I posted the other day about the concerns I have for the multitude of Web 2,0 businesses that have no real clue about how, when or from whom they’ll monetise their product.

Mike commented astutely saying that (edited for brevity);

…surely you know that “free” isn’t “free”…When I take SME’s through a “free” service I am very honest that it’s NOT “free”. It’s paid for by advertising  which in turn they contribute to by paying for it with their “data” and “attention”.

I think “free” is different to how software/computer stuff has normally been moved around (as a product, like shoes, cars and other physical stuff) but the alternative ways of making $$$ are also occurring. It’s not one or the other, it’s a world of every which way

The trick is to be very clear HOW the money is coming and not be sucked into some sort of hippy concept of “free”

And Mike of course is 100% correct. Sort of…

Third part paid software

Google Apps (for example) IS a monetised service. The fact that the monetisation comes from third party advertiser and not directly from the user does nothing to diminish the fact that it’s a paid for service. Advertisers pay Google in return for the attention of the users of the applications.

So where’s the problem with that? Simple really, the jury is very much out on whether or not online advertising of this kind is in fact effective. Sure there are staggering amounts of money to be made from online advertising, but just imagine what would happen if it was discovered that no one actually  looks at online adds. There endeth the viability of Google apps (hell most of Google for that matter) as we know it.

I wonder if users (myself included) really consider this risk when launching into “free software”?

Vaporware

My definition of vaporware is software with no clear monetisation path, that is created on the expectation that major uptake will create significant value and monetisation opportunities for the product. There are two classes of vaporware, both equally invalid;

  • the “we’ll charge once people have got used to using it” model
  • the “but we’ve got 100 million eyeballs – that must be worth something” model

Subverting the free model

I know all about freemium. I know all about up-sell. I know all about creating stickiness. Notwithstanding any of that it is very very difficult to change users attitudes once they are used to a free product. Charging for something that was formerly free is a staggeringly hard change to make. Period.

Dollars in eyeballs

I’ve got a theory that the monetisation model based on potential future users is no different to the hysteria that pork belly trading caused. In effect businesses are borrowing against a possible future value of a business, with that future value wholly based on eyeballs.

This model clearly feeds back into the “third party paid software” model as detailed above – only it’s more risky. Not only does it rely on the shaky assumption that online advertising will continue to be worthwhile, lucrative and relevant. But it also tries to second guess the future value of that advertising.

Summary

It’s very simple – bake in a monetisation model with the business model. If there isn’t an obvious one then talk to someone who might be able to help you find one. If they can’t…. think again.

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

1 Comment
  • Nice.

    “what would happen if it was discovered that no one actually looks at online adds” – it would be no different to TV ads now. However Google (and others) only get paid when there’s an action related to that add, in its simplest, a click on it.

    I also have a theory about “no-one (ie, I never) read Google Ads” but will blog about that separately V soon.

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