1. Thinking we had to move faster than we did
I remember back in 2005 feeling that if we did not blow our lights out and spend every penny we had on marketing â€œright now!â€ someone would obliterate us. I had this impending sense of doom for *years* based on our speed.
This is an appealing story — but is it true? There’s no question that a lot of Web-based services are going the free route, and there is a certain segment of the VC world that believes you need to build something up to a large enough scale first, and then find ways to monetize it. But is this really something that VC’s invented and have forced onto the tech startup market? Hardly. If anything, it is a phenomenon that has grown out of the reality of what it costs to run a Web business.
Why are so many things free? Henry Blodget suggests an answer in his comment on Hank’s post at SIA: because they can be. In other words, things — primarily services, information and so on — used to cost a lot because of the nature of those businesses, embedded costs, etc. Now, a large proportion of those costs have been removed. Does that mean everything can be free? No. But many things can come pretty darn close. And once the value of that service or content has been established, then it’s a lot easier to start either advertising around it or charging money for it.
This is the essence of the “freemium” approach. Give people some of what you have for nothing, and see if they like it. If they do, then offer them more for a fee. It works for SmugMug.com, it works for 37Signals.com and other companies. Did Craigslist choose to offer its services for free because its VC backers forced it to? No. It did so because Craig wanted to do it that way — and because he could do it that way. Only when it had become obvious how valuable it was did he start to charge for certain things, and then only in a limited way, and still the company makes close to $100-million a year with virtually no more effort than when it was free.
That is the power of the “free” model — it’s not some kind of snake-oil trick that VCs desperate for an exit have foisted on Web startups. While that may be happening, it certainly isn’t to blame for the entire Web-based freemium approach, and it has nothing to do with whether Hank Williams gets paid an honest wage for an honest day’s work.
Update: See Hank’s comment below. Don MacAskill of SmugMug also has a thoughtful response, in which he notes that lots of industries have a stratification between commodity (i.e. free) and premium brands — and also notes that SmugMug actually benefits from the free services that compete with it. For what it’s worth, I think Alan’s “Freetardis” offer at Broadstuff is hilarious.
This all comes in the wake of several other MyBlogLog stumbles involving spam, which I wrote about recently. And while lots of people seem to enjoy taking shots at MyBlogLog CEO Scott Rafer and Eric Marcoullier and others, as though they were some giant evil corporation, I for one have been impressed with how quickly and honestly the team at MBL have responded to their various missteps and the resulting onslaught of criticism. In his latest post here, Eric says:
“A lot of people I respect immensely have written in to tell me that I screwed up, and after a point, it becomes impossible to avoid the truth. We banned Shoemoney originally to keep him from updating his list of User IDs on Wednesday night, which I think was the right thing to do. But after fixing the exploit, I should have unbanned him and thanked him for finding it. But I didn’t. I screwed up.”
Although there is still debate about whether Shoemoney should have been banned in the first place (like Steve Poland over at TechCrunch, I would argue he was just showing off, not being malicious, although Andy Beard doesn’t agree), Eric’s post is the kind of thing I like to see. With a small startup — albeit one that is now part of the giant Yahoo empire — it’s inevitable that mistakes are going to happen, as Caterina Fake points out in her post on the whole affair.
We can’t applaud startups for their gung-ho attitude and then slam then when they screw up. I think Eric and the rest of the team at MBL deserve a lot of credit for admitting their mistakes openly and clearly. Let’s move on.