Firstly I have to say that I greatly respect ReadWriteWeb. Partly because anyone who can build a global media empire from a Lower Hutt suburban home deserves kudos, but also because RWW founder and editor Richard Macmanus is a genuinely nice guy and a web visionary. But sometimes that vision gets a little distorted from the powerful effects of the Web 2.0 kool aid that Richard and the gang drink plenty of. One case in point is a recent post where Richard denied the claim that the end is nigh for the free model of Web 2.0.

In reviewing a blog post about DEMOfall08 that calls for an end to the free model, Richard says;

Where I disagree is the notion that the ‘free’ model of the Web has ended or will end soon. Online advertising has been a very powerful business model for many, including of course the master of this Web era, Google. While I do agree that consumer apps should explore alternative business models too, in my view the statement by Chris that "free isn’t a business model" just isn’t true. Clearly ‘free’ has been a business model for many – and will continue to do so as long as the online advertising portion of the total advertising pie keeps growing

While people often cite the example of staggeringly successful businesses run on "free", such as Google, the fact is that these businesses are not in any sense free. As described in a previous post, Google monetises their "free" services via advertising revenue. This is a markedly different story from, for example,  Twitter who has no real monetisation path.

I find it hard to understand how anyone can argue that services that are truly free (ie are neither charged for or paid for indirectly by a third party advertiser) are in any way sustainable. Business sustainability is about earning at least the same as you spend. Engineers, bandwidth and cool brand t-shirts require cash – no matter whether or not it’s coming in, it continues to go out and there is only so long that direction can be maintained.

In terms of the contention that online advertising is a pie that is going to continue to keep growing – given the economic environment we’re currently facing and the emergence of new technologies that could prove the end for the need or utility of online advertising, this is a pretty brave contention to make.

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.

7 Comments
  • Falafulu Fisi |

    Ben said…
    This is a markedly different story from, for example, Twitter who has no real monetisation path.

    Ben , I know you meant to say:

    This is a markedly different story from, for example, Twitter, FACEBOOK who have no real monetisation path.

  • Free is in the eye of the beholder as you know – there is is ALWAYS a price. No money means that your time / convenience etc as used to pay instead.Ad-funded models aren’t dying anytime soon.

    The ‘traffic based’ models (Twitter / Facebook) are based on large corporates (who strangely know better) pumping cash into them. Cash up plays as opposed to revenue generation plays

  • Hey Miki,

    I think there’s a bit more to the traffic plays.
    1) In my opinion the corporates you mention are hope to monetise thru advertising – traffic means eyeballs and by golly somehow i can make money from that – so actually not that different from Google except its a bet rather than a proof point
    2) they are trying to capitalise on market ignorance. Facebook has a gazillion users so its a hot internet (ops i meant 2.0) property so it MUST be worth loads, if I give it 20 mill now it will be worth a billion next year.

    My somewhat cynical, flu induced 2 cents

  • Im not sure that free is dead. Miki has a good point that traffic based models will not go away.

    Now my point of difference is that I don’t believe that traffic+advertising = cash, at least not anymore. Traffic based plays need to add value, an example is something like Foxmarks, a bookmark synchroniser. Their ‘product’ is a firefox plugin, and its free.

    Bad strategy? Yes, if that was the entire play. But what they are doing is getting a map of bookmarks across their users, which can then feed into the next-gen of content association, which may then be a paid service, a la super targetted ad-words.

    So I think there will always be a place for ‘free’ stuff, in a more complex and not necessarily obvious (or even thought about) business model.

    re: facebook valuations, I heard a slightly different take, basically how massive valuations are terrible for startups, because it means the founders, big shareholders will never be able to cash out….

  • So – after a day of thinking about it – I am interested Ben in why you so keen to drive home the point about the ‘free’ model not being viable. Have you had enough of people drinking the Kool Aid and how that is somehow affecting the current market?

    I guess I think that is someone wants to pump a bunch of their own and ‘foolish’ investor cash into some bright new venture that has some traffic but is then available to be sold cheap to someone who *does* have a monetisation model then go for it I say! In fact I think that is probably your next business direction – picking up crap businesses and then applying a monetisation model. Just give me a mention when it pays off big 😉

  • @Miki – of course I’ll mention you – come to think of it I’ll be fingering you to sit around the board table

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