By Simon Collins, Director, Cashcade Ltd.
The blogosphere is always full of great discussion about new business models for the internet. Recently the launch of Chris ‘Long Tail’ Anderson’s latest book “Free: The Future of a Radical Price” has been the focus of discussion for many heavyweight commentators, including Malcom ‘Tipping Point’ Gladwell, Seth ‘Purple Cow’ Godin, Fred ‘AVC’ Wilson and John Gapper, the FT’s Chief Business Commentator.
The discussion, and sometimes disagreement, has focused around the central concept of Anderson’s new book, which is that the best way to build a business on the web is to give products and services away for free. Anderson argues this has become possible because the cost of creating additional bits and bytes is close-to-zero and that the best way to gain people’s attention is something-for-nothing.
In what may prove to be a well-worked PR move, Malcom Gladwell, the acclaimed author,…
…argued that Anderson had got it all wrong. Which lit the fire under an online debate that ran and ran, until it eventually came back to so-called ‘freemium’ services. A concept supported by the respected VC and Twitter investor Fred Wilson, where a limited service is given away at no charge, and then upgrades and additional products are offered for a fee. Wilson cites Facebook as an example of the effectiveness of the approach. Having built up a huge global audience of 250m by offering a free service, the company is now building significant revenues from the sale of virtual gifts and applications, along with advertising.
But it’s not just technology where Free is winning the day. Bloomberg suggests that, “Michael Jackson would have moonwalked his way out of some of his millions of dollars of debt next week with the first of 50 sold-out concerts at London’s 02 Arena.” This is because, the article notes, concerts and merchandise have become the main revenue generators for artists. The music itself, distributed for free via Youtube and Spotify, is now merely a way to create awareness. In fact, the live performance market raked in $21.6 billion in 2008, an increase of 54 percent in three years. All of which appears to hint at a “changing of the guard,” reversing the model where bands would tour at a loss to sell CDs.
As it happens the freemium model is exactly the approach we have been using within our latest offering Cheeky Bingo, where people can play for free (yep and win prizes!) but are also offered the option of trading up to a different online forum, where they pay-to-play. We have found people really like this freemium service because they appreciate trying something out before they sign-up. However, with so many people playing, the free game can be a frenetic experience. So many people, having liked what they see, have chosen to spend a small amount to move into a more relaxed online forum, with some extra features.
In fact, this has worked so well that it was recognised at the Online Bingo Summit with a prize for innovation. And it was quickly imitated, which as we all know is the sincerest form of flattery!
As you may have gathered, one job for this Perfect Storm blog is to showcase the online gambling industry and its innovative, entrepreneurial nature to the rest of the world. And it seems we are well ahead of the curve when it comes to the Freemium concept. While the blogosphere talks, we act!
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Agree totally. I am too using the Freemium model with my site. Its a the deal breaker amongst my competitors who still insist on charging for the service to private individual users. Watch this space