Making Users Pay
On Monday when I wrote about 37signals and other great Web 2.0 acquisition bait one of the general observations that was made was that most of the companies rely on advertising to get by. It seems that everyone is in a rush to add as many users as possible to their applications and services that they don’t bother with a paid model and decide to rely on the advertising route. So the question is how hard can it be to get users to pay if they already find your service valuable?
Could YouTube offer a pro version that provided you with more tools and a greater chance to gain exposure with your videos? Maybe they simply add pro accounts that allow you to upload larger movies ala Flickr.
Looking at a lot of Web 2.0 services it is kind of surprising how none of them provide a pro version for any of their services or basically any special type of service that would entice users to pay. Now some services and applications do very will with the advertising model. Facebook is no slouch with bringing in revenue, but they have groups and communities that target niches that many advertisers are going after.
WordPress.com does an excellent job of this by providing you with some excellent basic services that can become greatly enhanced by paying them a small fee. From last that I heard these services helped push them into profitability, but I can’t say if that is still the case because so many new people have signed up since then.
Do you think that companies fear that users won’t pay for their services? It does require a certain bit of bravado to think that you created a service so good that people are willing to pay for it. If you create a strong enough community though don’t you think many of the members would be willing to pay for something that gives them just a little bit more? This year I am definitely looking for the companies to take that next step and begin to integrate multiple revenue streams into their systems.
Related reading:
I absolutely agree. How big does your community have to be to really be sustainable through ads? Too big. And because of that you’ll probably end up being too wishy-washy from the start.
At 49sparks.com, we’re focusing on a vertical, building a community and offering a paid project collaboration service. We think it makes sense. But: you bet we’re scared people won’t pay. On the other hand: project management still seems to be one of the few services that isn’t generally expected to be free. Yet.
By Chris Ritke on January 10, 2007 10:21 pm
Wow, Scrivs. That post title seemed quite ominous.
By Kyle Korleski on January 10, 2007 11:06 pm
Yeah I didn’t realize it until after I posted it. Some alternatives:
Okay, well everything except for that last one.
By Scrivs on January 10, 2007 11:13 pm
I think you might enjoy this article:
User Generated Revenue As A Business Model
By Dharmesh Shah on January 10, 2007 11:55 pm
The key is being sure you’re providing a service your audience is willing to pay for - and often that’s not the case. Facebook.com never takes off and becomes almost manditory as a college student if it requires you to pay to get in. And if they stopped now and asked for a fee, how many people drop out? As soon as some drop out it loses a lot of it’s value, and that’s that.
I’ve heard stories of internet companies (and I don’t know how true they are, but where there’s smoke there’s fire) that have developed a fairly strong user base, decided the way to go was to ask for a subscription fee and poof - the base disappeared. They figured they could get what they wanted elsewhere and that was that.
I think another fear is the (perceived?) transience of internet companies. When you buy software you have a feeling that it’s yours forever, until you’re done with it. But there’s a feeling that so much on the internet changes (and often subscription fees are on a per month basis) that you don’t get to keep what you’re buying. Think about video games. I think people are much more willing to pay $60 for a game than $5 a month for a game they’re probably going to play for only a year. Because in the first case they have it, in the second case the perception is that it disappears. And that perception plagues a lot of the subscription based companies on the internet.
Of course all of this is just conjecture. I don’t have proof one way or the other.
By Ben on January 11, 2007 2:43 am
I’m constantly amazed at how I’ll jump through hoops to save what I’d spend on lunch.
I’ve finally been getting away from that.
By engtech on January 11, 2007 3:42 am
I think we’re missing the whole ‘web 2.0 company mentality’ here…
My take is that the companies that don’t charge users aren’t actually marketing their services to users, but rather marketing the company to potential buy-out candidates. In other words, they are trying to gain a large user base and massive exposure in a short period of time, hence the ‘free’ service.
Then… they attempt to sell to a larger player. They never really have plans for a revenue model all along, nor did they intend to. They hope to get bought out and let the acquisitor deal with that situation. Slapping a subsciption fee will definitely dampen user growth and provide a barrier to entry for many.
I know this mentality seems ignorant and pig-headed, but it’s the truth - in my opinion of course.
Cheers,
Aidan
By Aidan Henry on January 11, 2007 3:59 am
[...] After reading and commenting on an interesting article over at Wisdump, I think the topic merits a post of its own. [...]
By Mapping The Web » The Web 2.0 Company Mentality on January 11, 2007 10:22 am
I think offering free and pro (paid) versions of a service is a completely valid and excellent model, as long as the free version is not too limited (i.e. it basically forces you to upgrade in order to use the service in any meaningful way).
As the manager of a number of web sites, I’m a big fan of hosted services - it’s much more cost-effective than installing all your own applications; the whole web 2.0 phenomenon has been a godsend from this standpoint.
The only downside about using these (generally pretty new) services for business purposes is the danger that they might go out of business. Now, that’s a scary thought!
By Christian Watson on January 12, 2007 12:30 pm
Well, i think advertisements are necessary , the basic reason is that the people need awareness to quality services,however, this has been mislead these days.
By linux web hosting on January 12, 2007 12:56 pm
Let’s not confuse advertising from a marketing perspective with that of advertising as your only source of revenue.
By Scrivs on January 12, 2007 3:47 pm
My company is trying to build such a model from some of our forthcoming applications. There are two reasons so many web companies haven’t factored in a paid model, or rely solely on an advertising based model. First I believe its out of fear (that users aren’t willing to pay or may become offended and leave) once a paid offering is announced. And second, paid offerings are difficult to implement. Why worry about infrastructure, billing, and legal issues around collecting personal credit card information, when you can just serve up some Javascript and make a few bucks that way?
I believe that web advertising is the pin that will burst this Web 2.0 bubble. There are just too many sites, legitimate and not, that are supporting themselves via advertising and not a dedicated paid user base.
By Zach Katkin on January 13, 2007 7:50 pm
Facebook allows their users to buy advertising… you can advertise an event or a birthday or just about anything in your network for a decent price. A lot of users use it and it’s a smart way to make money from your users. You don’t have to just offer subscription service, you can follow Facebook’s example and offer a way for your users to buy something on your site.
By Montoya on January 14, 2007 9:25 pm
I never knew Facebook had that option. I’ll have to loo more into it, thanks for the heads up Christian.
By Scrivs on January 14, 2007 10:26 pm