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November 16, 2008

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Daniel Sweet

I've heard a number of VCs say that they hate hearing pitches with the line "the market is so big we'd only need 1% of it to be huge!"

Is Freemium so new many VCs don't get it yet? Or are VCs on top of it and entrepreneurs just aren't widely incorporating the "zero distribution costs" language?

julian.bond

Let's not kid ourselves that the free side of the equation is *zero-cost* marketing. Running a large web site costs real money. Agreed it's much less than any other business that services large numbers of people but it's not free. What we're really seeing with many of the so called Freemium services is the use of VC capital to pay running costs in the hope that they can be sold before the supply of relatively easy funding dries up. That's not a business, it's an investment gamble.

David Loughry

This post is another argument in favor of proxri. Except contributing to Wikipedia is somewhat mentally challenging. By comparison, proxri are easier. Plus, a creative act is usually more enjoyable than a forced payment. My name below links to more about proxri.

Mike Woodhouse

Of the 75000, it's actually a fraction of that small fraction of a that large number that keep the thing clean, working and useable, but they care a *LOT*.

There's a good (couple of years old, but still relevant) interview with Jimmy Wales at http://twit.tv/floss7 where this comes out.

Workpost Foreman

Freemium is not always free but it is helped by scale. Even more helpful would be truly compelling services people are willing to pay for..

Kevin Kelly

More is different, but not enough. Nupedia, Wikipedia's first abortive version, was subject to the same freemium principles as Wikipedia. It only needed a few percent to thrive. But it failed because it never reached a critical mass. By the same token, Citizendium, Sanger's second (or is that third?) attempt to make a collective encyclopedia also obeys the freemium principles, but is not thriving, also without reaching some level x. What is interesting is that I think Citizendium HAS reached the level of the early Wikipedia, and may even have a higher rate of participation than earlier Wikipedia, but that is not enough.

I think the surprise is not how low of a participation rate you actually need, but that you can get participation at such high rates given the mass audience.

The real news you bring is being able to run a busines selling only to a few percent of the people using your product, while the rest use if for free.
Part of the miracle of this is the way customers seem perfectly willing to accept this duality. I think we had a lot of training for this. Free radio music/paid LPs, and free TV/paid cable TV.

Maria H. Andersen

Remember the 80/20 rule? 20% of the people do 80% of the work?

I guess in today's Internet world (or at least Wikipedia), that should be the 100/.01 rule.

Willem-Jan

The 80/20 rule probably still applies within the .01% that contribute (as well as within the 99.99% that only consume)

Jeremy

man... it would be nice to get those sorta hits.

Hey Chris, I love your blog and read it every time you got a new post!

Nigel

So the success of freemium is dependent on having a free product that reaches a certain level of popularity, thus facilitating the sale of complimentary products. For such an outcome, you need to have a quality free product that people want. Even so, the fact remains that people will not use the free product unless they know about it.

Lauren

Basically, if you can get traffic, you can make money. The internet is a plethora of money-making opportunity. It's all about having a great idea, putting it into action, getting traffic, then sitting back. I'm glad wikipedia earns as much as it does. I've often wondered about this.

http://atlastmylove.com
http://runholy.com

William Samedy

Scale can be a transforming factor. I have used this concept in trading. Take a trading philosophy and apply it to a number of assets. As you increase the number of assets, returns get better and in some cases a losing strategy starts giving positive returns.

Only with technology can one person envision managing a portfolio of a few thousands the same way he can manage a few hundreds or twenty stocks. For that kind of scales a few years ago you needed a big trading desk with many traders.

corre

It costs virtually nothing to reach 100,000 potential customers? I think start-ups would tell you different. On the other hand, I'm just a student, but our lecturer always emphasises the fact that doing business on the internet isn't free. According to him, it costs around $500 to gain and maintain a customer online, that's far from free in my eyes. (although, I admit I have no idea where he got that number from)

Chris Anderson

@Corre: Nonsense. Where do these professors get these silly numbers? Let me give you an example. One of my startups, BookTour.com, has been used by about 100,000 people in the past year. About 10,000 have signed up and became customers. The whole site is based on Amazon's EC2 service, and all the processing, bandwidth and storage costs are $35 a month. That's close enough to free to me. Please take these numbers to your professor and get him/her to explain how he came up with his/her figure.

Adam Singer

@Chris - that's exactly what I was thinking. Alot of these aging college professors didn't quite grasp this internet thing when I was a student either. Eventually I stopped arguing and just bit my tongue during discussions.

Laurie Neumann

Very interesting post. You always hear that you need more and more traffic, but this post makes it clear as to why you do.

Thanks for sharing.

Ken Kaufman

It costs a lot to create something that is worthwhile enough for people to use, even if it is free. Getting a small to percentage to pay for it is even more cost.

Peter Simones

Such a simple concept, yet I'm probably not the only one who hadn't framed growth in this sense before. Really, it's just a simple xy relationship with x equalling the number of users and y equalling the conversion rate (whether that means revenue, engagement, contribution or something else business-model related). If either one is exceptional, growth will follow in line.

As a side note, it's always great to see guys like Brin, who are seemingly worth more money than several small nations, look straight out of a 90s NKOTB video.

Always enjoy the posts, Chris.

Peter Simones
http://www.Cramster.com

jeff paul internet business

Your post has on internet marketing is definitely true. Internet marketing has opened new ways of attracting visitors to the website giving the webmasters a way of earning cash as well as web status. Let's see what the future holds for internet marketing.

Simon

"Remember the 80/20 rule? 20% of the people do 80% of the work?
I guess in today's Internet world (or at least Wikipedia), that should be the 100/.01 rule."

I think you right.
Simon
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Account Deleted

For those of you thinking that if they implement this it will eliminate some of the waiting and lines…
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why does everyone here think Youtube was made by Google?
It has been stated way to many times to people who don't pay attention to the other comments explaining this!

Account Deleted

Well, nice article buddy… Someone will love to read this infor if I tell her about this. For those of you thinking that if they implement this it will eliminate some of the waiting and lines…
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Great post...
Google is a successful company. In response to that, lets wait for all the negative Google comments from people who are either jealous, or shills employed by Google competitors.

cable

Great talk! I would love to have a class that brings in these kind of people to talk...oh well. Also the professor is really cute!

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Hi. I agree in principal with your ideas at the same time I do believe if someone invents something before others.
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Tidbits

The Long Tail by Chris Anderson

Notes and sources for the book

FREE was available in all digital forms--ebook, web book, and audiobook--for free shortly after the hardcover was published on July 7th. The ebook and web book were free for a limited time and limited to certain geographic regions as determined by each national publisher; the unabridged MP3 audiobook (get zip file here) will remain free forever, available in all regions.

Order the hardcover now!