Archive for the ‘marketing’ Category

My Thoughts on “Freemium” Business Models

A few days ago, I read an interesting post from Andrew Parker on why freemium business models (users can pay a monthly fee to remove ads from a service) are bad for advertisiers. Here is the money quote:

Advertisers pay a premium in order to reach people in their specific demographic with disposable income. This idea of people paying to remove ads ensures that the audience for your ads are actually CHEAPER than the average internet audience.

I’d never thought about this before, but Andrew is right. Why would an advertiser pay high CPM to reach a customer who can’t (or won’t) pay to remove ads? This is a bit of a catch 22.

That said, I wouldn’t totally discount freemium (no pun intended). I still like the “upgrade to a premium version with more features or unlimited access” business model, as long as you create a premium version that is compelling enough to the customer.

In fact, Rhapsody’s freemium strategy converted me into a customer. Like most people my age, I was used to downloading music for free… Napster was hitting its peak in popularity during my freshman year of college. However, I hated Napster for two reasons: 1) the songs were of suspect quality, and 2) I couldn’t always find what I wanted. So, I decided to try Rhapsody on a recommendation from a friend. I started with the free service, which gave me 25 free on-demand streams and unlimited access to a handful of radio stations. After I used the 25 streams up in 2 days, I decided I was willing to part with $14 a month to listen to all the music I wanted, whenever I wanted it.

Even though there are many flaws to Rhapsody (no user-generated recommendations, no playlist search, nothing from Tool’s catalog…), I am now addicted. I can honestly say I would have never bought Rhapsody if it weren’t for freemium.

Naming Your Company: Some Practical Guidelines

I read a blog post today on naming your startup from venture capitalist Mark Peter Davis.  Mark gave some very usingful and practical advice:

  1. Be phonetic,
  2. Use few syllables, and
  3. Make sure the url is available.

I might add another rule to this list…

4.  Make sure people will remember your name.

There are many ways to do this, but I think the name should somehow relate to the product or service you provide.  Obviously, there are exceptions to this rule, but if you only have limited exposure to perspective customers, you want to make sure the name sticks.

Why are t.v. ad rates still so high?

I was having a drink a few weeks ago with a couple of friends, and the conversation veered towards the Internet. I argued that Internet advertising was much more effective than traditional media (i.e. television) because:

1) at it’s best, online advertising is active, as opposed to passive,

2) customer have the ability to spread your message virally online (I use the term “viral” based on Seth Godin’s definition of word-of-mouth versus viral), and

3) you have more transparency tracking online channels.

This is nothing ground-breaking, but I got the following question from my friend:

“If this is true, why do company still pay more for television ads, or pay for t.v. ads at all?”

I didn’t have a good answer for him… I tried the “marketers use what they know” argument, but this did not sway my price-focused, economist buddy. However, I think that I have an economic concept that helps to make my point:

Path Dependence

In short, path dependence states that adoption of new technologies is subject to its own history. By nature, businesses are conservative and have trouble adapting new technologies. However, the one that learn to adapt succeed, and the ones that don’t fail.

Hopefully, this helps me win the argument with my friend. That said, I’m going to research more into how people/organizations/companies overcome path dependence, as I’m sure it will be valuable someday