If 100% of your non-advertising revenue comes from 5% of your users then what is the incentive for Freemium Internet business models, beyond a claim that your site will really make money someday? Unless your “uniques” are really high, or your audience is very targeted, you aren’t getting enough revenue from ads to pay the team (unless maybe you are the team). Freemium is a cop-out. A way of saying “our product really isn’t worth paying for”, but try it for free and maybe you’ll feel compelled to upgrade to our super-duper service someday (or more likely we’ll promise our investors you will). Do you know any Bricks and Mortar companies that use this model? Can you imagine what would happen if Prostitution used the Freemium model? You don’t have to look further than online Pornography to see that endgame. Free online porn has displaced paid-for models. Last week, the Porn industry “bent over” to ask for Federal Bailout money. Good luck with that – nobone gets bailout money until Congressmen can wax prophetic and produce soundbite fodder. And XXX doesn’t play well in November.
I dabbled with Freemium solutions from LinkedIn, Flickr, and others. But the only Freemium model I stick with is the New York Times crossword puzzle subscription. (You can read the online paper for free, but wasting your time on that damn puzzle will set you back $6.95/month). I figure it’s cheaper than buying a few papers from the newsstand – and I don’t have to hoard quarters.
The next wave of Internet providers must provide value services that people will pay real money for. Creating and marketing for pay services in the nexus of the current Great Repression is a huge challenge. But not failing to market services that are worth paying for will condemn most Internet companies to failure or dilution.