Paying for Services
So, I was reading the latest post from franticindustries where he talks a about paying for currently free online applications. He had posted his list of services he’d continue using even if he had to pay and received a lot of feedback that he’s gone through and analyzed in his post. I think the results and conclusions he posts are interesting and wanted to highlight a few points.
The question is, however, worth asking, because this situation may change in the future. Users’ dependency on online applications will grow. AdSense might not always be the major driving force behind the Web 2.0 phenomenon.
I think this is really insightful. The boom is happening now because advertising in general and AdSense in specific are distributing a lot of money to websites of all shapes and sizes. Nevertheless, advertising can be fickle and having advertising as the sole revenue stream could be a risky business model. In the event of an economic downturn or a backlash against click fraud some portion of this revenue is going to dry up and that could cause difficulty for many sites. I believe it’s worth exploring other sources of revenue for many of these web2.0 startups.
In his conclusions he says:
First of all, many users still cannot accept the idea of paying for online services and online applications.
Followed up with:
People would be willing to pay for either quality desktop applications (Firefox), great blogging platforms (Blogger, Wordpress) or online applications which provide value that cannot be replicated with a desktop app (Flickr, Google Search, FeedBurner, Technorati). They are also willing to pay for services that provide quality information, like Wikipedia or Digg, and many of them would be willing to pay to keep the quality of these services on the current level.
The conclusion being that most people just won’t pay for online services but the ones who would pay for the exceptional platforms. I agree with all of this, but I think he may be missing a couple points. The first is that, I believe there is a psychological divide between buying software and subscribing to a service. It is fairly straightforward for me to want a piece of software buy it and receive in turn something “physical” that I can copy, backup, whatever. But subscribing to an online application is more ephemeral, you don’t actually get anything except access to the application and you are stepping into a situation where you must now continue to pay for the right to continue accessing it. I think this is a real problem - even in the desktop software world there was tremendous backlash against Microsoft when it said it was going to essentially lease it’s OS to you instead of selling it.
I suspect that it would be less of a hurdle to overcome if access was sold as a single up front cost, although I have no idea if this would be feasible for online applications since their costs are ongoing. This purchase could be a revenue stream that supplements that ad revenue. I believe that some are already starting to go this route, like feedburner which remains free for basic use but has enterprise functionality which requires payment. As this becomes more prevalent, I believe that it will become more and more common to ask for lump sum or subscription fees to access advanced features.
He goes on to say:
Secondly, the community increases the switching cost.
I talk about community a little in another post and agree completely with this statement. As people get involved in the community all their effort to build their identity on the website, through whatever mechanisms the site allows, is in a very real way a lock in. The cost to them to leave that site for another is the loss of all the time they have put into that site which for many can be significant, even if the material that they put in (photos, posting, etc..) is transferable.
I think this post brings up some interesting points and definitely merits watching. I suspect that we will start to see more companies begin exploring ways to charge for some services and while initiially I think there will be little success as it becomes more common people will become more acclimated to the idea and it will start to catch on.
