"What is the value of my service? How much should I charge? Can I charge (without feeling guilty or being scolded by my userbase)? Will users be willing to pay for it? Or will they think it's not worth the value or worse, the effort? A lot of these questions are racing around inside many an online entrepreneur's mind.

Chris Anderson, in a recent article on the realities of the online economy (read "The Economics of Giving It Away") summed up the problem into one sentence: "For the Google Generation, the Internet is the land of the free.".

How very true. You can't count all the major services, widgets and apps that are emerging online, that struggle at finding a way to monetize themselves, yet offer brilliant, well-planned and worthy products that are used by millions. Major names among these include Meebo, Twitter, Facebook, Friendster, Joost -- all of them, barenaked free.

Of course you can't complain about this openly without being touted as a capitalist pig. Because the web was built as a place for freedom and democracy in the sharing of information. Or was it?

Well, that's the whole question. It seems the basic rules of "offline" commerce, when applied to "online" businesses, become obscured by the powerful influence of installed web culture, a phenomenon which I call the User Prerogative Factor (UPF). I believe this factor to be an unavoidable presence to consider when building or improving (read 'trying to monetize') an online business.

Basically, the UPF could be given the following definition: "Web usage habits always override the value of a website's contents". Which is to say that, to a generic user, your website's product or service offer is always worth less than how the web is being used at the moment. Not following? Here are short concrete examples:

- Chat Communities were 'the thing' until MySpace came.

- MySpace was 'the thing' until Facebook came. People's usage shifted.

- Facebook was 'the thing' until..? Who knows. But they're coming.

Because these online entities weren't imagined to be pay-per-use from the getgo, they have generated a "for free" usage habit within consumers. As time passed, this usage habit came to dictate the value of their contents - zero. Now that the Facebooks and Twitters of this world are looking at ways to monetize themselves, their are left trying to fight the User Prerogative Factor -- or, trying to find how to create "new usage that is worth something, because it moves the current web habits up a notch.

While "paid or free" could be a UPF, you might also have the "private or public" UPF, or the "static or animated" UPF, and so on.

A High UPF index would mean that people would not agree to lose the prerogative they have gained over common usage, while a low UPF index would mean that people wouldn't mind losing their prerogative in favor of something better -- for example, a product or service which hasn't been democratized yet, or with added features, or which is very niched.

High UPF example: Twitter
Low UPF example: FireEagle

A freemium would be low UPF, because the core principle is to provide "paid-for" added value that is niched within an already "free service". People would consider paying because it brings their usage habit up a notch.

Twitter giving companies money to sell their premium-content tweets and taking a cut from sales, would raise a very high UPF -- people are currently doing this for free, regardless of content.

In summing things up: are you doomed if you extra-popular site has a high UPF? Of course not. (Google knows something about that). But it means you have to dig up a lot of usage insights about your service, in order to find solutions that will lower your UPF.

We'll talk more about solutions in the next article. In the meanwhile and as always, let me know your thoughts.

| edit post

0 Reply to "The challenges of monetizing your online service, part one"

Post a Comment