Archive for the ‘Fred Wilson’ Tag

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.

Can Enterprise Software Be Social?

A few days ago, a fairly prominent entrepreneur named Jeff Dachis (he founded interactive ad agency Razorfish) is “creating an industry leading strategic consulting practice and an enterprise class Social Software-as-a-Service (SaaS) suite.” Other new outlets have called this a “social network for corporation”. Here are a few articles about the announcement:

Silicon Alley Insider

Austin Ventures Press Release

Based on this quote from the Austin Ventures press release, it looks like Dachis is building a service to help business collaborate internally on projects, as opposed to our focus on helping executives collaborate externally.

I believe there is enormous opportunity in helping companies devise and implement a strategy to engage their constituents in a meaningful dialog throughout the enterprise. As companies begin to see the benefits of utilizing “social” technology to engage their customers, employees, suppliers, shareholders, and communities in an active and transparent dialog, they will need a trusted partner to help them navigate the opportunities, and an integrated set of scalable, robust, and secure enterprise class tools to implement them. We are here to provide both expertise and implementation.

Related to this announcement, there has been some discussion in the blogging community as to the question “can an enterprise use social applications”?

One discussion I thought that had a great deal of insight was from Fred Wilson, a leading Web 2.0 venture capitalist. He contends that social media and enterprise applications are inherently misaligned, due to security issues and the inherently protective nature of businesses over their “secret sauce”. However, the comments on Fred’s blog have countered some of his argument. Here is one of my favorite comments, as to the difference between traditional social media and enterprise social applications:

I think that the fundamental difference between social applications and enterprise application is that social applications are, at their core, about self expression, whereas enterprise applications are about process automation.

Enterprise applications may borrow elements of social apps to facilitate collaboration (still a big enterprise opportunity) and ease of use (always a winner), but fundamentally self-expression is not a goal for the enterprise.

As much as I admire Fred, I would disagree with his points here. Self-expression is not the core goal of social media. Social media works because people find value in sharing with one another.

The community experience can serve enterprises as much as individuals. Brand managers, payroll administrators, and HR reps all over the globe are essential doing the same tasks, building the same reports, and facing the same challenges on a day-to-day basis. An external enterprise community would give those people the ability to share work, exchange idea, and collaborate on large projects at little or no cost.

Imagine if we could all share the work we created with one other? Why would you ever create a new market analysis report, if you had the template from your “buddy”? That would give us all more time to catch up on our dozens of unread Facebook messages…

P.S. – I know there are security and privacy issues here. How do I suggest we overcome them? I’m not sure… but I do know that someone will, and I look forward to that day.