The First Law Of Internet Physics

I’ve written a lot about free vs paid here on AVC. There was a time I was obsessed about this topic. We even coined the word freemium here at AVC (thanks Jarid) during that phase. I’ve moved on to other obsessions but I still think a lot about it. I got in a long twitter discussion with a bunch of people yesterday about this topic, spurred by this tweet by Jonathan Weber:

That led to a long twitter discussion in which a bunch of people joined. I can’t find a good way to showcase the discussion so I’m not going to. But during the course of the discussion I tweeted this. I made it up last night but it’s something I’ve experienced many times over the years.

Isaac Newton observed some things about motion and encoded them into his three laws of motion. I think we should do the same thing with the Internet. There are some things that just are, and we should acknowledge them. I posit that one of them is this:

many users * low arpu >>>> few users * high arpu

I’ve seen so many people try paid content on the Internet and the result is less users, a lot less. You can extract a higher average revenue per user (arpu) from a paid model, but you get so many less users that is it better to extract a lower arpu with a free model and get many more users. I guess a corollary to the first law of Internet physics is that you can implement a freemium model on top of a free model and turn some of your users into high arpu customers, but they will always be a small portion of the total number of users.

That’s a long way of saying that you can do paid, but you had better have a free tier first and foremost as most users will go for that. And if you put too much of your content behind a paywall, you’ve effectively turned your core product into a paid one and you are back to {few users*high arpu}. So be careful with the freemium offering.