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Thursday, February 05, 2009

Free Users

An article at the WSJ from The Long Tail author Chris Anderson:

The economics of giving it all away

I've been thinking about this topic with my work at Entertonement.com. At ET, we have plenty of free users, but we'll be trying to find a way to get revenue at some point - We'll be trying to get paying customers. But that's not the only type of paying customer we're after. We're after customers that give us all sorts of things - upload audio, comment, rate, build collections, profile pages, channels. When you think about it, the customers aren't free at all. Each one gives you something, even if it's only a 'monthly unique' - which roughly translates into a visit to your site to look at what you got.

We really have a half dozen user types, each giving us something of value, and at each value level, there are fewer and fewer of them. Our goal, like a car company, is to get them in the door, to use our product in an entry level, become a loyal user, and move up to more expensive services and products.

Chris Anderson focus's on the "free", but that's not true at all. He misses the whole point. The internet isn't driving down the cost of everything to free. It's finding a way to make money off of everything else, which, before the internet, really wasn't possible. We're all trading something for free for something of value. Trading up - and that's really what capitalism is all about (until recently).

Or, you can look at it another way. Those free users aren't 'users' at all, they are the product that other companies want to buy: they are what the company sells. Because, when you really get down to it - most web sites are just some form of matchmaking: Google, Ebay, Match.com, Craigslist, YouTube, etc. But, you say, on YouTube, know one pays - not the uploader, not the viewer! That's true, but the viewer pays when they click on an ad based on the keywords and content provided by the uploader. It's a complicated motivation chart, but it's there. It takes a critical mass before this will work, and most sites will start with content, and then get viewers. Follow that up with ads and you have the basic model.

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