Vijay Anand | The Startup Guy.

Free + Free + Free = ?

Posted on: January 29, 2008

“Build the traction and let’s think about the revenue stream later”, they say. Another variant of the same thought is the often heard “Get as many eyeballs as possible and then you can figure out the business model”.

How, I ask?

Most of the folks who do know me personally will tell you that I shudder everytime I hear “Web 2.0”. It might as well be pronounced as the “thing that sinks in money and gives back nothing” as far as I am concerned. I am not totally going against everything in that category. Some are just great businesses which are cursed under that category, but the usual trend seems to be that, if you can whip up some snazzy thing, you can float it up as a venture. Not too sure about that one.

So why am I writing this post, when I’ve said this countless times before? I got an email which goes something like this in the part where it describes the company and what it does:

“The xyz software and the xyz IM and Text Message Service are completely free. PC calls from xyz are also free. Mobile calls from xyz, however, are charged at local fixed line calling rates (or deducted as part of your monthly local minutes package). This will change soon, when we release our Mobile VOIP solution – and all calls will also be free.”

I read a Free, another Free, another one and yet another Free. There was this minute little scope for revenue which was also washed out by the following Free. So, if I were an investor, when would I see my money back?

PS: I’m going to categorize this under “humor” 🙂

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6 Responses to "Free + Free + Free = ?"

Hi Vijay,

First, Congratulations on the momentous success of Proto.in. The snowball effect of ecosystem is really taking off, a huge thank you to proto.in.

The ‘product is free’ but ‘we make money somehow, mostly by ads or VAS’ business model is not that bad at all. I haven’t met a person that is not attracted to ‘free’ or ‘less’. Recent surveys shows that 73% of the people are ready to receive ads on their mobiles for free minutes and ringtones.

With a rare distinction of a few like 37signals, most business models are based on ‘ads’. And it works.

If every service would have been a paid service, I am pretty sure, internet wouldn’t have taken off at all. Starting from the early ‘free’ email services to now ‘almost everything is free’.

Webex is seriously considering offering a free ad supported service too, to fight out the new competition: Yugma and the new dimdim.

But, like Peter Drucker said ‘going online is no longer a strategic advantage’, in this current state of affairs, giving it free is not a strategy and it doesn’t attract customers either, unless we provide a service that is useful and makes a difference. If everything is free, being free doesn’t make any difference.

Murali,

That was a well thought out, and fairly elaborate comment. Thanks mate.

I guess there is nothing wrong with being “free” and charging someone else who benefits out of the value – the ad model. I guess it has been going on forever with events being organized where the sponsors underwrite the cost involved so that the participants can pay less or nothing. It simply works.

But I guess we do resonate on the fact that “free” doesnt cut it anymore and with more and more people relying on ads and sponsors, the limited pool is drying out quickly and very few guys are finding it to be of any significant ROI. Bottomline, its not sustainable to have so many businesses running out of a single pool of revenues.

I hope someone comes up with a better model fast!

Hi Vijay,

Do you think its only the case with web2.0 or anything related to social networking/online networking(for lack of words) where you feel that free and then later charge is not going to work for an investor?

Just trying to analyze how you look at the space where more and more people, say a year ago were looking at online apps or services and were trying to move away from the desktop only environment.

Yeah, another one is where currently people who are in the web2.0 space are also coming out with an offline counterparts and some efforts to have synchronized services between the two. Any thoughts on that?

Shiva

Shiva,

In my opinion (and most popular thought), web 2.0 includes social communities. no?

This has nothing to do with an investor. It has some major issues with the ideology of a business. A business needs to make money. Simple as that.

Companies coming up with online editions of offline counterparts are quite interesting. 70mm for example, is a great story. And it works.

Vijay,

Agreed…so web 2.0 with offline counterparts can have a better or viable business model than just the online variants…this is what I think…any views?

well, it “may”. The trick is to figure out which business can go through this transition.

Movie tickets for example, is another good example. These days I feel a bit odd when not able to book my tickets and seats before I get to the theatre. At the sametime, I still prefer to go buy my books from the bookstore and don’t shop online.

The point is that, not everything translated to “online” would work or make sense. But if you figure something out, yep, it has potential.

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