When free sucks | Hacker News Reader

When free sucks

ryanmickle.com

44 pointsmarketer23 comments

For a VC-funded company, when you charge users, you end up with two results: fewer users, and a very clear concept of the lifetime value of a user. If your cost of acquiring those users is higher than the LTV, you have a huge problem.

With a free site, the cost of acquisition is lower, you have a big fat user number to quote (even if many of them aren't actively using it, since they don't have to pay, they don't cancel) and the LTV is a future, "undetermined", number. So it's not as apparent that maybe a business isn't generating real value.

> So it's not as apparent that maybe a business isn't generating real value.

Of course, it's also not as apparent if your business is generating real value. If you were looking to make an investment, wouldn't you look for a business with proven value over a business with hypothetical future value?

Not if you're a VC. The whole point is to see value where it's not obvious, because it hasn't materialized yet.

If there isn't a huge spread between the obvious present value of a business and its /potential/ value, then you can't make an investment where you expect a 4x-5x return. Those kinds of returns only show up when there's a lot of uncertainty around both the current value AND the future value (and most of the value of a new VC business comes from the discounting of its future value, rather than a calculation based on its current performance.)

Advertisements don't necessarily have to devalue a product that's free to the end user. It depends on how and where those ads are displayed.

Twitter is a good example of a product that could certainly use less obtrusive ad placement (i.e. no "dickbar"). However, it's possible to have noticeable advertisements that do not impede the user experience. Google, Bing, and Facebook are all great examples of this.

I realize the article is about more than just advertisements in free software. The common outcomes of free that Ryan speaks of are spot on in my opinion. However, I do feel that free, based on advertising, and good are not mutually exclusive.

Advertisements are also not the only way to monetize (and add value to) your product.

Freemium is an excellent model to get healthy returns, but it is somewhat limiting. Twitter clearly wants to the next billion dollar ubiquitous company, a la Facebook and Google, not just another barely profitable mid range company like Skype or Flickr.

Of course, that is a gamble (MySpace had the same dreams at one point), can lead to suckier products, and Twitter isn't exactly nailing the execution, but I can see why they don't want to charge.

Value is often derived from the cost of the alternative. I'm not sure I can buy the argument that Twitter should not be free when users could quickly and easily migrate to another free service, like Facebook. I know, Facebook ≠ Twitter, but how far do you think Twitter's user count would plummet as a result of even a marginal fee?

I'd like to see it happen, if only for the fact that we'd have a fantastic case study for future generations of social networks.

Twitter is in an interesting place. As a one to many broadcast medium, they have many people who are using it commercially, people like me who would be willing to pay a fee. Really, twitter charging me $5-$10/month or so is not going to register much more than twitter being free, at this point.

What they have to be careful of is that if they start charging the non-commercial users, those users will go elsewhere. And if those users go elsewhere, the commercial users will also go elsewhere.

So, if they can figure out how to charge me without charging my customers, they are golden. How to do that? I have no idea.

Are we starting to see a reversion to the paid model as the best way to sell software and software services ? Personally, I hope so.

I have no problem with that either. In that case, micropayment needs to be dead simple though, I don't want to fill in my personal and credit card details for each site. Both from a privacy and convenience perspective that's a big no-no.

+1, me either. But once they're in, life is easy. Just ask Groupon or any slam dunk subscription site.

This. My personal prediction: It will go the way of auth, where known trusted companies become the custodians. I'm willing to bet Facebook, Google, Apple, MSFT, and others with large subscribed bases are nursing at least one, possibly several, entrants into this space, but are waiting for evidence that people actually grok micropayments first.

Good point, and we're already seeing things heading that way with app stores cropping up everywhere. I'm sure that there will be something similar for web services soon enough.

I'm getting kind of tired of this argument by anecdote kicked off by the Twitter not-so-smart bar. A lot of the examples have much more to do with acquisitions by big cos that neglected the services after purchase. Do we really have to run up a huge list of free services that have stayed entirely free to users and are still good (Yelp, Zillow, a million things from Google, Goodreads, IMDB, all the IM services) or that charged money and stink, have gotten worse or disappeared altogether (Mozy, Xdrive, MOBILEME, Gizmo)? Charging does not equal profitability and other revenue streams are available beyond directly dunning the user.

Being a for-pay service can be a feature in itself if your business is based on storing user data. People are naturally risk-averse when it comes to their bits. Profitability reassures them that you have some kind of plan, and the fact that money changed hands reassures them that they'll have some kind of redress if you screw it up.

I think people are ready to pay for simplicity and ease of use. examples: Dropbox (as opposed to box.net), hipmunk (as opposed to so many.... Orbitz, expedia, etc)

I think people need to just get over it. It's a free service. Almost every good, free service on the internet has some amount of annoying advertising.

But at what point is that annoyance more of a cost than what the customer would pay?

I wouldn't pay for Twitter because I barely use it, but I would gladly pay for Mint.com to get rid of the ads, suck up valuable screen space on an app I use daily. And I do pay for Remember the Milk so I know it stays around. I'd pay for Gmail and Google Calendar.

But everyone is afraid of charging. Some users would surely switch away if you had to pay, but many wouldn't. How much productivity did Gmail originally bring to the table? Did they capture anywhere near that value via ads?

No one will pay for Twitter. That's their problem.

No.

http://news.ycombinator.com/item?id=2350147

You can pay for gmail and google calendar via Google Apps. I think that business model is "give it to home users for free, get corporate users to pay."

I would pay a few bucks to take ads off of pretty much every single Android app I use.

Agreed. Ads on mobile apps are even worse than usual: you have limited screen space, bandwidth, CPU power, and battery life, all of which they consume. I charge directly for my non-opensource Android apps rather than polluting them with ads, and it's worked well so far.

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