Charging the User

I just stole a link from Fred’s Delicious that looked interesting. Charles Hudson recently wrote a post on how so many web companies have tossed the “charge the user” business model out the door (a sentiment echoed in a post Hudson links to here). They both share a good point that’s worth some thought: a lot of new businesses don’t seem to have a viable business model.

This hits especially close to home with the work I’ve been doing recently to restart Flicker Gaming as an actual profit-driven site. I can’t tell you how much I wish Flicker was actually going to provide is service or a product that we could sell. There’s nothing like a sales model to bring in the cash.

But unfortunately for me and my timing, I’m looking into the one business model that doesn’t allow for charging the online user (unless, apparently, you are the New York Times, which we aren’t): publishing. Publishing is, and so Flicker is, based entirely on ad sales. It’s a model that can work, that does work, and is working, so for us it’s a matter of realizing it. But I wish we could charge the user.

A few things to point out, though, is that Hudson and many others often point to FlickR (the Yahoo! thing) as a “web 2.0” success story, but they tend to forget that it’s neither free nor paid - it’s Freemium - and that works because they have a service that becomes more valuable the more you use it.

For a lot of people like me, the free service provided by FlickR is more than enough for my photo-sharing online. I take occasional interesting pictures, and a put a sidebar item in my blog. I’m happy. For people who really enjoy photogrpahy and like to build a portfolio and get into the online FlickR community, a Pro account makes sense.

The other important factor is that users are not going to (or shouldn’t, if they’re the “rational decisionmakers” that economics make us out to be) pay for services they can find elsewhere for free. If I could get the functionality and community of a FlickR pro account at Webshots or Photobucket for free…I would.

Hudson says:

I will just highlight Flickr and 37signals because I think they are on to something. I have plunked down cash (or had someone plunk down cash on my behalf) for products from both organizations. Why? Well, first of all they both had the audacity to actually ask! Second, they are both producing products whose value to me as a user exceeds the cost by a very wide margin. And, if I didn’t own my own domain with dirt cheap hosting, I would plunk down cash for Typepad as well. (emphasis added).

Who in their right mind would sign up for typepad right now if you can get a free account at Wordpress.com (which you can)?

So yes, there are a lot of new businesses out there that shouldn’t be businesses - they should be hobbies, open source projects, or sideline innovations at bigger companies. There are a lot of cool toys being created without a recognizeable business model, and that’s going to hurt both the people who invest in them and the people who want to create real valuable services.

What’s a good example? How about when the browser became free. Microsoft made Internet Exporer free to run Netscape out of the market, and it worked. In that case it was intentional, but it’s basically what’s happening now - the market is so saturated with free options that even companies providing a valuable service are going to have a tough time charging users.

I think businesses can and should charge the user for valuable services. But that has to be something that the user can’t get elsewhere for free. And, frankly, I don’t think that a lot of the “shiny new things” that have showed up in the past six months are really “valuable services.” At least not yet.