FWDLabs

Paid versus Free

Free World Dialup's journey from free to paid membership created a lot of criticism along with plenty of snarky comments about changing the name. Time will tell whether the move represents a stroke of genius or blunder. The fact few people see the stroke of genius part makes the experiment all the more interesting. All Internet startups need to navigate the paid versus free decision. The following lists a few of the categories where paid represents the right answer. In any case, the knee jerk assumption everything on the Internet needs to be free deserves some scrutiny.

1. Services that require reliability are usually paid: The issue here is enabling something more valuable than the price of the service. Lawyers do not jump on every cheap long distance offer. People continueto hold onto wireline phone service to preserve reliable access to E911.

2. Services that require accuracy are usually paid: LSSI sells 6mo old data at 10% of the cost of accurate up to date data.

3. Proprietary services are usually paid: The proprietary database services like Choicepoint charge on a per lookup basis to provide background on individuals. Choicepoint acquired 50 companies over five years to corner the market on these proprietary databases.

4. Customer acquisition costs are paid: The entire advertising industry exists as a mechanism for customer acquisition. ROI calculations make paying for customer acquisition an easy decision.

5. Monitoring services are usually paid: Nobody monitors home alarms for free. People can opt-out of monitoring, but peace of mind with cost.

6. Services requiring customer service are usually paid: Customer service is simply too expensive to provide for free.

7. Services requiring continuous improvement are usually paid: Free service offers tend to be relatively static given the lack of incentive/ability to invest.

8. Non-optional services are usually paid: Finding an ISP to connect your computer to the Internet is not optional. The free ISP's did not survive.

FWD paid membership makes sense in the context of just about all of these dimensions.

posted by Daniel @ Thursday, August 21, 2008