Ian Singleton

Free and the penny gap

Posted in Uncategorized by iansingleton on December 14, 2009

If you haven’t already done so, read Free (part one) which is a bit further down the list.

Why does Google default to free? Because it’s the biggest way to reach the biggest possible audience and achieve mass adoption

That’s fine for Google, but for a niche player,  “making money around Free when you don’t have millions of users (and sometimes when you do) is a matter of creative thinking and constant experimentation.”

The internet business model pioneered by e.g. Google had four steps:

  1. Have great idea
  2. Raise funds to bring it to market, ideally for free to reach largest possible audience
  3. If it proves popular, raise more funds to scale it up
  4. Repeat until you get bought by a bigger company

now 2 to 4 are no longer available, web startups have to do the unthinkable – come up with a business model that brings in money while they’re still young.

The principle of a niche premium offering on top of the free material is called freemium, a phrase Anderson attributes to NYC VC Fred Wilson – paid version of free service. Wilson denies coining the phrase.

    VC Josh Kopelmann First Round Capital – the penny gap – the biggest gap in any venture is that between a service that is free and one that costs a penny. Free forsakes direct revenues but grants possiblity of mass sampling. A free product can go viral, paid can’t. Zero is one market, anything else is another.

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