss. that is exactly right.

    2. sdefor01

      Advertisers need to evolve also. It’s unrealistic to think that jamming in more banner ads or having another provocative 30 sec TV spot is going to work anymore. Advertisers (and therefore the companies that advertise) must work to get the promotion across in “140 characters” by reconfiguring the value for the ad consumer. With all the noise present in the social media, most of the public has cranked up the squelch (DishNetwork Hopper, AdBlock, etc). Not so much “don’t show me ads” but more “don’t advertise to me in a way I don’t like anymore”.

      1. chrisdorr

        You are right. The problem currently is that much of the ad business has yet to figure this out.

    3. Dale Allyn

      This is an important point, Chris. And also where my preference is to have a modest (i.e. appropriately priced) subscriber option if it’s a service where I will spend time, engage often, etc.

      1. chrisdorr

        Dale, yes, for example if I could use Twitter and pay 2 to 5 dollars a month as a sub fee in order to NOT see any promoted tweets or ads of any kind would that be worth it, for me yes. It creates two models for making money and you get to choose one.

        1. Dale Allyn

          Exactly, Chris. I said essentially the same as a comment to Seth below.I think for the way that I use Twitter, $5/mo would be more than I’d like. I think $2 to 3ish is right for my usage. As a small business I’d cheerfully pay $10 or more/month, assuming a certain volume. They could throw in a few promoted tweets per month with the latter as a tease to get business to buy more of them. Lots of options and opportunities.

  5. awaldstein

    Timely…If you take this concept and apply it to a marketplace model the interesting discussion is how and when to monetize the business side of the market.Even in something like WattPad as they develop their monetization you can imagine it in a bunch of directions. Payment for early access to serialization from the user side. Payment for access to the readers from the author side.Free networks like Twitter and Facebook relying on traditional media in a new format seem to be in a constant state of the new becoming the old, the snake eating its tail.More interesting to me is thinking about how these core net values morph into new market models where some ‘thing’ is actually getting sold.

  6. William Mougayar

    Yes, “Free is the foundation that creates a paid tier” – that’s the money quote. In other words, Free is a means to an end. Free creates the basis for the Paid later. The trick is to have both Free and Not Free work seamlessly and naturally together. How they work together is where business model innovation happens.

    1. Dorian Dargan

      Totally agree. Spotify is the perfect example. Spotify’s free service is so clever – it provide GOOD ads, from which the user cannot escape. If you turn down the volume beneath a certain level, or mute the ad, the ad stops! Also, the omission of mobile flexibility in their free service provides a strong incentive for users to take the dive into “paid” land.I was so charmed by their business model that I moved to their paid service. And I love it.

      1. William Mougayar

        It you were charmed by Free and went to paid, I’d like to have you as a user anytime 🙂

    2. awaldstein they work together is always an unknown actually.Someone once said (I think Eric Schmidt actually) that given enough eyeballs you can always find a business model.It’s a great line but not always a true fact.

      1. William Mougayar

        Well…eyeballs/users are the starting point but not the answer I think.

        1. awaldstein

          I’m just wondering about your line that this is where business model innovation happens.I see a few like Spotify that understand their value really well and executed with precision. But I’m blanking about model innovation…can you list a few?

          1. William Mougayar

            That’s the hard part, and I’m thinking of something that Fred said where they (USV) like to work with startups to innovate on the business model “we have been very involved in the development of business models for many of our most successful portfolio companies. we love business model innovation. but it isn’t where we start.”…

          2. awaldstein

            Agree…I’ve built businesses on advertising and sponsorships.We’ve all used community as a aggregator that is a natural for the media model.And while I”m not knocking it, not seeing the good of it, I’m just pushing back on the transactional part of it as the innovation.How you build the audience, the community, the brand is where I see most of the innovation, amazing innovation actually. How the monetization happens seems standard.Kickstarter is the best example of innovation from concept to monetization in my mind.

          3. Abdallah Al-Hakim

            This is not a direct answer to your question but I have read a few articles by @andrewchen and usually likes what he has to say

      2. ShanaC

        name a case where it isn’t true

        1. kidmercury


          1. ShanaC

            conscious choice to be a nonprofit though

          2. kidmercury

            craigslist, bitorrent…..lots of stuff like that reaches a peak where they have to leave money on the table. i think that is part of the challenge twitter faces. the bigger something is and the more driven it is by user-generated activity, the more it has to be like a public good and less like a for-profit corporation. from this perspective, more eyeballs is not necessarily better. wikipedia is one of the most popular sites on the web but if they dared to put even one small banner ad on there it would be at massive risk of losing its 1%. curiously they are likely better off with those big ass banners of jimmy wales asking for money than they are with one small corporate banner.

        2. awaldstein

          I built one in the open source voip space. Huge active audience. Just couldn’t find the there there of it.This is why i’m drawn more and more to marketplace models where something is getting sold somewhere in the system.Value is connection. Result is community. Commerce happens where it belongs.

      3. Abdallah Al-Hakim

        I would say that delivering a great ‘free’ service is the best advertisement for later on promoting paid service. For instance, I am currently using Sparrow as my mail client on Mac. It is free with an option to switch to paid version. I am so satisfied with the free version that I will gladly switched to a paid version if their freemium ended.

        1. awaldstein

          Consider yourself an exception. I wouldn’t build a business counting on 100M others like you for certain ;)Full free to full paid…never done this. I guess it could be done but this is an all or nothing move. Feels desperate in most every instance to me.Free to Full or Premium or Pro. Light to full. Been around since cave dweller days and can/does work but the balance between the free and paid and the uptick in cost is as delicate as marketing gets. Need huge volumes and crisp value, if not a corporate component to your model.Subscription based on cc now, role over to paid in x months. As a consumer I’ve always hated these.Free to paid after market proof to businesses in a b2b2c model (also marketplace model). Delicate but works through sales smarts if the model has the margins or is clever enough to figure out how to sell this.

          1. Dale Allyn

            Value is everything if the primary option is full paid. But this also depends on the targeted market. If a product or service provides great value, eases a real pain point, etc. and if the price is relatively trivial in comparison to that pain (and in comparison to other life expenses), consumers will part with their money quickly. Neglect to deliver that true value and you can forget it.

          2. awaldstein

            agree…The other option is ‘just can’t get it anywhere else’. The telephone, cable, connectivity old-school beat you up and make you pay.Worst model ever as we all leave as soon as we can for this one.

      4. LE

        “It’s a great line but not always a true fact.”Agree. There are many lines that sound great as soundbites and in theory. But the people that say great lines often aren’t the ones that have any experience in actually doing or even caring about details involved in actually getting something done. They haven’t dealt one on one with customers, vendors or lower level employees and they haven’t risen through those ranks either. So they have no seat of the pants feel for the barriers to execution.How many times have you heard this one “get yourself a good lawyer”?

        1. andyidsinga

          “seat of the pants feel”So important – always love working with folks who can fly by the seat of their pants. Makes for an amazing ride too 🙂

          1. awaldstein

            For most of our businesses, there is just so much fact…usually not a little.Call it gut. Call it vision. Call it seat of the pants.You just gather what you can, vet with a few, make decisions and move forward.

  7. jason wright

    I think about yesterday’s post.Imagine being charged to register to vote in an election.Would people value their vote more than they do now or less than they do now?Would people demand better of their candidates?Would the undue influence of media and other corporate interests be subdued?Free can mean ‘cheap’, compromised, and poisonous.

    1. Luke Chamberlin

      We used to do it that way, except we called them ‘landowners’. It wasn’t a good system.

      1. jason wright

        Compulsory registration and charge would be a game changer.

        1. kidmercury

          compulsory registration just leads to apathetic people selling their votes. since most people are apathetic, that would lead to more vote sales.

  8. JimHirshfield

    We’ve seen this movie before many times (and not on paid TV ;-)Well articulated this time.This topic remains one of most popular on my blog : http://hirshfield.blogspot….

  9. LIAD

    No dog can serve 2 masters.It’s a given that Free is the right strategy for growing a networked business.Being free is a company focused optimisation.Its questionable (in the long term at least) whether its also a consumer optimised one.Is the free/paid trade-off ultimately net positive vis-vis maximising consumer utility?I don’t see this post fully addressing that.

    1. kidmercury

      what consumers choose is a reflection of what they regard as offering the better value. that most people want free with ads reflects that for most people (but not all) free with ads is the preferable option.of course it is a multi-faceted issue with other dimensions being how many ads, the quality of the ads, etc.

      1. LIAD

        we consumers make rudimentary cost-benefit analysis. In terms of free/paid – we don’t really know the full costs and are biased on the benefit side to instantaneous gratification.

        1. Max Yoder

          I’m with @liad:disqus here, @kidmercury:disqus. If humans were completely rational, your “reflection of higher regard” sentiments would hold weight. But they’re not. Our cost-benefit analyses are always flawed. Not to mention that free services likely have an interest in hiding the full costs of membership.

          1. kidmercury

            if all humans’ analysis are always flawed, then an objective cost/benefit analysis is impossible by humans, rendering the entire issue moot until ETs can get involved to arbitrate.but i think this is a subjective issue. some customers don’t know about data privacy issues, they don’t care to know, they don’t want to know — i would even argue all of this is implicit in their behavior, especially when we consider they choose free over paid. others who choose paid over free clearly value it accordingly. i don’t think there is a right or wrong, but rather it is simply subjective.

          2. Max Yoder

            There is no Economic Man. We do not have the ability to accurately measure all of the costs and benefits that go into our decisions. That is not to say that we can’t still make good decisions with partial information, which, certainly, we do. All the time.In short, we don’t need ETs to help us, but you might be wise to consult one if you have the option.

          3. raycote

            As Clay Shirky says:”there is no information overload just filter failure”At some point we may be capable of construct fillers with enough organic complexity to self-referentially bootstrap ourselves into being ECONOMIC-PERSONS 😉

      2. Abdallah Al-Hakim

        there was an article a few months ago (sorry i can’t remember the link) but it discussed how much more battery consumption the free mobile apps cost versus the paid apps. Sometimes, as a consumer it is good to have the option of paying for apps

        1. andyidsinga

          thats a really good point. going back to @LIAD s point i guess that would imply they are optimizing for their ad customers.

      3. raycote

        It is very early in the game. I don’t think enough water has passed under the bridge yet for most consumers to even start consciously considering, let alone understanding or distilling, their paid vs ad-sopnsored value equation options.Many of those potential paid vs ad-sopnsored value equation options have yet to even appear.There are very few thing of real significant value in my life that I get free via advertising subsidy.The real question in my mind is how long will it take for network-economy service offerings to mature, in both scope and recombinant convenience, such that the customized distillation of all our information-data/process objects can be so effectively wrapped around the daily needs of end users that the value becomes as concrete and obvious as the paid purchase of eyeglasses.Internet innovation feels so accelerated only because we tend to use the pace of conventional innovation as a framing reference. That conventional timeframe comparison feel natural as most of our new abstract cyber objects tend to be simple isomorphic extensions of old school information objects.It will take much more significant time to pour real concrete consumer value into obstruct-space cyber-objects because those objects will be biting much more deeply into complex/organic obstruct-object construction.That challenge will fully shift our innovation timeframe reference point onto the new ground of organic complexity. Just like going to warp speed on Star Treck everything seems to slowdown again after you make the jump ?Patience is a virtue we may need to reengage with?The good news is:”everything comes to he who waiteth as long as he worketh like hell while he waiteth”

    2. fredwilson

      i think on a free and open web the consumer is in charge

      1. William Carleton

        But what about the forum where I’d prefer not to be reminded that I am a “consumer?”

    3. andyidsinga

      btw ..good post by Mark Suster touching on ads and the subject of ‘who the customer is’ http://www.bothsidesoftheta

      1. Abdallah Al-Hakim

        Good reminder. Mark’s post on that topic was superb

  10. Seth Godin

    How many people would pay $2 a month for Twitter Pro? 10 million people would mean $240 million a year in bottom line profit. Hard to do that with advertising.

    1. William Mougayar

      I suggested Twitter should do something similar to this more than a year ago for business accounts that use it a lot. At $10/month, that’s $1 billion.

      1. sdefor01

        What if Twitter Pro charged a penny per tweet sent? A small barrier for most and that might be just enough of a filter for spam as well. I’d pay for that.I’m thinking of Twitter like an exchange, that takes a small fraction for being the vehicle for trade (in this case information).

        1. fredwilson

          taxing tweets is a bad idea

          1. sdefor01

            I wasn’t thinking of all tweets, just an opt-in section, and I can see where that could lead down a bad path. Just proposing ideas…

          2. fredwilson

            that is what promoted tweets are

          3. howardlindzon

            somewhere down the line we are going to get taxed on twitter…it will be disguised as a bad IPO price, Goldman nudging into the deal 6 months before or bad ads….in the end tweets will be taxed. It’s just packaging.

          4. Techman

            I sorta agree. Then people would not want to tweet if they know it will cost them money, even if it was a penny.

        2. William Mougayar

          Some spammers would pay more than you would for a tweet, so I don’t think that is a good idea. The unit of value for Twitter is the Tweet, and its production has to stay free.

      2. Abdallah Al-Hakim

        I remember a while back reading that twitter was going to implement a ‘business group’ twitter accounts where members can privately tweet to each other and share data. I don’t know what ever happened to that

        1. Techman

          That would be cool. They should also offer that to normal users. PMs would be a great thing to have.

        2. William Mougayar

          That’s called Yammer & Microsoft owns it. Twitter could have had that market segment in my opinion.

          1. Abdallah Al-Hakim

            Of course – that was the big news last month.Do you think it is too late for Twitter to compete on that front. Also, I am not an expert on Yammer but I was under the impression that microsoft would be integrating it with Sharepoint which is not everyone’s favourite CMS

          2. William Mougayar

            It’s tough to say, but I doubt Twitter will do it. They aren’t showing signs of enterprise sales willingness. Yammer/Sharepoint are enterprise products.

    2. Max Yoder

      Just having the option to pay seems smart, rather the conversion to paid accounts is small or large doesn’t really matter. What’s important is that that you, the user, has a choice. I think Twitter would run into problems if the paid users were publicly granted some pseudo-superior status over the free users. But if it’s simply a matter of more data control (paid) or less data control (free), I don’t see the harm. Then again, I don’t have a dog in the fight, so I’m more inclined to urge potentially risky experimentation on a whim.With that said, Twitter should maybe find another country that has similar demographic and psychographic proclivities to the US, roll out a paid model to that subset of users, and see how things perform.

    3. fredwilson

      what is twitter pro? ad free twitter?

      1. Laurent Boncenne

        Oh come on , it’s not like we in Fredland haven’t talked about this for the last 3 years!Let me link to a comment I initially wrote to you on Dave Winer’s blog which prompted me to create a tumblr for it:… (bear in mind tho, I haven’t reread it in a long time, but I think a lot of it still applies).Personally, I think that Twitter is providing pretty much the same kind of information service that is essentially (in a different way) what newspapers used and still are doing to this day.Basically, you pay for the service (the newspaper itself), and you still get ads and no one really complains about it.And Twitter pro would be exactly that, no “pay 3 bucks to remove ads” (which aren’t really bothersome unlike facebook — another key thing twitter somewhat does right apparently –), but a simple pay for a full access to your own “twitter firehose” (meaning full tweets from the beginning of your account, bigger API refresh rate, basic analytics, etc. nothing that adds consumer facing features per se).and obviously, use third party developers to advocate this premium account with a resellers share of course.Twitter can and should also give access to a self serve access to its firehose based on usage and rate a la cloud services!It’s time for Twitter to milk the neverending stream of so-called “Social Media Expert/Guru’s” and heavy twitterers.(PS edit: I’ll come back to edit for clarity a bit later in the day…)

        1. andyidsinga

          i agree that ads on twitter do not ruin the experience and easy to ignore like musak.embarassingly ive actually clicked one

          1. kidmercury

            i think the ads on twitter are actually pretty good. i wonder if it will work. if so, i will have to jump on the bandwagon and deny ever having been a disbeliever

          2. Luke Chamberlin

            Twitter has done a great job integrating ads into the core experience and for that reason they are in a better position to monetize mobile than other social networks.Although for some reason, Twitter thinks I’m a woman. They keep sending me sponsored tweets for haircare products and makeup.

          3. James Ferguson @kWIQly

            That’s probably because you’re worth it ! 🙂

          4. andyidsinga

            HA! I wonder if twitter advertising is susceptible to the old trick where you find your spouse’s / roommate’s computer sitting there on, say, (or twitter search) ..then you start searching for various embarrassing items that will cause recommendations to them to be filled with the same :)So question is – do you have a spouse or roommate punking you when you step away from your computer?

          5. Luke Chamberlin

            My guess is sponsored tweets are based on who you follow. I guess I follow a lot of women?It’s interesting to me because the new “discovery” section is pretty good, serving up articles that are more often hits than misses. Maybe it’s an ad inventory issue? I don’t know.

          6. andyidsinga

            I think they will because they’ll likely be optimized for certain kinds of intents – purchase, perks etc.They just have to be very careful of the uncanny valleys when the intent isn’t well understood.[edit: “they just have to…” ..haha can’t believe I said that ..what a moron 😉 ]

          7. fredwilson

            they are working my friend

          8. William Carleton

            Respectfully, I totally disagree.

      2. chrisdorr

        That is what I would like. Matter of fact I would pay a large monthly sub fee to someone who could remove ads from everything I see on the Internet. I would love a completely ad free environment, who wouldn’t?

        1. Dave Pinsen

          I don’t find ads on Twitter to be bothersome. The most obtrusive ads are probably the video ones on Yahoo’s homepage, because they can slow your download time down to 1995-speeds.

          1. Dale Allyn

            I agree with you, Dave, but as I have stated elsewhere in this thread, even as a light Twitter user I would pay to clear out the ads/promoted tweets.I hate (most) video ads, especially if presented on an already “heavy” page. Disrespecting users’ bandwidth is an egregious fault IMO. I leave a page if it loads too slowly and know that many others do as well. Where’s the business sense in sending users away? How would it work if retail stores required customers listen to an unrelated sales pitch at the front door before entering the store. ;)I’m not saying that Hulu shouldn’t have ads, or that YouTube shouldn’t. Just that user experience must always be protected and the value prop. be well balanced.

          2. William Carleton

            For whatever worth the data point may have, I find the promoted tweets to be the most obtrusive of all on any web service, by far. For me, it shatters the . . . illusion? (I don’t want to admit it is an illusion!) that I am curating, I am in charge of who is on my timeline.

        2. James Ferguson @kWIQly

          @cdixon blogged recently on bundling of product – No I would not pay for ad free everything – it would cost too much, but would I pay for bundled ad-free or selected/filtered ad environments – definitely.There is a startup idea in this somewhere.If “IReallyWantYouToCallMe” was selling contact details of people who “really want you to call me” – would you as a business buy these high;y qualified leads (even if you had to bid for a discount – I think so) !A market is a place where buyers and sellers meet and strike deals. Why do middlemen benefit in a virtual world – the creative side and the sales process automation I understand, but for selling space, in a virtual market – its pure overhead !There is one space you want to be in – in front of a self-qualified buyer. In a rational competitive technology market that bit of floor space has a price – and it is controlled and owned by buyer !Could it work like a reverse auction for my time ? – So I allocate a bit of my screen real estate (or browser whatever) and I lease it to a clearing company that runs MY ad preferences for me. They sell my space based on what I say I want or the profile to which I admit – rather than the fairly foolish deductions Google makes about me. Maybe I get real discounts from entrepreneurs without parasitic middlemen in on the deal.If there is an industry in the world that wants disrupting it is advertising. – Anyone heard from their friendly mobile spam operation recently ?(Yes I blog on ‘among other things pumps’ – as in moving water around – this does not mean I want to make my man boobs bigger or am likely to buy any enlarger on offer – indeed there are dysfunctions I am happy not to have even dabbled with to date ! – Funnily, I think I am better judge of this than any data centre will ever be. )Heck “I brake for fun ! so back off !”

        3. Aaron Klein

          I’ll be your contrarian on that.Depending on the ad channel, ads can be a relatively high-quality discovery tool. There is a benchmark level of quality in what can make it on paid advertising.My friends will be buzzing about a movie, and then I’ll spot an ad for it, hit the back button on the DVR to watch it, and decide right then and there I want to see it.And the best ads also make me laugh. DirecTV’s new series (“don’t have a grandson with a dog collar”) are laugh out loud funny. I will go out of my way to watch them.Well-executed, relevant and entertaining ads are an asset to consumers, not an irritant.

          1. Dale Allyn

            I agree with you about some types of advertising, Aaron. I love the CLIOs. United Airlines used to feature a short film in their entertainment options featuring CLIO winners and mentions from around the world. I tend to study advertising with interest and sort of measure its efficacy as I perceive it (message, branding, viewer-lock, etc).In Thailand there are some hilarious ads, as well as in Japan. For me, clever or high quality tv ads are quite different from most web ad models.I am not one who would pay for a “universal pass” for ad-free internet as Chris has mentioned, but I do like freemium options that allow the removal ads in some services.Sort of related (but a little different), I’d be willing to pay for an aggregation of online news sources where I would not pay for them individually. In other words a news syndicate or co-op subscription would be far more attractive than paying to access content on the NYT and WSJ sites individually.

          2. Aaron Klein

            Interesting thought in your last paragraph.I’ve always thought it would be interesting to build a premium news site that bundled together a bunch of subscriptions for a flat monthly fee, and then divide out the monthly fee across the different publications based on quantity of article access.The challenge is getting the publications to sign on…

          3. Dale Allyn

            Exactly. The challenge is getting the “cooperation” into the co-op. 😉

          4. Techman

            The latest DirecTV ads are funny, I like the one “don’t wake up in a road side ditch.” I wrote about it at my website at the link below if you are interested in viewing. http://techmansworld.blogsp

          5. markslater

            they absolutely are not. You mus be in the ad business. Its about choice – its not about ads. I choose not to want to watch them – you chose to want to watch them.

          6. Aaron Klein

            I’m not in the ad business.

      3. Aaron Klein

        Make it a choice. Ad free or you can get the features to add a banner to your profile and pin a tweet to the top.I’d pick the latter. Twitter ads are great.

        1. Techman

          Or, install the AdBlock extension. It works on Chrome and Safari, and AdBlock Plus is for Firefox. If you use Chrome, i wrote more about it here at my Techman’s World: My Picks page. I also listed some other popular extensions.…

          1. Aaron Klein

            I dislike AdBlock and refuse to install it on principle.

    4. Luke Chamberlin

      I’m surprised they aren’t already doing this with verified accounts.

    5. Richard

      If you know advertising is your business model, why not make it free “to advertiser”  rather than your “users”. This sure avoids  the cringe factor when advertising is brought in? 

    6. Eric Leebow

      It already exists, it’s just not Twitter offering the service. There are plenty of PRO services out there. Out of respect to this blog, I don’t feel comfortable mentioning.

    7. Chris Selland

      What benefit would I – as a user – get from ‘Twitter Pro’?

      1. gregorylent

        no spam followers? no pornbots or marketing accounts? only real people? your history beyond a couple of days? decent search?

    8. Dale Allyn

      Seth, I don’t even like Twitter[1] and I’d quickly pay $2 per month for a pro account if it dropped the promoted tweets. It’s worth more to me than that, but I’m not certain how high I’d go. Of course a free version should always be offered.[1] Nothing against Twitter. For me, its not a way I like to communicate, although I do dredge it for links regularly. I’m not a creator there and find a lot of noise as a casual consumer.

      1. andyidsinga

        I hear you Dale. Noise and scroll off seem to be twitters biggest problems for me – and I do the same as you – I dredge for links.Because the noise and scroll off problems are huge – tools that simply buffer tweets into a ginormous pseudo inbox don’t work. I need some sort of programmable, consumer grade “web intelligence” tool that will help me find “new / odd” stuff from those I follow on twitter.

        1. Dale Allyn

          I freely admit that I’m not a great Twitter “test”. I’ve dumped all of my lists and follows more than once; abandoned it a few times, etc. I’m using it more now for link-dredging, but 90% of the stuff I’ve seen in my other feeds which are many and varied.People who are more social “online kibitzers” are different. These days, most of my “kibitzing” is done here (sorry AVCers!).

      2. William Carleton

        Seth, Dale , I love Twitter, it is #1 in my book, and I’d also pay $2, even more, for a pro account that dropped the promoted tweets.

    9. molly_porter

      I would pay more for a Pro account that would filter out the fake people.

    10. Emmet

      It exists, it’s called Hootsuite.

    11. Techman

      There is a Twitter pro? Where? I thought there was only a Twitter with ads.Despite this, I don’t see them because I have I have the AdBlock for Chrome Extension installed.

    12. gregorylent

      i would have paid a hundred dollars for a file of my 45,000 tweets, but twitter doesn’t let the user see them. hell of a learning curve, and some amazing gems, lost i quit the service, though i began again, it is not the same value for me now.btw, twitter is too important to be run by the marketing minds that are @twitter

  11. Shaun Dakin

    One aspect that I think you missed in this post is the conversation around data and privacy and business models.Right now most products on the internet are “free” to the consumer in a value exchange that gives control over the consumer’s data primarily to the company. Most people kind of understand the ad model (from TV, papers, etc..). What most consumers do not understand, yet, is the extent that their personal data is being bought and sold without their knowledge. Mostly for good (targeting relevant ads) but also for possible negative outcomes around denying health coverage for people searching “AIDS” on Google or Bing.Legislation may be coming on this and if it does, much of the “free” internet may be impacted.One company I’ve been looking at recently is Enliken (also in NYC I think) where they are trying to figure out how to make the value exchange between company and consumer more equitable and more valuable for the company.Shaun DakinFounder @PrivacyCampFounder #PrivChat

    1. ShanaC

      having been an analyst (and as someone who wants to continue being an analyst) – you look at the data and go *shrug.* By yourself, you are a terribly boring person. Even you + a few friends is terribly boring. Only in aggregate do you start to get interesting. However, at that point you are also one anonymous point in a crowd.I also think that if you start looking at other areas (say, healthcare) and privacy, you could throw a totally different argument about why we should take down data walls involving learning.

      1. Cam MacRae

        I agree with you, but think it’s remiss not to point out that open healthcare data requires the complete re-architecting of a fundamentally corrupt system. My bet is on immense pressure for open data, but little impetus to re-architect.

      2. Shaun Dakin

        Imagine if there was more trust in the system. Imagine what innovation could occur?

      1. Shaun Dakin

        Yes Fred, I read that and watched USV data privacy day that you had a few months ago with great interest. Great conversation.Right now most the value in the value chain accrues to the company and the control of that data is with the company. There are no baseline fundamental privacy and data protection regulations.I think that once a more equitable relationship is created, one where consumers do have control of their data, then the level of TRUST in online business will increase dramatically and then innovation will take off.Getting a tool to tell the world about what you think (Tumblr, Facebook, etc..) is interesting. I personally love it.But, those business models are not fundamentally changing consumer’s lives like the ability to have real time health care monitoring for the average person.Imagine if I trusted a number of players in the health care ecosystem with my healthcare data to the point that my doctor was connected to my phone and my wife and my company.When I had a blood test that showed high cholesterol for example, my Doc would get a note, but so would my wife (and any other person I think should know). And my company I work for, whom I trust to protect my data.They would act in concert (if I wanted them to) to help me lower my high cholesterol numbers.This scenario is tough to imagine right now because there is little trust in the system and data breaches are not regulated at all.My belief is that TRUST needs to be injected into the internet ecosystem and that will only occur when consumers feel in control of their data.Thanks,Shaun

      2. Laura Yecies

        I believe that for certain types of services that are more sensitive on the privacy front, such as cloud storage, many users will decide that they prefer their data stored by a company that is not an advertising company. A dedicated cloud company, such as SugarSync or others serves one master, it’s end users.

      3. Jonah Crane

        I live and work in the policy world, and this is where rubber meets road w/ free/freemium models: the value for advertisers is entirely in the customer info. Many people are completely freaked out by the thought that their information is being collected and “sold” — and they don’t understand the value proposition for themselves (I like getting targeted ads, rather than pure spam, for example). It’s hard to overstate the political pressure to be “pro-privacy”. I would be interested to see how much more comfortable younger generations are with this, but the middle-aged demographic is one of the fastest growing on platforms like FB and twitter, and they vote, so their preferences matter.It would behoove industry tremendously to come up with some best practices and implement that as broadly as possible, working as much as possible with policy makers like FTC. This dialogue is already very much underway, to the credit of both industry and FTC, and I hope it is successful. Even so, this will be an ongoing battle, and the entire business model for virtually every new network industry will be under assault. I think it’s imperative that the policy discussion accelerate beyond preventing bad things from happening, and become proactive in achieving reasonable outcomes. Your previous post on this Fred, linked above, is a great place to start.

        1. fredwilson

          that’s why i wrote it. in the hopes that policy folks like yourself would read it and send it around.

    2. Jim Adler

      Thanks for weighing in on this important subject. There is a value proposition that users must have awareness of and control over. As you know, this subject is something I’ve been vocal about in my “Privacy is worth $5/month” posts:

  12. MogulAzam

    I think facebook proves free works well, and the subject is well covered by a post by Doug Rushkoff that stated: “You are the product not the customer”. The users and user generated content is the value created in a number of these freemium to wired article

  13. William Mougayar

    In the startup world, do you believe that getting lots of users via Free is also an acquisition strategy? Get lots of users for free and let the acquirer figure out the Paid part. I’m thinking Instagram-Facebook.

    1. sdefor01

      Maybe the ‘paid part’ is the founders getting paid on the exit? For plenty of these startups the value is less standalone and is better as a feature within something bigger.

      1. sdefor01

        By the way, I wouldn’t recommend shooting for ‘the big exit’ as the primary liquidation strategy.

    2. awaldstein

      You are sparking thoughts for me today.Is acquisition a business model? Or a result?Would you personally fund a company that it’s only model was to be acquired?I’m not an investor but as a market builder I’ve never built anything where getting acquired or getting a real model in place had a different effect on what I did every day.

      1. Max Yoder

        I have made the mistake of building a product “where getting acquired or getting a real model in place had a different effect on what I did every day.”I’ll never do it again. It’s a surefire way to shoot yourself in the foot. And shooting yourself in the foot hurts.I’m not a seasoned investor, but from my experience, they don’t make significant investments in acquisition-driven plays, because the returns don’t usually make sense.

        1. awaldstein

          yup…If you work every day without counting on the big deal, the early close of funding, unexpected saving the day…sometimes they happen anyway.But I plan on a future that is built on customer and business value. Those are timeless and true.

      2. LE

        “Would you personally fund a company that it’s only model was to be acquired?”Speaking generally this reminds me of the mistake that people make in domain investing. Buying something expecting a big return because there may be several big players that would buy the domain. They are waiting for the “lightning strike” because they read (as I mentioned in another reply) about the lightning strikes of others. This happens quite frequently. (Sometimes they have also had LS of their own as well and does that cloud their thinking).So as with any investing as the cliche goes they are focusing on the upside w/o looking at the downside (having no buyers).Anyway back to the issue. Any time you have a limited amount of buyers that are able to complete a transaction at the level that you need to cash out big you have a problem on your hands. Because there is no clear floor price. The floor price could be at a level that would be very disappointing, that in your wildest dreams you would not accept. (This happens with domains as the floor price is another domainer who might pay 1/10th the price of an end user if that for your domain since they might have to sit on it for 2 to 10 years).While every asset sale goes by the same rules the difference is the floor price as I call it. The floor price for a used apple computer is not the same as a used Dell computer. The floor price for real estate is not the same as domains. Every situation is different.

        1. awaldstein

          True…and well said.But honestly, in biz, in the domains I’ve bought, I’m always drawn to the value quotient.Not a gambler and a cautious investor. With my money and my time.

    3. fredwilson

      you had better be prepared to figure out the business modellightning strikes are not a strategy

      1. LE

        “lightning strikes are not a strategy”Right but lighting strikes are what people read about. (And if people didn’t read about them you wouldn’t be having as many meetings.)

      2. William Mougayar

        But it doesn’t have to be a lightning type of acquisition. It can be a normal one. I’ve always thought that you had to have a reason why someone might acquire you one day.

  14. ShanaC

    I like listening to Planet Money on Fridays. Weirdly enough, this friday they covered the cost of Free:…Although not discussed in the accompanying article, it seems the big issue is if you charge for something people don’t expect as part of the cost of doing business (aka, charging us to comment).That seems to be the issue with freemium at large – setting expectations as to what is and is not part of the business – what is part of the all included with ads, and what needs to be ponied up for. Spotify is an excellent example because they make mobile syncing not part of the premium offering.NYTimes bothers me since they can’t decide what is the premium offering and why. I can manipulate the urls all day for free content.

  15. kidmercury

    free does not necessarily mean lower quality and paid does not necessarily mean ad-free or pure integrity. i pay for premium research on financial markets that includes ads; sometimes these ads involve special discounts so i actually value them, but in general i don’t mind them at all and see it as a subsidy. more importantly, regardless of whether the model is paid or free or some type of hybrid, is how much i trust the company. apple could make the ipad free and i would still pay $200 for a kindle fire or google nexus. likewise, some conspiracists offer their media for free and i trust it far more than some services that are paid newswires.i think there is a third piece of the paid vs free debate, and that is group buying/social commerce. kickstarter is one example. in those scenarios, money is not a barrier to entry but rather fuel for network effects. that is an interesting puzzle and i look forward to seeing more innovation on that front as i think it is a huge, huge opportunity.

    1. fredwilson

      dropping insight in that last part!

    2. kidmercury

      one other point i wanted to add. as some bloggers have been championing — i know mark suster and i think fred too — in line advertising, product placement, advertorials, and all the stuff that blurs the line between content and ads is a growing opportunity. personally i don’t offer a “ads or pay for no ads” model on one of my web sites because i rely primarily on this type of advertising, which is too deeply embedded in the core product to turn off via a simple on/off switch.i think that trend, which is an extremely important one, is absent from many discussions pertaining to the paid/free beef.

      1. Dale Allyn

        Do you ever click on an add on a website, Kid? Or mouse over inline adwords? I’m not being snarky, I’m asking sincerely.I do not ever click on any ad of any kind. It’s the beginning of a browsing nightmare. I will sometimes see an ad (for a new product or brand) and then search for it independently. It hurts the site, but I don’t want to look at ever-increasingly obnoxious “office chair” ads on every site I visit for the next three months because of clicking an ad for an office chair.The model sucks. I have non-tech friends complain to me of the same issue and they say it drives them away from the web, makes them feel uneasy, etc. There lacks sophistication of delivery and respect for the user. There is sophistication of exploitation, but that’s not what I mean.

        1. kidmercury

          here are the types of ads i click on:1. accidental clicks. a huge market, i suspect google is pulling in some ridiculous amount of money on accidental clicks 2. google search, especially if i am searching for commercial terms. 3. product endorsements by trusted subject matter experts. i don’t mind if they take a cut if i trust them. 4. i have done it a few times, but it is extremely rare for me to click on a banner ad.not all ads require a click. youtube in-stream ads are powerful, in my opinion. so are things like skimlinks/viglink which is a bit different than kontext and the double underline annoying crap. and even with banner ads, they are often paying for branding, which i do believe works.i wonder if promoted tweets will work. i don’t really use twitter outside of marketing, but from what i have seen, it’s not bad — certainly better than i thought it would be. i might even launch a twitter promoted tweet campaign for one of my web sites to see if it will work.

          1. Dale Allyn

            Thanks for your reply. Advertising does work (obviously). My feeling is that the delivery is often too aggressive and harms the user experience.Now to be clear, I am not one to engage in much pure social web stuff. It’s a time sink, but when I do find a place where I find a fit I’m quick to subscribe to kill ads if it’s an option. So are most of my friends and contacts, but I realize that such adoption is typically in single digit percentages unless there is a significant value proposition advantage to paying. I also pay to support the business or the team if I like what they’re doing.

          2. LE

            “accidental clicks. a huge market”I think people would be surprised at what click revenue brings in whether accidental or not.While many clicks bring in a penny there are clicks that bring in much more. I’ve had click revenue for certain terms that approaches $18 per click that is paid to me. That means the advertiser is paying much much more.Attached is a screen grab showing one at around $8 as an average.From my experience I have to say that both google and yahoo don’t appear to have a good hold on fraud as well. I know this because there are days when it is obvious to me that clicks on ads are from spiders and not humans.

        2. LE

          “ever-increasingly obnoxious “office chair” ads on every site I visit for the next three months”Funny I’m annoyed by it also. But it also acts like a reminder service. And it changes so often you kinda lock in and notice it.Maybe that’s a service idea. Reminders that you enter that pop up in ad spaces all over the web. Along with a “your reminder sponsored by” tag. The ads would fill cheap run of web space.

  16. matthughes

    A couple weeks ago the NYTimes was promoting (on Twitter) the great comments they received on the health care debate ( I forget the article).It was ironic that the user generated content was behind the pay wall when I clicked through to read.

    1. William Mougayar

      That might be a violation of the @twitter terms of service, if I recall them. Public tweets shall remain public as per Twitter’s policies.

  17. @NZN

    Honestly, I didn’t realize that “free” needed a defense. That said, it is not “free” that is under attack, or warranting of attack. I believe that, like neurons reaching for connections in real time, there is a valid discussion about the nature of the relationship model embedded in the transaction where services are deployed on a network infrastructure.Clearly, free has its place. The debate rages and struggle for insight ensues because it is not the top of the pyramid.The only kind of “free” (or “freedom”) that merits personal loyalty within the construct of socio-economics is one that manifests a relationship model that embeds personal ownership of the contextual roles being traded.If “free” is a gateway to a plantation… then you can sell the merits of the transaction all you like, but what you have is immutable.Seeking the structure of a win-win-win model in a network environment is the core innovation driving progress on the net. Finding those formulas on your own personal Terms is the crux of the kind of bi-directional mutual respect that is needed to put the kind of “free” or “freedom” we use today into perspective. What we have today works, but it does not work well enough.

    1. @NZN

      thought I would add… the competitive alternative to “free” is a “$0 cost of ownership”… w/ all the details of the relationship shifting accordingly.More here:

  18. jstylman

    Fred,Your post is an important one for many businesses and our culture at large.I have been thinking about these issues for a bunch of startups I’m involved with and am personally torn from a business model perspective. More importantly though, while you lay out some great points that I strongly agree with, I’m particularly concerned with the following premise:”Think about the Super Bowl, the World Cup, the Olympics, the Oscars, the Presidential Debates, the news coverage of important events. These things are ad supported and free for anyone to watch who has a TV and an antenna. It is good for society for these things to be available to the broadest audience.”In theory, some of these events are the fabric that keeps our Republic in tact. That said, do you really think that sponsors and corporations don’t have major influence over the events listed above?As I said, I’m conflicted, but it seems to me like having a direct economic relationship with the person that pays for your product is far healthier than letting it get subsidized by 3rd parties that have their own agenda.

    1. fredwilson

      maybe i being naive but i dont think the corporate sponsors mess with the basic fundamentals of the olympics

      1. jstylman

        How about the news?

      2. LE

        His statement was “do you really think that sponsors and corporations don’t have major influence over the events listed above?”I certainly don’t think that they have a major influence. Major would mean very obvious to the point of many people picking up on the conflict of interest. So along those lines they most certainly don’t mess “with the basic fundamentals of the olympics”. (I have to say though that I am not a fan of the games so for all I know the addition of a particular sport may have been driven by meetings or subtle pressure from a particular sponsor with something to gain. After all look at how the USOC is treading lightly with Ralph Lauren on uniformgate.)I guess the problem is that when things start off one way there is this proverbial slippery slope where things progress to something else. This is how many people get corrupted. Because each incremental grab for power gets you one step closer. This is rooted in human behavior. Think sexual abuse. Think crime. It all starts with something small and builds from there. It may take time but it is probably likely to happen at some point, with the money involved, there will be a “major influence” that people might not even recognize (because it worked it’s way in slowly.)

    2. Matt Meeker

      Josh, I would say everyone should be conflicted because the issue of “free versus paid” isn’t simple enough to apply universally.Fred mentions many services here where users provide all the value and therefore should be free. Time will tell if that works for Twitter, Tumblr, WordPress, and the rest, but they’ve done a good job in building meaningful bases of engaged users.But the free model failed for Meetup, where users also provide all the value. Our users didn’t have enough “skin in the game” to value creating great experiences for other users. Only when we started charging Organizers did real value get created for everyone and growth accelerated.In general, I agree with your last statement, but that’s not always the right path for every business, just like ad-supported isn’t always the right path. It’s a more complex question. Paid is not always the enemy of growth, same as ads are not always the enemy of quality.

      1. jstylman

        Matt: to be clear, I am not anti-free. Quite the contrary… I believe services on the web should be free wherever possible. I love the freemium model as a way to drive trial and adoption, however, I wish there was a a more prevalent alternative to advertising as a way to subsidize costs.Having had significant exposure to the way the ad world works, I’m just not sure it’s possible to scale without compromising product – content and/or experience – in some way. Google Adwords may be the one exception, though some will argue that too.

      2. Dale Allyn

        Matt, you’ve expressed my feelings and experiences quite well here.It’s not a simple “free vs. paid” issue. We need to see the whole model, the product/service, the intended market, the potential ancillary markets, etc., etc.Well said, Matt.

      3. Obi Offorjindu

        Great point Matt. As a first time user of Meetup I was surprised I had to pay. But it made me question the value of my meetup, which ultimately made for a better experience for the ecosystem

  19. kirklove

    Free is great for many reasons… most notably it’s great to build an audience quickly (volume). It’s also great for early investors to sell up a service (valuation) and it’s great for wide spread use (adoption). However, ultimately it promotes a downward cycle which leads to tack-ons and desperate measures (since you can’t raise capital forever) that are not well thought out and become turn-offs for loyal users. History has shown this to be true as users flee one service for another. It’s hard to believe Facebook, Tumblr, and Twitter will dwindle, and perhaps they will be exceptions, though I personally believe that will happen. I’m more in favor of smaller, niche networks that are user supported both content-wise and funding-wise. Perhaps it’s naive, or utopian, or delusional, but that’s what I feel is most sustainable.

    1. fredwilson

      why hasnt that happened on the broadcast networks (ABC NBC FOX CBS)?

      1. kirklove

        It has. check the ratings and the ad revenues. the are abysmal from where they were. it’s also a different model where “they” control the content so users are reliant on them. Different paradigm and I think you are mixing apples and oranges with that comparison to social media.

      2. LE

        Networks are legacy and monopoly which waters down any conclusion you can draw from them.Like comparing a startup sports league and what works for them to the NFL.

    2. fredwilson

      and facebook and twitter dont need to raise more money. they are able to sustain themselves on what they have

      1. kirklove

        for now. as the audiences decrease the advertising rates will decrease and the downward spiral begins. Competition from other “newer” and “free” services will accelerate that decline. As I said, the folks in early will make out well. Those coming late no so much.

        1. fredwilson

          i dont see any evidence of that. of course it may be right around the corner.

          1. kirklove

            If only we could see the future! ha. I admit I might be wrong on these specific companies. Just a gut feeling and from looking at the wake of history that came before them (MySpace, Digg, Friendster, AOL, Yahoo, Flickr, Orkut, Geocities, etc).

          2. Dale Allyn

            In some cases the spiral is the result of poor management and not just competition. Flickr is the prime example. Yahoo! so badly screwed the pooch on that one. They didn’t care a bit about users and only saw data; they ignored mobile at a very important time, etc. Sure FB supplanted them for many users, but that was partly a gift from Yahoo, too.MySpace made similar poor choices (though different).Having said that, I don’t disagree with your overall premise, Kirk. It requires great management to overcome such things.

          3. LE

            “Yahoo! so badly screwed the pooch on that one.”That is human nature. That’s why it happens and will continue to happen. People/companies get complacent and lazy and lack the drive to continue to fight the fight once they have had a certain sized success. Even happened to Trump at one point (ran off to Europe with Marla Maples and took his eye off the ball).It’s really hard to act hungry unless you are hungry. Sports has the intermittent reinforcement and competition that keeps people hungry. (Maybe a little to hungry – Penn State). Plus your results and feedback are immediate.As the saying goes “rest on your laurels”…

          4. Dale Allyn

            Right, LE.In the flickr case, management even went so far as to say “F#%k the users, we’ve got this data…”, so it was worse than complacency. It was arrogance and ignorance. Users got wind of it and many moved elsewhere.

          5. LE

            Maybe it’s not your job but it’s their job to have people in the crows nest to spot the icebergs. They are out there.

        2. kidmercury

          siding with kirk in this beef. the one world networks will die a death of a thousand cuts via an onslaught of niche networks.

  20. Luke Chamberlin

    The “free” model could also be called the “marginal cost of distribution” model and it’s been with us for a long time.Newspapers and magazines have never made money charging readers for content. The price for home delivery offsets the cost to print and get the issue to your door. The $1 you pay for a newspaper doesn’t go to the journalists – it goes to gas for the delivery truck. The newsstand markup goes to the newsstand, not the media company.Do you really think a magazine could make a profit selling 12-issue subscriptions, printed and delivered to your doorstep, for $20/year? No way. They calculate those rates to break even on the cost of distribution. They do this because they want as many subscribers as possible to justify their ad rates. Because advertising has always been the business model.And they sell your data as well, which they’ve been doing for 100 years. They know who you from your billing information and through reader surveys. If they don’t have any information, they guess based on the demographics of your postal code. Then they package that information with all their other readers and use it to sell advertising.The difference today is that through the internet, the marginal cost of distribution is essentially zero, so they don’t have to sell subscriptions anymore to offset the distribution cost. The other difference is that they have better information about who you are, because they track your behavior online through browser cookies.People are entitled to the opinion that free, and therefor ad-based, media is bad, but they need to be reminded that it’s not a new model, and has in fact been the dominant model all along.

    1. andyidsinga

      awesome comment.I wonder if more and more good quality services will take the route of selling ‘FUDscriptions’, umm, i mean be donation based / community supported 😉 keep the services alive rather than take the ad seems to be a viable alternative in public broadcasting.

      1. Luke Chamberlin

        I agree with you that donation-based media will grow. There are two competing goals here – one is to make money and the other is journalism as a public good or service.Few advertisers want to pay for investigative journalism. It has long been subsidized by the weather section, comics, classifieds, and sports. Journalism has lost those sections as sources of subsidies.If your main goal is to provide a public service, I think you have to take a serious look at the nonprofit route.Again, it’s nothing new. The Associated Press is a nonprofit cooperative that is 150 years old.

        1. laurie kalmanson

          yes to all.the old bell system made local cheap by charging a lot for long distance; that was a huge internal cross subsidy, mandated to cover universal access.mass media was made possible by the telegraph, which transmitted news everywhere; mass media also blended away local partisanship so advertising could spread across distance.cable allowed for specialization and fragmentation, but that model feels and streaming are creating opportunities for deep specialization supported by devoted audiences, as well as mobile mass channelsthat said, the way forward isn’t yet clear.possible signposts along the way: “matter” was a hit on kickstarter, raising 3x its goal for funded real journalism

        2. PhilipSugar

          That is a great comment.

      2. LE

        “viable alternative in public broadcasting.”If you’ve ever watched any PBS program you will see the “acknowledge generous support from the Park Foundation and the MacArthur Foundation”.Years ago these were just words that flashed. In the past several years though companies that support (not foundations) have demanded apparently something that looks like a short commercial in exchange for their support.So while it doesn’t look like advertising it is advertising.I was at the maritime museum in Philly yesterday. There was a full size PODS container complete with logo, web address and I believe even a phone number on the exhibit floor and the angle was that the PODS container was the same as the containers on container ships.

        1. andyidsinga

          You’re right its advertising – as I was writing that i was thinking the same thing.Interesting about PODS stuff. I generally don’t mind relevant advertising at museums – the closer to the theme of the museum and industry its a part of the better.In these types of things as long as they attract a community to their service – even with community donations – they can generate additional cash with carefully place advertising. In a way – in public broadcasting – it seems they have a certain amount of “permission” (ala Seth Godin) from their community to place ads from other sponsors. If they screw this up – they probably loose support.

    2. kidmercury

      the beef has been squashed. luke has officially put the smackdown on the paid crowd.

    3. Dave Pinsen

      Good comment, Luke.I agree that ad-based isn’t bad, but from an entrepreneur’s perspective, it seems to require a lot more scale than a paid service. Because of that, perhaps, there doesn’t seem to be room for many free networks per medium. For example, the number of free broadcast TV channels in any geographic market pales in comparison to the number of pay basic cable TV channels there.

      1. raycote

        “TV channels in any geographic market pales in comparison to the number of pay basic cable TV channels there”Don’t those basic cable TV channels still have ads to support the cost of local cable distribution ?

        1. Dave Pinsen

          Sure, but they are also supported directly by cable fees, so they are not free, which was my point.

      2. kshing

        But the point of the OP is that from an “entrepreneur’s perspective” there are a bunch of characteristics that are endogenous to the service you are building (do networks matter, are users creating content etc.) and you need to look at these characteristics in deciding whether a free, ad-based model or a paid service model is best. These characteristics may be in tension with each other, and may require tradeoffs, but the point is you should consider scale (more specifically the amount of scale needed) as one of these characteristics, rather than something that can always be modified into a different configuration. You shouldn’t shoehorn a service that inherently requires a lot of scale into a pay model because you remove an element endogenously required for success.In many areas, like newsprint, magazines, and television, there is a whole range of possible configurations (ad-based, expensive but high quality content, that requires massive scale vs. subscription based, high quality content, that requires less scale vs. free, lower quality content with even less scale) that can work. If you are in this group, you look at the tradeoffs and look at what your goals are, and decide accordingly.Then there are areas where that is just not true. Usually this is relevant to services that demand large network effects to be successful, and thus are inflexible on the amount of scale needed (the Twitter, FB, Tumblrs etc.). As an entrepreneur, depending on what you are building, you may not always be in the former group.

      3. Luke Chamberlin

        That’s an interesting point. I’ll bet if there was more competition in the cable market thought, you’d see basic cable subscription costs drop significantly. It’s an artificial market in some ways due to regional monopolies.

    4. JamesHRH

      Terrific comment Luke – too sunny & hot in New Brunswick to get to this any earlier!What is interesting is the lack of paid model successes online.Lots of media models used blended (user/advertiser)revenue streams offline. Not really one single version has blossomed online.

    5. Mark_Ransom

      I am currently subscribed to at least 3 magazines that don’t have any ads whatsoever.That’s not to say yours isn’t the dominant model, but it is possible to be successful with a different approach.

  21. Andy

    *Factoid* I did Freemium for 7 years….at that time (I assume it has not changed) the industry ave. was that 1.5% converted to PRO …. Second note – not quite clear who is complaining…I don’t see anyone complaining about ads other than some media articles…certainly not people in my social circles though…. Lastly, for any service that is ad. based (ie Twitter) for them NOT to offer a paid model as well is wasted opportunity imo

    1. Dale Allyn

      I am (complaining), as a very heavy web user. I accept them and I endure them. In some places I prefer them to the option of subscription, but I do not like them.I’m glad that Fred donates his ad gains on this site to charity, so I don’t whine about the ads, but I can’t read the blog post fast enough to get past that damn animation. If that ad had a fixed position or if there were more of them down the right margin, I’d not be here, or I’d block them.Ads are not always a problem, but the delivery of them can be.In my view, some models are perfect with ad support and some are not.

  22. Eric Falcao

    Not sure how many of the AVC community caught this, but there was a great piece about “Free vs. Paid” on NPR this past week. I thought for sure it’d be about the Internet, but it was about how WWII Veterans have a negative opinion of the Red Cross that endures to today because the Red Cross started charging for previously free donuts and coffee.

  23. Yotam Troim

    The issue, at least for me is not the commercialization of certain services or products but the fact that some services don’t stand a chance of surviving without being free in this economy which ends up in an exit strategy instead of building a business over time.Another related issue is that the user has no way of knowing where his/her data will end up. You register to one service, a few months later it’s bought and with it your data – the same data they promised not to pass to anyone else.

  24. Patrick Morris

    Although a different type of situation, Nodejitsu announced that they will not have a free plan for their platform (compared to Heroku et al.). Interesting article on their decision

  25. Robert S. Reichmann

    I would argue that whats most frustrating generally, is how advertising is the de-facto monetization model when it should be a last resort. If co’s were more in touch with their core value add they should be able to find ways to monetize that are directly correlated with their intrinsic value add and core identities.

  26. Eric Leebow

    People pay for Twitter and many of these services in a round about way. There are so many people saying, “I’ll tweet your company/brand for x amount.” Then, there are even companies that serve celebrities who will tweet. People even pay for someone to tweet on their behalf. There are even those who are selling services to manage it, or then there are those services who you can increase your follower count, find out who unfollows you, statistics on tweets, and so forth. There’s someone paying out there, even if they are not paying the service itself. So, it’s by no means free.

  27. Steve

    “Why is Pandora so successful? Because it is free.”If your definition of success is solely base on hits or userbase, then sure. But in the world of business, the most important number that drives everything else is profit (and overall growth potential). Pandora is a pretty old business at this point and arguably for its size, I’m not sure the profit margins (if there are any yet) are justifiable to claim it is a success. Success should be base on a few key metrics COMBINED. Not solely base on popularity as we both ought to know, popular services can and have died everyday, even if Pandora is still alive.

  28. Wesley Verhoeve

    A few thoughts and notes:Spotify has under 500k paying customers. (Rdio even way fewer, though it’s a better service with higher quality users you can get more value out of)As a consumer I dislike advertising because i don’t want to be interrupted by things, especially not things i don’t care about. That’s why I never listen to terrestrial radio or watch tv (the old school normal way, I do watch tv programs I pay for without ads.)as a person in business I dislike advertising because my customer dislikes beng interrupted, and has learned to tune out of advertising. Click through rates are abysmal.Unless an ad is SPECTACULAR, say the old spice run, the benefit of running them only loses value as we move further away from the concept of mass markets existing at all.

  29. Dale Allyn

    I think this really needs to be based on carefully considered specifics. What is the desired market, how important is rapid scale over quality, is it consumer only, B2B, B2C, C2C or a combination? If we’re considering only social and consumer web services then I’d agree that free and freemium are best. But too often even freemium is missing now. If I like a service I want to pay and have ads and data mining removed. I know a lot of people who feel the same, provided the pricing is appropriate to the service, i.e. a good value proposition.You mention Flickr in your list of examples. I used to be very active there and I rarely saw a free account user in any of my groups (many groups) or among my contacts. Usually the user would upgrade to “pro” once they realized they liked the service. My interaction was almost entirely with those who were there because they were into to photography, not to post personal snapshots of their parties, etc., so my sample is filtered. In one group we had over 100,000 members and most were upgraded accounts. IMO art and photography sites suck when ads are visible, especially the way that most ads have gone to obnoxious tactics, animation and video now.(Edit: In the interest of accuracy and fairness to Fred, in the original post (linked in today’s post) Fred acknowledged the tendency for flickr users to upgrade to paid accounts very quickly. I’d read it before, but had not read it today prior to entering this comment.)So my point is that if there is a true value to the user which exceeds social sharing, or if the aesthetics of the experience is greatly enhanced by removing ads, or any of a number of other value propositions, there is justification for considering paid services such a subscription, etc. If the product or service is mostly social sharing I suggest that free is absolutely best, but there are models where a paid service can have an immediate advantage to the user.Edit to add: I am not a fan of the NYT pay-wall approach for the vast majority of content, but do feel fine with subscriber options there in exchanged for enhanced value.

  30. Abdallah Al-Hakim

    speaking of successful freemium models – when do we get the result of Dropbox versus Google drive poll? or did I miss it some how @fredwilson:disqus

    1. William Mougayar

      just go to the post and click on the survey graph. the results were always available in real time. i think dropbox won.

      1. Abdallah Al-Hakim

        Thanks. I had a look before writing the comment but somehow my eyes missed the results tab at the bottom. Dropbox seems to be clear winner thus far (70% downvote – still feels weird to think of it as a down vote 🙂

  31. lonnylot

    “Why is over the air radio still the most popular way to listen to music? Because it is free.”I think it could be argued that the current popularity of over the air radio has to do w/ the amount of time the medium has been available and peoples familiarity with the medium, _not_ the fact that it is free.

  32. Vaceslav Markovsky

    How should work free sms sending services? Those presents free sendings to GSM everywhere!

  33. Brandon Kessler

    All the examples you mention (Super Bowl, Olympics, etc) are viewed by the majority of Americans via paid cable bills, versus the minority of web users who go Pro with a freemium model. I agree that for a network effects oriented business, a paid model won’t drive the needed adoption — at first. But similar to how musicians who get followings on record labels can later monetize their built-in fan bases through Kickstarter and others, maybe the jury is still out on whether you can take that network and provide lower overall costs and higher benefits to users via a direct paid model.Their are real costs to users (and founders) of Free — privacy concerns and user experience being two biggies. Is it out of the question that people might bolt Facebook one day with their friends and opt for a paid service or intermediary that sells no information about them to advertisers?I once heard you say there are varying degrees of “Open” from Apple on one side, to Facebook, and then Twitter on the other. They’re all changing and rearranging. I think the concepts of open, closed, paid, free, privacy, and user experience are super complicated and perhaps still TBD about how they best fit together.

  34. chris dixon

    It’s also worth remembering that the vast majority of businesses (including small businesses) heavily rely on advertising for customer acquisition & retention. Google AdWords allows a one-person clarinet parts maker to find, in a cost-effective way, the 20 people a day who are looking for clarinet parts.

    1. awaldstein

      True…the more specific and unique the product you sell, most often, the more efficient ppc or even seo is.Not so when the category, while unique is more nebulous with big brand competition. Custom snowboards jump to mind. Local fashion brands. Neighborhood services.This later category does poorly on search…marketplaces and social nets seem better suited.

    2. Albert Hartman

      I know a one-person clarinet parts maker (actually a saxophone mouthpiece maker)!

    3. fredwilson

      yup. that too.

  35. WayneMulligan

    I agree with everything you wrote here. The only problem I have with posts like this and your “Marketing” post from last year is it sends a funky message to the less experienced entrepreneur that reads and is influenced by this blog.Before I go on, let me just say that I know that isn’t your intent. You’re basically writing about what you like to see in companies that fit USV’s investment framework. It’s not “the only” framework, it’s just your investing framework.However, it’s a distinction that’s difficult for people to make when they don’t have a lot of experience and read this blog religiously.For example, after the “Marketing” post from last year, I heard countless comments at different events in the city about how people didn’t know how they were going to build usage for their product if they shouldn’t advertise…because “Fred Wilson said advertising is for products that suck”.And I know in this post you’re writing about a very specific economic model for products that benefit from a massive amount of usage in order for them to deliver value.I just wonder if your readership wouldn’t benefit from more balanced editorial. For every Twitter and Facebook, there are probably 100 other businesses that have done quite well and don’t leverage a free or freemium business model (my last business was a perfect example – completely online, built entirely through direct response marketing…ReturnPath is another great example)Maybe present some of these other business and marketing models every now and again. Bring in guest writers like you do for MBA Monday’s.With that said, I get it, this is your blog and your personal space to talk about how you see the world. It’s not for general entrepreneurial education.But given your presence and influence within the community, I think you’d benefit the community at large by introducing alternative views every now and again.

    1. Dale Allyn

      Very well said, Wayne. Great comment.

    2. awaldstein

      Nicely said but I don’t agree.Blogs are not balanced editorial. They are opinions.Blog communities are not a university they are active discourse.AVC is an exception because of its dynamics and the breadth of the participating readers.I would state that the reason avc works (one of them) is that this is opinion and not for the most part, fact based discussion.I understand what you are saying of course and yes we all need to be congnizant of how people hear what we all say but the value is in the comments, to me, and the connections there.Balance in the editorial with an intent to stylize the message would detract…and keep the commenters away.My thinking…

      1. andyidsinga

        Well then … I reject your reality and substitute my own 😉 ( adam savage… )

        1. awaldstein


      2. Mac

        As one of those “less experienced entrepreneurs”, who has followed Fred for a couple of years, I would further add that A VC works because of trust. And, not just in Fred per se, but also in the consistency of regular commenters like yourself. The alternative views that follow in each thread, and the diverse differences of opinion, are invaluable to those of us entering this ecosystem for the first time.In fact, one of the things that continues to impress me is that Fred, and the experienced commenters, clearly benefit from the thread as well. I think his structure has resulted in a wonderful balance. And, (Wayne) I will take a closer look at ReturnPath.

        1. awaldstein

          Thnx Mac…I consistently comment on topics that interest me because the value chain is bi-directional.I consider this conversational and a learning experience, not simply a soapbox for my own opinions.

          1. Abdallah Al-Hakim

            and that’s what keeps many people coming back!!

          2. Dale Allyn

            “I consider this conversational and a learning experience, not simply a soapbox for my own opinions.”Very much so! Such a fertile resource here.

      3. leigh

        Balance would suck at AVC. It’s the extremes that are the most enlightening and entertaining. (respectfully done of course)

        1. awaldstein

          i respectfully agree wholeheartedly…

        2. Abdallah Al-Hakim

          great point. You don’t want to be stuck in an echo chamber that just confirms your own personal viewpoint

    3. Dave Pinsen

      There’s also another subtext to this: if you want to build a free service, you’ll probably need VC to have a chance at scaling it to the point where it can build a massive number of users and ad revenue can support it.

      1. Dale Allyn

        Dave, I was thinking of posting something along this thread of thought as well.It also has an influence on exit options, which speaks to your remark of VC funded projects. This, of course, is natural and appropriate here, but there are other valid approaches for which the timing may be ideal now.

        1. markslater

          Fred has done very well with his investment framework around the attention driven space. Why would’t he be screaming for more free?

          1. Dale Allyn

            HI Mark,I get Fred’s point of view entirely. No criticism from me on it.My point (I think, it’s been a while since I posted that comment 😉 was that since this is Fredland and Fred is a VC, the conversation is heavily weighted toward VC funded startups – and here we tend to discuss free services most. Free is a very valid model (obviously) and if the goal is get users fast, not worry about revenue for some time, and exit via acquisition or IPO, free + VC is a solid model.But if the goal is different than that; if the mission is something else (e.g. building a cash cow to repay investors and generate revenue to support humanitarian projects and education) one would look to other approaches (subscription, or more likely freemium or hybrids).Again, no push-back to @fredwilson:disqus at all. I enjoy discussing a wide range of options or models, and consider this community extremely “well equipped” for insightful dialogue.

          2. fredwilson

            i completely agree Dale

      2. fredwilson


    4. george

      We all have different perspectives, experiences and points of reference, which collectively formulate our holistic view. I find this site very fair, diverse, balanced and capable of co-existing with opposing opinions. The fact that you just shared your thoughts demonstrates this!Just get stuck in mate and commercialize your thoughts more! The community at large is introducing lots of alternative views, Fred is just one voice but a really great one!

    5. PhilipSugar

      I think it is up to the reader to find alternative points of view.I love Fred’s blog. I am awestruck by the discipline/creativity he maintains to post everyday.I have a completely different point of view and am all about cash flow day one. I don’t think most of the businesses chasing VC money actually will benefit from it.However, I don’t want him to change. It is for the different perspective that I read and comment on this blog.

      1. Dale Allyn

        I guess I didn’t take Wayne’s comment to mean the same thing that you and @awaldstein:disqus (Arnold) did, hence my comment of praise. I agree with both you and Arnold, so I guess I contradict myself. Perhaps I read it with different emphasis, etc.I’d not like Fred’s blog to change either, nor would I expect Fred to do so. And as Arnold stated, the real meat here is in the entire comment thread (as seeded by Fred’s posts). I took Wayne’s comment as a suggestion for a type of MBA Monday post in which revenue models and their efficacy, attractiveness to USV and to the VC world at large, consequences of each, etc. are discussed, so as to round-out the understanding of some of the less experienced (or influenced) entrepreneurs who look to Fred for guidance. (<= run-on sentence: three demerits) Not all of Fred’s MBA posts are direct fits to the USV investment thesis – they’re broader.But maybe I read what I wanted to, and need to reevaluate. 😉

        1. WayneMulligan

          That’s kinda what I had in mind, Dale (guest post/MBA Monday style contributions). I might’ve overemphasized the “balanced editorial” component just due to Fred’s influence on the start-up community at large, but the last thing I want is for this place to begin to resemble a “school” — I love reading Fred’s take on our industry.And I agree with awaldstein – given that this is a social form of media, the onus is on us to contribute back to the topic at hand with our own opinions so as to further the conversation.So a more specific suggestion would be for fredwilson to pull together a guest post or two on scalable premium/freemium product and marketing models.

      2. Dave Pinsen

        Philip, is there contact information for you on your blog? If so, I must have missed it.

        1. PhilipSugar

          I am easy to find philipsugar at the google service.

          1. Dave Pinsen

            OK, thanks.

      3. Ben Apple

        I figure most VCs must be all about the cash flow. But if that were always the case, we would’ve missed out on some pretty important businesses.

    6. JamesHRH

      I am with Arnold.If – from the Marketing post (and all of the comments it sparked – you take away ‘don’t advertise’ but not ‘build a great product that people seek out’, the post is not the issue.People who are unwilling to dig deeper to understand will not likely succeed as startup founders.Fast & easy is the UX not the F(ounder)X.

    7. Robert Thuston

      Great comment Wayne. Fred, I’d be interested to hear the other side of the coin (from a notable entrepreneur, such as ReturnPath, etc) at least as a beta test for Wayne’s recommendation.

    8. fredwilson

      the marketing post was a mistake. i shouldn’t have written it.but free vs paid is something that matters a lot to me. i think many founders make a mistake when they try to monetize with a paid model and find themselves being commoditized by a free competitor

      1. WayneMulligan

        I hear you.But then I wonder if there’s a more holistic framework from which we can make pricing decisions. I mean, when does it NOT make sense to go free? When does it NOT make sense to go paid?Is it a combination of the nature of the supply chain (e.g. user generated content vs. paid-to-produce) and optimal distribution model for that specific type of product (e.g. can it leverage “free” distribution models like SEO and viral?)? Does competition factor in there as well?Because at some point, the business will generate a higher ROI by going free instead of paid and vice versa.

        1. fredwilson

          i like to think about the marginal cost of providing the service. if it is zero or near zero, then you must be free because if you aren’t, someone else will be.

          1. Jay Hallberg

            I couldn’t agree more. This is the exact analysis we did six years ago when launching Spiceworks (free IT apps + community) and we call it our “jump to zero” moment. Before our launch we were planning to charge $10 – $20/month and we realized that someone else would copy us and charge less… as in $0. We had no choice but to be the first. In addition, free forced us to build a superior product experience because our revenue is based on usability and retention — if they don’t return and use it there are 0 page view and $0.

          2. WayneMulligan

            I wonder if that’s optimal for all businesses though? Information publishing comes to mind (especially financial)…for example, companies like TheStreet would probably do worse if they didn’t charge for their publications as the “perceived value” would greatly diminish in the customer’s eyes.Similarly, as a business owner, I’d probably subscribe to a free SaaS tool for a period of time, but if a provider that was key to my business (e.g. e-mail service provider or subscription management software) wasn’t making money by charging me then I’d probably opt for someone else because I’d question the viability of the business long term.Going back to your original post you wrote, “When scale matters, when network effects matter…” — for the businesses I talked about above, that’s not really the case. So maybe it’s “if the marginal cost of providing the service is zero and value of the service increases with scale then free is the way to go, otherwise consider going paid after taking factors like perceived value into account”…haha, not nearly as eloquent and succinct as your original definition 😉

          3. Stanislas Polu

            Unless your market size is not big enough to support a free model?Always interesting to think about Google Analytics vs MixPanel

          4. fredwilson

            Then everyone loses because there’s always a knucklehead who goes with a free model

          5. Stanislas Polu

            True, but it’s hard to deny the success of all these companies (eg mixpanel, github, mongohq) that offer a crystal clear service to devs (which is a population too small for a free model) and ask for a fair price in exchange.You must have invested in one of them, haven’t you?

          6. fredwilson

            i wish we had invested in github

          7. Stanislas Polu

            They’re killing it! They have so much money + horizontal space to grow that it’s almost getting indecent.

          8. William Mougayar

            These 2 products are not exactly the same. We get different data from each.

          9. Stanislas Polu

            Yes that’s definitely true, neither am I. Nevertheless they are really close and one is free while the other is not (at least for big accounts… free for most of their users I have to admit)

      2. markslater

        the best model is when you are both. Free to the user – that means free and clear of nefarious big dataesque tactics – and paid to the business. If you add value for both – then who cares?

  36. kenberger

    I just bought a new scooter to zip around NYC. Got a surprisingly cheap deal fairly easily for a brand new model, which made me wonder.The dealer admitted that they make little to no money on the bikes, they instead make most of their money on *service*.In Defense of Free Vehicles.

    1. Dale Allyn

      That’s basically what printers have gone to.

    2. andyidsinga

      Your comment reminded me of this place called “Motomethod” that I stumbled across the other day ago a way – they just optimized a little more and removed the dealership part 😉

      1. kenberger

        looks like a really cool concept. Could use 1 in nyc. Or even better, in Saigon (where my company HQ is), with such a density of 2-wheeled vehicles.

    3. kidmercury

      imagine when android gets installed in those…..location-based ads might subsidize your fuel too

      1. kenberger

        Check out Scoot Networks. I’ve demoed their excellent “zip car for scooters” in SF. You pop in your smartphone to do key things. Your idea could be 1 of them…

        1. fredwilson

          the gotham gal is an angel investor in scoot networks. which means i am by marriage 🙂

          1. kenberger

            wow! I spent time scooting around w/ the founders, talked about my advising or investing. I’d be honored to work with GG some day.

  37. RudyC

    I pondered this question 4 awhile now. First off, EVERYTHING has a cost. It may be privacy, intrusion or $$ but everything cost something. Most websites I see today are going for what I call the ‘extra person’ model, which is, “let’s charge the guy that can least afford it, the vendor.” This model used most famously by Groupon will work 4 some industries, mostly services.The direction of the web today seems to head towards mobile, which by it’s nature isn’t a good enough product to charge anything for a fee (again, there are going to be a few exceptions to any rule). I see most of business models ultimately failing, although with the right funding could be around long enough to get acquired by a stronger company with other reasons than profit for growth.Utube, facebook and the like grew with the idea that ‘someone’ cared enough to care in you. I don’t think anyone except the founders really expected that kind of growth.I think were (PSH) are headed in an opposite direction. I like to use ShowTime as a model. Charge a relatively minimal amount, get the largest number willing to pay that amount and THEN when it’s been played head towards free distribution. Haven’t seen this model on the web and I’m interested in seeing how our plan holds up. Ultimately it always comes down to content and entertainment as a measurement of how much and how many will pay for something.

  38. John Revay

    “the summer we invested in twitter, zynga, and tumblr”Great SummerI heard on the radio today that Twitter turns 6 – this week.

    1. fredwilson

      i believe they turn 8 this week

    2. fredwilson

      you are right. 6 this week. not sure why i was thinking 8

      1. John Revay

        I reconciled the yrs in your post vs what i heard on radio news….seed / initial stage funding date/yr vs official launch date/yr.Either way great investment, I am happy you and USV are investors in twitter.

  39. John Revay

    ” ……..Freemium (a term that was coined here at AVC)……..”WOW – That is neat that that term was coined here @ AVC – I like the Freemium term and try to use it when appropriate., I even used a Google spell check the other day to make sure I spelled it correctly.AVC Trivia – Who coined it and when.

    1. falicon

      “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.” –…Found via search for “freemium” ->

    2. fredwilson

      jarid lukin…

  40. Dave Lee

    Great discussion. I think what’s missing here though is identifying the differences between the b2b and the b2c markets. Oftentimes, web b2c markets where it’s user-content driven are network effects businesses, and in this case it makes nonsense to charge the end user, in most cases. The goal is to create and ride network effects and find a way to monetize through the effects of all the content produced by the users. In this case, ads can work great. But I think they need to be tailored to the social experience like FB and Twitter are doing. B2b are mostly non-network effect markets. Also, in non network effect b2c markets, I think the free vs paid is case by case.

  41. Emeri Gent [Em]

    It all boils down to ad receptivity and ad resistance.The bell curve for advertisement driven “free” media, I suspect has not fundamentally changed, but there is a slight increase in awareness of those who resist anything that feels intrusive and so want ad free media, but that still represents the margins and not the mass.The effect of that is that sites now tell us that cookies are enabled and proceeding with a media article equals consent. The mass will read the article for free, not worry about the degree of tracking available or the what & why of data collection and will probably proceed the same as it ever was.It is the “Freedom” crowd who redefine free and in a world where media seeks the quickest path to survival, and in a world which is still the principality of “moneydom”, freedom will remain something one pays for.This is what I think lends weight to the “Freemium” model, because it bridges the natural behavior at the mass scale while also catering for the nurtured freedom at the margins.[Em]

  42. Guest

    Seems to be a matter of Pay-to-Play vs. Free-to-Play. The next step is Paid-to-Play.As a young college student, I had a strong demand for extra cash but a short supply of time. I donated my blood plasma twice a week for $75. Each visit took only two hours out of my day. As long as you were hydrated & your blood protein levels were sufficient, nothing would bother you other than slight dizziness.It wasn’t long before I was reminded of a film “The Matrix” which depicted humans harvested en masse for their bio-electrical energy. I asked myself: What else could I do or donate besides body fluids for monetary compensation?When I became bored from watching “Law & Order” reruns on the TV’s, I would get on my phone with my free hand. I soon came to the conclusion there must be something digital that can be harvested from people similar to the manner that the Healthcare Industry collects Fresh Frozen Plasma.That it what inspired me to begin work on a new project, Wufasta: Digital Chakra for Video Games and beyond: A new monetization category to incentivize online gaming and other forms of activity. It’s a payment reward platform that inputs user data and brand incentives and outputs Metrics/Analytics to brands and cash rewards to gamers.What if every “headshot”, “touch down”, or “level up” made you money? Games are now e-sports. Innovation made in Gaming industry means that the time is right to drive consumer labels into the mix.It’s time for gamers to make REAL money from their Brands! : We are enabling brands to connect with and sponsor gamers, to increase mutually beneficial relationships for both gamers & brands.1. Cash rewards/incentives for gamer Activity: Our Focus lies on marketing online gamers for Brands. Many gamers spend several hours playing games without any interaction with their consumer brand. We aim to change that by providing them with an opportunity to earn monetary rewards in exchange for representing their brand.2. Metrics that matter: We track our user base in the video gaming industry through their existing gamertags and by utilizing existing competitive statistic services (HLstatsX, gameME, & TrueSkill ) to measure basic activity metrics (Kills, assists, headshots, etc) and then run that data through our unique scoring algorithm. Wufasta will return to clients a user profile similar to baseball cards. It will include performance statistics similar to batting averages and RBI’s.Wufasta will be designed to appeal to each segment of gamers:Casual vs. HardcoreGenre:FPS (Call of Duty, Battlefield, Team fortress 2)RTS (Starcraft, League of Legends)MMORPG (WoW, Minecraft)Sports (Madden, FIFA)How: Participating in promotional events and representing the brand in virtual environments through Wufasta’s platform/ API’s. Users gain cash as well as the opportunity to differentiate themselves as superstars in their respective niches. Brands gain visibility, access, and engagement in areas that have been virtually untapped… until now. In exchange for fueling the rewards system, Wufasta provides metrics that matter to its customers, enabling future opportunities for monetization strategies for all constituents involved.If any of you all are interested, sign-up here:http://launch.wufasta.coAlso, stay in touch with us on Social etymology:Whuffie: fictional, reputation-based social currency based on one’s actions.Wasta: Arabic for influence, pull, leverage.Whuffie + Wasta = Wufasta

  43. Greg Cox

    To my mind the problem is not free (ad-supported) versus paid. My livelihood is based on an ad supported online business. There is a place for both models.The problem is that startups who launch with free often do so without any ads and stay that way until they reach “scale” (aka lots of users). Then they try to transition from a completely free model to one where the user has to accept the (new) commercial intrusions into the product. Surprise! Users don’t like the bait and switch. And the developer community (if the company has one) doesn’t like the new restrictions the company is forced to introduce along with their business model.Also, the startups that do this haven’t developed the DNA to design or manage an effective ad supported product.I wrote about this here:

  44. Sam Birmingham

    Great piece, Fred. Another welcome contribution to the Freemium debate and, as is always the case at AVC, the comments are illuminating. @twitter-41899343:disqus really hit the nail on the head with his discussion of the “marginal cost of distribution” model!I’m really interested in your last paragraph – talking about Twitter & Co exercising control on “their ecosystems” – and would like to push you on how that reconciles with comments earlier in the blog about users providing “all the values” to these services…Sure, Twitter & Co have absolute control of their domains, but does that mean it is *their* ecosystem, or does the ecosystem belong to their users?Given that the value of those services is negligible without user-created content, I would argue that it is a combination of the two… Sure, users pay for access to the domain with their eyeballs (attention + content + personal data = advertising dollars) but when it comes to who owns the ecosystem, my read of Dalton’s “audacious proposal” is that he views it as a partnership between the service and its users… A penny for your thoughts?

    1. fredwilson

      i agree with you more than you agree with yourself

      1. Sam Birmingham


  45. Obi Offorjindu

    I think the point of view of “normals” often gets lost in the free vs paid debate. I rarely hear any of my non tech enthusiast friends complain about ads on Twitter or Facebook.

    1. Kirsten Lambertsen

      Yes. It’s all about understanding which customer is willing to trade what for how much of your service/product.For a startup, we look at the scaling opportunity that freemium offers, knowing how much more attractive it makes the company for acquisition (exit), knowing that it drives overall buzz and lowers acquisition costs for paying users, and find it hard to argue against it. More users = even more users.If your goal is to build a large user base rapidly at low cost, freemium makes sense. Know your customer. Build premium features that you know particular customers will be more than happy to pay for. Our model involves advertising revenue, but it’s actually quite small to the premium subscription revenue we expect to earn.My mom would never pay for just about any web-based service/product. But why miss out on the opportunity to make her a goodwill ambassador? She understands the tradeoff and is willing to use a less feature-rich version of a product, and put up with ads, in order to use it for free. And if she likes it, she’ll tell everyone she knows about it.

      1. Obi Offorjindu

        Great insight Kirsten. I’m currently learning to code and looking forward to putting this to the test with my own app in the not too distant future. Have you found any tension between addressing the needs of premium users vs free? Seems like from this discussion there can be substantial differences in what users like and more importantly don’t like.

        1. Kirsten Lambertsen

          We aren’t at that stage yet 🙂 But, I plan to use Lean Startup techniques (otherwise known as direct marketing, ha!). What people say they want and will use is often very different from what they really want and will use. So, we will take strong signals from user feedback (along with our own “bright” ideas) to carefully test response to new features and potential premium features.There are fairly easy ways to do this to test interest without actually building. If you haven’t read Lean Startup or Ash Maurya’s book yet, I recommend them.I love sharing with other entrepreneurs, and would love to trade Twitter handles with you. Mine is mspseudolus.

          1. Obi Offorjindu

            Sure thing you now have one more follower 🙂 I’m interested to hear how your venture progresses. I somehow haven’t got into Twitter yet. I hardly post just follow interesting tech people. My Twitter handle is @Obi_Offorjindu (boring I know but all my nicknames were taken).

  46. Akshay Mishra

    A bit late to the party here (busy Sunday!) but I kind of agree with @sethgodin:disqus and @WayneMulligan:disqus here. It’s hard to beat Seth’s argument about bottom-line figures.And when I see AWS scaling up massively (granted it built upon Amazon’s pedigree and balance sheet – but then Amazon was never a free service) it also defies @willykaram:disqus ‘s theory that non-“free” systems don’t scale.In fact, based on my experience in dealing with B2B clients, I’ve found that, for service-based products (and many corporates are switching to those things for their internal apps/services), “free” is a total no-no – they’d much rather pay, have a contract with definable SLAs etc.And as far as scale is concerned, even though services like Twitter or Gmail may have millions of users but the average data/compute intensity per user is pretty low. In a B2B offering, that’s not the case. So the scaling problems are of the same order in both cases, but in different dimensions.Amazingly, the margins for such a B2B offering are quite high and with more cashflow certainty (MS didn’t acquire Yammer for nothing) while customer acquisition costs are almost the same (people often mix up getting a customer with getting a user. We definitely aren’t Twitter’s customers – we don’t pay Twitter). To convince actual potential customers (ie advertisers), Twitter had to prove itself as a viable platform for “eyeballs” – and that did take some scaling, didn’t it?

    1. fredwilson

      do you think twitter has run the numbers?do you think they’ve considered it?

      1. Akshay Mishra

        I’m sure they must have.I think Twitter (and indeed, Facebook) are in a unique situation. They are sites where immense amounts of content generation happens. They also happen to be sites which can be used as broadcasting tools.Not all companies have this privilege (e.g. Disqus fits in the first slot but not in the second).Both of these things can be presented as a B2B offering.Twitter already allows data mining to be performed by specialist clients such as hedge-funds. This really depends on data generation and absolutely requires a vast user-base best gathered by being a free service. So, if you are a service that relies on huge amounts of user-generated content for a paid customer offering that relies on analysis of that data – you’d better be free for your average-Joe user.If, on the other hand, you’re a broadcasting service with a huge audience, you needn’t be free (and most aren’t) – this pays for your costs of keeping the lights on and then some.So, I think Twitter surely must have done an analysis of (a) how a paid Twitter Pro would contribute to user attrition and (b) the sensitivity of both the above mentioned sources of revenue to this attrition (minus of course, the revenue it begins to get via users who pay).

  47. Goo Toor

    free is good…paid is better

  48. falicon

    I’ve got a lot of opinions on all this (so I’m going to blog a longer answer later tonight)…but my quick hits are this:1. I believe the 100, 10, 1 rule applies nicely here as well…if you can figure out the economics so that the 1 and the 10 camps are actually paying (ie. two levels of service/product offerings)…then I believe the freemium model is perfect for you. So it’s OK to start with a strong focus on the 100, but make sure you’ve at least got a long-term plan for what you will be doing for the 10 and 1 groups (and make sure there’s enough value there that they will actually pay enough for it to subsidize the 100 group).2. Fred had the following quote in the orig. discussion on this model:”a paid model can actually be beneficial, is really interesting and needs to be better understood” –……I think that is the lost gem of this conversation…If you are going to rely on the users to create the content, your focus needs to be in making the network and the system stronger for the community…if you can find a solution where ‘paying’ actually helps to strengthen a part of the network, then you are REALLY on to something big!

  49. BenLebovitz

    NPR’s Planet Money did a great podcast on the cost of free stuff just a few days ago:

  50. Techman

    I didn’t know that TypePad was your blog service. I thought it is WordPress (.org, self hosted). Personally, I just use Blogger because of its ease of use. Have you ever used Blogger before or have considered using it @fredwilson:disqus ?

    1. fredwilson


      1. Techman

        So how is TypePad working for you? Is this blog hosted at their own servers or via your/web host’s servers?

        1. fredwilson

          hosted on their servers. it works fine. but it is a dead end. if it was choosing a cms now, i would go with wordpress.

          1. Techman

            WordPress can work wonders, but you have to learn how to use it. Like I said, I just use Blogger. I would use WordPress if my site gets real heavy, and Blogger can’t meet my demands. For now it is scaling pretty nicely though.

  51. lucas

    What about Netflix?What about the BBC!?Advertising is good for society, are you having a laugh!?

    1. fredwilson

      the BBC is a tax on the citizens of the UK

  52. PhilipSugar

    Look at the comments on that original post!!! Charlie, you were an early bird.

  53. Simon Edhouse

    Web advertising’s failure is the huge elephant in the corner of the room isn’t it?In any discussion about ‘paid’ vs ‘free’ I think the incredibly dysfunctional system of web advertising must come up. It is built on that sacred cow, the archaic client-server system of the web and is currently struggling to make effective transition from >99% non participation in desktop internet, (Google around 0.4% and Facebook a meager 0.051% CTR) to a currently, 5x lower eCPM and ARPU on mobile internet (ref: KPCB/Mary Meeker). Fix that and you can fix ‘Free’. Its not going to be easy, with massive inertia effects present, but if anything was ripe for disruption it is surely that. A solution would require a systemic overhaul though, and one wonders which investors would have the vision and commitment for that? Fred? – A conversation that builds on the insightful but slightly utopian work done by Doc Searls and the VRM crowd, is what is required, but some real teeth and practical systems need to be put into play. We’ve been considering these problems and conceiving of real solutions for some time. (despite the calculated fabrication and defamatory nonsense perpetrated over at 27b/6, for all those who may know something of that)

  54. Carl Levinson

    Fred -I have read your blog faithfully for years.   I even have a picture of you taped on my wall.  However, it stops here. I have never seen a more self-seeking, self-serving blog post, even though I sincerely believe that you believe in your own words with conviction. I believe that most VC’s are dramatically damaging the innovation ecosystem.  Many years ago, Bill Gates transformed the “bundled for free with the hardware” software industry into a litigious near-monopoly, choking more innovation than he created. Similarly, most VC’s are destroying a square foot of future innovation, for every square inch of current innovation they create.   Linux, Github, and the open development of languages and standards like Python, Ruby, JSON are the only true innovations.  Little else in Silicon Valley is actually innovation. Certainly not venture capital.It’s devolved to fast money, hucksters, and selling bologna for exits. Venture capitalists need to stop acting like pied pipers, and focus on building enduring peer-to-peer structures like Linux and Python.  In the entire Silicon Valley the “emperor has no clothes”. Startups are nearly always about building a silo. Innovation is stalled by the flotsam leftover after exits, usually folded into near-monopolies.   I challenge venture capital to build only enduring platforms.Silos and sloppy exits are not enduring platforms. Linux has proven that peer-to-peer platforms are far more efficient, better engineering.    The only flotsam left by Linux is broader collaboration. I am one of the earliest software engineers on earth, a founder of the software field itself.  My expertise, semantic software design.We need to rebuild institutions with the Linux as the blueprint. Nearly every major industry is 100 years old. Banks, schools, stores, government, insurance, cars, airwaves – all are utterly anachronistic.   VC’s are fiddling with “free apps”, while Rome is burning. It actually does require capital to build enduring platforms. Can we rely on venture capitalists to buildthe following?Entirely peer-to-peer airwaves. Entirely peer-to-peer banks. Entirely peer-to-peer transportation. Entirely peer-to-peer products. Zynga, Twitter, (and soon) Tumblr are timesinks, frittering down the slippery slope of free advertising models, eyeballs as the market, and the canard of being free, while actually costing innovation.   All have slipped from original vision to monetization, just like Google has slipped far from its original ideals. The world needs to move beyond capitalism, communism, and corporatism. It definitely needs to move beyond freemium. How did Linus build enduring platforms?That’s true innovation – a blueprint that endures.If venture capital  claims to be the cornerstone of innovation – I challenge you to think larger, and make history.Otherwise, cut the bullshit. 

    1. Simon Edhouse

      I am sympathetic with what you are broadly saying, but can you explain how you categorize Linux as peer to peer? Do you simply define open source as P2P? Because there are some important distinctions that should be understood in this area. – Venture Capital requires taking bets on building big multiples on their capital reserves, so clearly the conversation (here) has to be about commercialization, not the greater good, no matter how important that greater good is.

    2. fredwilson

      and kickstarter, etsy, 10gen/mongodb, etc, etc?

  55. Ben Apple

    I’m building a business here in China for Chinese users with a freemium model and the question I get is always how will it make money. I have ideas on monetization further down the line (should I make it to that point), but right now I’m focused on creating a cool product for users to benefit from.But it seems hard to imagine that a VC would ignore monetization. Clearly your investment model has been successful, but how can you choose to put money into companies that have no clear idea of how they will make money? Is your belief that these highly disruptive and game changing companies will find a way to pay you back in the long run?

  56. Adam

    U nailed it.

  57. Tyler Tringas

    You said this isn’t about Twitter and rightfully so. Twitter is excellent of a business that should be free and ad-driven, while I agree with many of the critiques of that model, I think Twitter is the worst example you could pick to talk about why services shouldn’t be ad-revenue-driven. Twitter provides very little user value (compared to say Spotify or Evernote) beyond it’s network effects (which are obviously valuable). The ads come through the same medium (tweets) and are particularly non-distracting (unlike flashing banner ads on news sites). And the core premise, matching up people with public content they want to see, is pretty compatible with advertising efforts to gather data about preferences… makes perfect sense to me.I do think it’s a bit more of a problem when optimizing ad-revenue is at best tangential (Facebook would be one, or Evernote/Spotify if they didn’t have paid options) or at worse directly incompatible (Google). I agree fundamentally that created a paid-for product better aligns the companies interest with users, but it’s always a question of how much are users vs advertisers willing to pay so the company can hire great designers, engineers and product folks to make something awesome.If anybody was asking me, I would say the root of the problem, if there is one, is on how much our society actually spends in advertising dollars. I don’t know in aggregate what proportion of the amazing talent these companies collect is going towards getting people to click on stuff, but I assume it’s depressingly large. At the same time, users weened on free ad-driven software are very reticent to pay sufficient prices for great products. It’s appalling what amazing mobile apps you can get for half the price of a latté just because nobody would pay $10 for a mobile app, period.Unless that changes, we’re stuck with ad-driven software and if we’re stuck with it, my suggestion is to embrace it and let me voluntarily allow more detailed tracking so I stop seeing ads for Ford trucks and Caribbean cruises. I blogged about that recently a bit here:…Great post, great topic to discuss, as always.

  58. Robert Thuston

    The tumblr article in NYT magazine today covered this some. David Karp, CEO of Tumblr, did a good job of defending this as well.

  59. Joshua Bolin

    The issue is terribly more complicated than just “Free”.First, “free” works. Always has- Always will from a consumer standpoint. But from a business standpoint “free’ does not work *as often* as we might imagine.I would argue that free has a recipe. And inside that recipe the would be entrepreneur would be kidding themselves if it was assumed that certain products could be built outside of a major geographic location such as New York or Chicago or Los Angles for adoption purposes. But…You would be equally silly to assume that a company such as Facebook, Twitter or to a lesser extent Instagram could have been built (to scale) anywhere other than Silicon Valley. Most would wrongly assume that it is Silicon Valley’s talent pool. Wrong. Silicon Valley as the advantage of an enormous pool of risk based capital that *assumes* you are not going to make money (in the traditional EBITA sense) for a very long time and will be ok with the idea/risk. The money thinks differently there- and to a lesser extent it thinks differently in New York too.Throughout the rest of the world (overly general) the vast number of businesses do not have a runway where capital is saying be huge first then worry about making money second.Secondly, “free” only works to the extent the company can find the way where if ad supported it actually enhances the user experience. This is where twitter could die in the same way Facebook will likely meet their death: Spam.Facebook ads beside a picture takes away from the user experience as do the annoying number of request I receive daily about so and so wanting me to join this or that. Google on the other hand actually helps me to discover with their ads- enhancing the my user experience.Apart from enhancing the user experience as a free product the companies will be like fireworks burn hot and beautiful for a short while only to cool and eventually die off.

  60. Ciaran

    The main problem with ‘free’ is that ad budgets are going down, and there simply isn’t, and won’t be, enough spend to support every service that wants to be ad-funded.Whilst I’m a big fan of ‘free’, I also think it wouldn’t hurt if some entrepreneurs just thought a bit more about their business models, rather than just assuming that advertisers will pick up the tab.

  61. Colin Nederkoorn

    Not having read this post, I wrote the exact opposite last night.…I’m in the early stages of my SaaS business. My opinion is that the approach for SaaS, especially when it’s B2B should totally different than what this post advocates.Charge people money from day 1. Add in a “freemium” plan later.

  62. D Sushant

    Does anyone know if ads in radio/TV broadcasts triggered such concerns in that era? In fact, its useful to contrast web based advertising with that in traditional broadcast media industries. I believe there is a subtle but critical difference – traditional advertising does not intrude privacy the way online businesses are able to. The nature of offline advertising is minimally intrusive. Online advertising has broken this feeling of relative safety we are accustomed to.The debate is a symptomatic of a larger question – Jonathan Zittrain’s work comparing generative platforms & networks with tethered appliances & walled gardens is a good reference.If a business model itself is considered to be a platform, ad-supported platforms are well established multi-sided platforms which have achieved critical mass. But the ad-free platform – which represents the generative business model – is rising to the challenge. Services such as Wikipedia, DuckDuckGo, Github & DropBox have succeeded in seeding the ad-free platform. Its time to press ahead towards achieving critical mass. The battle of the business models has only just Some parts of the comment were extracted from my blog:

  63. bernardlunn

    Late to the party here, sorry. From a business model POV, I totally get it. With marginal cost distribution, free is the way to get network effects. My issue is more at a societal level and I can do no better than to quote Jaron Lanier:“If you want to know what’s reallygoing on in a society or ideology, follow the money. If money isflowing to advertising instead of musicians, journalists, andartists, then a society is more concerned with manipulation thantruth or beauty. If content is worthless, then people will start tobecome empty-headed and contentless.Thecombination of hive mind and advertising has resulted in a new kindof social contract. The basic idea of this contract is that authors,journalists, musicians, and artists are encouraged to treat thefruits of their intellects and imaginations as fragments to be givenwithout pay to the hive mind. Reciprocity takes the form ofself-promotion. Culture is to become precisely nothing butadvertising.”I am hopeful when I see services such as Spotify and Print On Demand and Kindle Direct Publishing that creative people can make a living post Digitization. But the idea that creative work is ad sponsored? Well I guess the worst case is we get crappy ads for crappy content and we can ignore that. If free is limited to user generated chatter I am Ok with that.



  65. Anuj Agarwal

    Fred i completely completely agree with you. As a developer, here is my analogyTwitter with Closed and Paid model ~~ Amazon forest restricted to South AmericaTwitter with open and free model ~~ Amazon forest covering the universe

  66. Phil Wolff

    We should stop calling services like Skype “free” as in “freemium” and start calling them “ad supported with premium, ad-free services.” Free should mean free from charge and free from attention and privacy costs. There is no dishonor in offering an ad-supported product; but we should tell the truth in ads, analysis, and commentary.

  67. Joe Marchese

    Advertising models need to take into account that they are trading on attention, which is an increasingly scarce resource. I’m not happy when any media outlet sells my attention to a third party — that’s what they do when they fund via advertising. I’d prefer the model where I pay for the media I want, consistent with its value and available alternatives, and keep direct control of my attention.

  68. Jo_Zero

    Is the problem free versus paid, or the product gets worse vs better ? When I started using Google all it was is a search bar. When I started using Facebook all it focused on was my user experience. Twitter is pure elegance. Now that these services have sold us on their elegance, its bait and switch time. Now the majority of “improvements” these services make is to show me and my friends more ads. Also, how will this scale into the future ? With CPM dropping how will these services have to further crappify my experience just so they can justify their revenue-from-ads model ? These examples you gave with TV and radio – is the audience glued to their seats when ads are shown or is it time to switch the channel, fast forward the DVR or go to the loo ? With this exciting and new way to distribute information, we all had a chance here do something better. Instead all its ending up being is a race to the bottom and the quick flip for a certain class of VCs.I’m personally quite concerned that the only business model seems to be raise money from a VC, and give away your passion product, with the only focus to sell the company. So I’m personally putting my money where my mouth is. I just launched I’ve noticed there are not many quality personal stories posted on facebook. The ones that give our lives meaning. My guess is its because there is a certain unease with using Facebook, people know they shouldn’t post too much on it. So I bootstrapped and built a platform where people can create and share group experiences. The blog focuses on current social networking issues, what we are giving up by using free services. Its going to be a long hard road, but its important and I believe in it.

  69. GCM

    Maybe Dalton’s point of view is being a bit misunderstood (or maybe I’m the one that’s mistaken). Yes, some people are bugged by ad-based services and their privacy issues (I am, for example). But I believe Dalton’s reasoning if focused not on ‘advertisement is bad’ but on ‘startups need to choose their model and who they want to please: users or advertisers’.I agree with Fred’s view that UGC (user generated content) based startups might have a lot of trouble monetizing strictly without ads. I’m not sure if Dalton’s crowdfunding test will succeed and if he can build a Twitter competitor on that model, but surely there are a multitude of startups that could benefit from looking away from the, almost holly, ad-based model.Take Facebook vs Linkedin for example. Both depend on UGC, but one took a path based on advertisement and one on actually charging people to offer them value. Call me a conservative… but if I could invest some cash, I would bet it on Linkedin and not on Facebook. And their post-IPO success reflects that. While LinkedIn is sailing smoothly (despite some hacking issues), Facebook struggles to generate value from their users. In the long-run we’ll probably see Facebook doing more and more questionable actions with their user’s data in order to earn a few more pennies every year from them.I believe the freemium model is the best fit for a great number of startups. Yes, startups charging real money might not achieve Facebook or Twitter ‘rock-star status’ when looking at metrics like user-base, pageviews, etc. They will naturally grow slower. But they surely can become more sustainable businesses (look at Evernote’s example).I even believe Facebook should CHARGE users for a more private, sans-Ads and under the user’s control plan. I would happily pay US$25/year (5x what FB currently earns from each user per year) for a custom plan where I’m guaranteed my data is not being sold and a guarantee that I have total control over it (meaning Mark won’t keep it after I decide to leave).

  70. Jo_Zero

    Is the problem free versus paid, or the product gets worse vs better ? When I started using Google all it was is a search bar. When I started using Facebook all it focused on was my user experience. Twitter is pure elegance. Now that these services have sold us on their elegance, its bait and switch time. Now the majority of “improvements” these services make is to show me and my friends more ads. Also, how will this scale into the future ? With CPM dropping how will these services have to further crappify my experience just so they can justify their revenue-from-ads model ? These examples you gave with TV and radio – is the audience glued to their seats when ads are shown or is it time to switch the channel, fast forward the DVR or go to the loo ? With this exciting and new way to distribute information, we all had a chance here do something better. Instead all its ending up being is a race to the bottom and the quick flip for a certain class of VCs.

  71. p-air

    On a semantic note, I don’t believe “free” exists on the Internet given that information has value and is the currency being requested for allowing users access to all of those services claiming to be free. I wrote a post (https://aliloffthetop.wordp… talking about this as being more data arbitrage play, where the value of the info to the company requesting it is greater than the value they could get in cold cash from their customers or prospects.

  72. arustgi

    “A free product or service” to a user does not mean that the user has no value to the business. Freemium business models are built on each customer having a Customer Lifetime value, through other monetization models.However, the place where this fails is where the assumptions driving the model are misguided such that it leads a business owner to believe that the CLV driven through the freemium model exceeds those generated by a ‘pay to use’ model. And when this fails, it just becomes a race between running out of cash & getting acquired (if that happens).

  73. laurie kalmanson

    ok, blogged about the print/telegraph/wire model here…

  74. John Revay

    When I first read the post head line……I thought Fred was going off again on keeping the web open and free – re: no Gov regulation, stop sopa stuff.I then started reading the post and Fred was clearly talking about web services being free – re: no charge.I occasionally attend venture group meeting in CT, and else where in the tri state area. I cringe when I hear people pitching – about subscription based services….I often get vocal – on how the internet is Free as in Google Free.It just amazes me – how some people think that they will go viral/ gain traction while charging a monthly fee.I am an accountant – I would rather collect bulk ad fees vs, worrying about charging individual users, credit card exp. etc.

  75. David Hyman

    if everything was free, who is left to advertise? 😉

  76. Prokofy

    Fred, you’re all wrong on this, as usual, and time will prove to you just how non-viable your techno-communism is.It’s good that Typepad charges for their blog, I love it, they have excellent choices, customer service, etc. and it’s nearly always functioning. I don’t know why you’re implying they aren’t doing well.I don’t pay for Yahoo email and it sucks and works badly. Free means “we pretend to work, they pretend to pay us” and it’s not a viable recipe.What did your friend Google just do? They put up a very clean, dirt-simple interface to pay for movies and TV. No one can claim that Hollywood and Sixth Avenue are “making it hard for people not to pirate”.You keep living on these empty calories because you think it’s helping the ad clicking. It’s not. You can’t prove that Spotify or Pandora have only 10 percent, many people pay to get rid of the obnoxious ads from New Jersey.

    1. fredwilson

      i think people should pay for other’s work but not for their own work

  77. Mark Simchock

    I’m going to presume I’m repeating plenty of other comments but I’ll say this anyway…I’m not so sure I read one example above that was in fact free. Perhaps the costs are being displaced, shifted or masked (read: the harvesting of personal data) but those costs still exist.A wise man once said, “If you’re not sure what the product is, then you’re the product.” Many of these “free” platforms don’t charge because if they did they would have no product to sell. But to say that they are free to their users is at best misleading, and perhaps even Newspeak.The old media model was fair. The receiver gave nothing but got something for “free”. That’s hardly the case today. If the truth were transparent then (for example) Facebook would be named We’reMakingATonOfMoneyOffYouSu…. Anyone who believes Facebook is free is naive.Seven years ago such discussions made sense. On the other hand, at this point I would think we should moving the discussion beyond (the illusion of) “free”.

    1. Simon Edhouse

      Good points. Yes, and same goes for Google, who monetize all our freely given search queries, and make billions on a less than 1% CTR. However, until users have a genuine alternative, they just won’t be aware that they are collectively giving away something of high value. Presently they have no choice.

  78. Youssef Rahoui

    I think freemium is a healthier and, for the user, more transparent business model than advertising. It’s probably just a typo but Free is not a business model in my view (show me the money) but, in the Internet, a defining part of it.

  79. Ric Desan

    Free is plainly becoming unwieldy for the main reason that the online ad world is a broken paradigm. Ads no longer work, period. The slight and meaningless awareness that is the pinnacle of ad results these days, in the current marketplace, is ROI nightmare at best and revenue black hole at worst.Hell, SEO doesnt even work as well as it once did. When the marketing departments of the fortune 1000 eventually wake up, You better have a better branding plan than the ones that people sell today. I am surprised Fred that you never looked closer at the faults of free, because for the bill payers (advertisers,) its a purely losing proposition.

    1. fredwilson

      that’s not what i hear when i talk to the brands and agencies

  80. Richard Reisman

    This debate on free versus paid really points to the failure of our current models. We have an eloquent cry for services that serve their users, not advertisers, versus the value of a mass audience that seems only reachable by free and freemium. And often neither paid nor free works very well — just look at the newspapers on the ropes and the musicians eking out a living selling teeshirts instead of songs.Yet we are in a new age, and new thinking can provide a way to have it both ways, and to do even better at it. It is time for the invisible hand to meet the cloud. Free is just another price. Why why can’t we build services that dynamically customize both the service and the price? We need a new approach to pricing that looks beyond the scarcity of pre-digital times, and that exploits the new abundance, applying the dynamic intelligence of the cloud that can enable a single service be both:–free for those who want free (and are willing to “pay” with ads or content submission), and/or –paid for those who place value on getting what they want.The FairPay pricing strategy that I have been developing is an attempt to rethink how we set prices to do just that. FairPay provides a new process for setting prices individually and dynamically. It does this through a “dialog about value” between users and service providers (services, platforms, creators, authors, artists, editors, producers, etc.). It applies an automated price discovery engine to manage that dialog and nudge it toward fairness.Because it is dynamic and individualized, FairPay services can transcend all pricing options to find the one that works for a each user. –Those who want an ad-free service can work out pricing that buys out the ads.–Those who create user generated content can obtain pricing that factors in the value they contributed (and maybe even make money at it).–Those who want if free can get an ad-supported package–Those who want to save just a bit can get a light ad + paid blend–Those who want to try a no-ad version can try it, with no obligation to pay more than they find it worth–after they try it, and know the value.–Those who do not play nicely can have their privileges withdrawn, and be offered just fixed price or ads.FairPay combines an architectural framework that can include all of these models, with a dialog process that allows both buyers and sellers to reach a fair equilibrium, based on the actual perceived value, considering any and all factors. Free and paid can coexist in the same service……continued in my blog post at

    1. Stanislas Polu

      I like your point of vue. Too bad the rest is on your blog! 🙂


    I apologize for being late to the party. This is one I am just so passionate about.This economy doesn’t need free. This economy needs better. And you get what you pay for.With the bar soo low – there is such an abundance of crap to wade through – there is a lot of room for improvement.FREE has been done. Advertising isn’t what it used to be.It is time to commit to conceiving, making, buying, and investing in BETTER. We welcome anyone with that kind of courage to apply at It’s a lot more fun to be better than cheaper =}

    1. fredwilson

      good luck with that

      1. COMRADITY

        Love those double entendres . . . . thanks!

      2. COMRADITY

        Fred, here is my response to “good luck with that” – Wishing vs. Dreaming:

  82. Paul Kulas

    I don’t agree with anything you’re saying. Free works for you, because you’re in the business of funding companies that build users at a loss, then flip the company (problem?) to someone else you know. You both make bank, onto the next deal.Free is worth exactly what you pay for it. Entrepreneurs out there should set their sites lower and start thinking about making businesses with products that people pay for. After all, any schmo can give something away for free. The real business people, build things others pay for.

  83. Nitin Khanna

    Fred, you picked up some very good examples of free stuff in this post. Radio, a lot of TV and things like Pandora are free and awesome. However, none of these services are about individuals broadcasting outwards. They are about pushing out content. Thus, for them to be locked in with only official apps, having slow innovation are good enough options. In the case of twitter, people need to customize their experience because they’re practically posting about their entire lives. That’s why, when free services like twitter and FB play with developers, it hurts the end user. Sad to say that Caldwell is right, the customer should be the user, not the advertiser.

  84. markslater

    you have to look at the emergence of the web 2.0 free model over the last 8 years to get a feel for what has happened here.In alot of ways its a re-regurgitation of the web 1.0 get big quick paradigm.Make it free – in this day and age, add social – get big really really quick and figure out what the real business model is later.Along the way – add nodes of user friction that become the “necessary evil” to subsidize the free service – these things are ads, data selling and mining and so on.And i think these models become evil very quickly. Ads are evil – they make you watch something you have not explicitly asked to watch. Ads on TV and the networks that peddle them are in for a newspaperesque smack-down – and soon. Lets not even get in to big-dataesque CRM platforms that attempt to get your attention by using increasingly creepy leverage points like location and gestures and such.The reason i think that the attention game is evil – is that i want to be able to control my world, i want my complete freedom from the attention cavalry.So yes i will pay to get off that battlefield – i do already.Free is the input that feeds the war for attention. that model was built by and belongs with the generations that sit above me.Some people think i cant discover stuff without it being stuffed at me – that’s the old generation trying to use new technology to convince the new generation of its resistance to obsolescence.The new and innovative ways for product and service discovery are the opposite of interruption and all about user empowered and controlled communication.Its funny though when you think about it – if twitter were not free and social it could not get big quickly – the size of which has network effects/Create a free model with UGC, see networks effects, mine the UGC data to sell something relevant back to the person who generated the content. Nice.

  85. Dale Allyn

    I believe, based on having seen similar effects elsewhere, that there would also be a “status effect” contributing to adoption. I mean that a “Pro” badge, if properly presented, will be worth $2 per month to many. Real or imagined, it’s a clout thing. This is dependent on what “Pro” gets you, but it should be part of the discussion IMHO.

  86. Dale Allyn

    Right, but in Twitter’s case, ads were absent for a long time while establishing user-base. For Twitter, I think it was exactly the correct approach. It also required a lot of VC to scale it. Quite appropriate for such a model.I wasn’t suggesting that “pro” status should contribute to positioning on Twitter. It’s more of a sign of commitment thing, or “I’m a serious user” thing. But I would expect that adoption would also be even wider if in addition to removing the promoted tweets it also allowed a few other perks.(I hadn’t visited Dribbble in some time. Thanks for the reminder.)

  87. Dale Allyn

    Willy, agreed, with one caveat: I can envision certain types of models (in fact actively do with very specific details) where massive scale is desired and anticipated, but for which some “non-free” element is included out of the gate. But as I have said elsewhere, this is quite dependent upon value proposition or exchange.As we have touched upon and as has been mentioned elsewhere within this thread, there are variables which should be carefully evaluated in each case.

  88. Dale Allyn

    I’m a fan of open source as free, with value add options from any number of sources (i.e. third party or otherwise). I think the topic is potentially a bit broad for a precision reply because of such a wide range of FOSS available.I feel that the Apache projects should remain free, but like knowing that I can go to a third-party value-add for help building a Solr solution if needed. It’s important to have fully free distros of linux along with the option of paid and supported versions via Redhat, etc. MongoDB is another. These options allow for enterprises to evaluate how best to allocate budgets by paying externally or internally, i.e. contracting or providing their own developers.Building applications from FOSS for repackaging and selling is okay with me as long as it is within the T.O.S. The value-add is the key and requires time and expertise on the part of the developer which should be compensated for.BTW: For some projects I like ExpressionEngine which is a fully commercial license CMS. It has a great community, good support if needed, good documentation, serious about timely security updates, etc. The point being that each job or application may have different and valid reasons for considering FOSS, Commercial or a hybrid solution.