06 August 2010

my favorite emerging business model......free

LinkedIn and Facebook are the next blockbuster IPO candidates. LinkedIn's recent equity investment valued them somewhere around $2B an (on reported revenues of $200M). Facebook is worth around $35B based on a recent private transaction on revenues less than $750M. So with eyepopping valuations resembling the late 90's, guess what is most startling to me ?

The fact that LinkedIn has $200M of revenues. Or Facebook makes a dime on the topline. How ? Where does linkedin make money? It's not from me. I dont know anyone that has a premium membership or even knows what services it provides. How many web marketing people that you know pay for advertising on Facebook ? Profiles and chats and most of the useful marketing tools are free. Even for corporations. Really ? $200M?

As i've watched web businesses mature and the market move from internet bubble to web 2.0, i've wondered how all of the things we use most are..well free. As a consumer, its great. Ten years ago, i could never have imagined all of the information and services I have at my fingertips -- all real-time, and all free.

GPS? No need to attach one to your car thanks to Google. Mail ? Gmail and FTP sites. TV ? Justintv. Product Reviews? C-Net. Stock quotes? Name your site. Found my house on zillow. Movies and Music ? Uh - my attorney won't let me answer that one :). Just think of all the tools you use on a recurring basis and how much money you spend on these items. My guess is that you won't need both your hands to count the outflows.

Craigslist was the first to puzzle me. How in the world could they displace the entire classified ad industry (which was actually the only place newspapers made money) for free ? It took down most of the local newspapers and really got nothing in return. Ebay bought a stake years ago, tried to make money, and Craig and company sued them. They actually sued them for trying to make money! EBay backed off.

Wikipedia. I have no idea the level of accuracy that Wiki offers, but I don't think it matters. It's the most used reference source in the world. No need for encyclopedias. No reason to pay for some specialized website to attain what you are looking for.

I love it. It still never ceases to amaze me. But to all my readers out there (because i have so many), this is the best its going to get. Get ready to reach for your wallets. NBC, part-owner of Hulu.com, implied they are going to start charging for content. Google and Verizon are in talks on how to priortize net traffic (see my post on net neutrality). Facebook and LinkedIn will get some serious pressure from either private or public investors to monetize their huge membership base. Google will start charging for some of its services once their near-monoplistic search ad rates come down.

But until then, let's consume as much free content and services we can. If only there were a free site that turned my stock portfolio into something recession-proof...


  1. I would not advertise zillow if I were you....they are SOOO off and didn't realize that till we became a home-owner. Yes, it also surprises me how Craigslist makes money. And other sites that are used so often but no advertisements to pay for them. Are there really that many passionate programmers out there?..

    Don't want to see the days when you have to pay for these things, infact, I wouldn't be surprised if they never came. If NBC starts charging for hulu, etc, don't you think another competitor will come right out and say 'we are free!' ? Same goes for google...even though they are God!

    I guess I start paying for internet on my phone to make the best of the 'free' services that still exists?!?

  2. I think a lot of people in the HR industry subscribe to Zillow; it helps to find candidates. I'm not sure the end of the gravy train is upon us at all. Instead, we will see the morphing of price discrimination on the web. You will get charged if you want your content fresh, e.g., sports, first run series (current season of Jersey Shore), and live broadcasts such as the Academy Awards. If you are willing to wait, or tolerate commercials, then you can get it for free.

    What you are truly missing, and you should think about, is business model 3.0 (my term) - i.e. a blurring of the line between business and customer.

  3. I agree that the gravy train will not end in the near term, but I think what we get now relative to what we pay for will only go down from here. Even the free programmers that created Linux will not continue to do so in the long run.

    Can you expand on 3.0? what models/trends do you see that will blur the lines between consumer and business ?

  4. all businesses have to figure out how to monetize at some point. some are given more leeway by their backers proportional to the perceived potential.