A VC - Latest Comments in Freemium and Freeconomics

Re: Freemium and Freeconomics

Matthew Warneford — Sat, 05 Sep 2009 16:02:36 -0000

Thanks Fred. Any feedback is greatly appreciated! I'm hoping that the model will help other entrepreneurs get a feel for the metrics involved, and how they interact.

Re: Freemium and Freeconomics

fredwilson — Sat, 05 Sep 2009 15:31:03 -0000

Thanks for the model. I'll check it out

Re: Freemium and Freeconomics

Matthew Warneford — Sat, 05 Sep 2009 07:55:09 -0000

Great discussion. I've just finished creating a template virtual world business model (complete with spreadsheet) on my blog: http://dubitplatform.com/bl...

Although it was made for a virtual world, its really freemium model, so I'm hoping that its useful as a kicking off point for others.

Presently the spreadsheet accounts for subscriptions and micropayments, but would love to see the model extended. Anyone want to help!

I've tried to factor in how the conversion of paid customer acquisition and your viral growth will fall as your start to 'saturate' your addressable market. Indeed, seeing how the addressable market size effects the growth and revenue was possible the most interesting part of creating the model!

The other area thats often over looked, but included in the model, is paid customer acquisition. Its too easy to focus on viral growth.

When we talk about viral growth we often think of exponential viral growth, the kind of growth that Facebook has seen. To be exponential growth you need each of your players to invite and convert more than 1 new player. That is, for every player who joins, they bring another 2 new players with them.

With a solid conversion to subscription and micropayments you can afford to spend money on advertising or other marketing activity. In contrast, social networks (monetized through advertising) have to focus on the low cost viral growth.

With an ARPU of $1, and an average life time of 3 months we find that the players LTV is $3. But, each player we acquire is actually worth much more. Lets say we have a viral growth factor of 0.8 (Each new player invites 0.8 other people), the we actually find that our player brings 1 / (1 - 0.8) = 5 new players.

So we can really afford to spend 5 x $3 = $15 to acquire a new player! For a game or virtual world thats a great spend!

I hope the model will be useful to others - maybe a kicking off point for their own model, or just a way to understand how the freemium metrics interact.

Matthew Warneford

Re: Freemium and Freeconomics

Martin Thomas — Mon, 10 Aug 2009 11:37:11 -0000

Hi.. Your post got me thinking... What is more valuable for a software company (like facebook or flickr). 1,000 paying users or 100,000 non-paying users? What are your thoughts? View my blog post here: http://www.purlem.com/blog/...

Re: Freemium and Freeconomics

Name — Fri, 31 Jul 2009 10:42:55 -0000

i like the idea of free things on the internet.
i'm just hoping Chris Anderson makes his
available for free download.

Kundeshi,Accra,Ghana

Re: Freemium and Freeconomics

mariew — Wed, 15 Jul 2009 00:42:40 -0000

Great to see the new tools to easily share the entries! I just posted this one on my FB page and wrote a little on it on my blog. Popular posts is also a good way to pull readers in and "extend the lifecycle" of your entries, so it's great to see that too!

Re: Freemium and Freeconomics

cemilturun — Tue, 14 Jul 2009 08:28:32 -0000

What if the virtual goods sales you made today could buy coffee in Starbucks or a pair of jeans at the Diesel store? The economics for this kind of activity is becoming real in Turkey. There is a huge loyalty card market, 6-7 brands fiercely cannibalizing each other, tons of good database programmers and hundreds of excellent marketing ideas since 1999. A mobile operator used the loyalty strength of its 15 million 26- users on brands like McDonalds and Gap (local version) and users bought two menus for the price of one. Second hamburger and the second coke totally free. Believe me, McDonalds is happy too.

Now is the time somebody did the same on the internet.

Re: Freemium and Freeconomics

Ben Atlas — Fri, 10 Jul 2009 09:26:53 -0000

Pay up time!. Note this press release: ASCAP Seeks Royalties on Embedded YouTube Music Videos
http://www.dmwmedia.com/new...

Re: Freemium and Freeconomics

Mark Essel — Thu, 09 Jul 2009 05:55:15 -0000

Sure, you can try it out after we kick the tires. Met Bostjan and Andraz from Zemanta, had a good chat with Bostjan only met Andraz briefly before they both had a meeting. Really enjoy their algorithms and tool (using their API now).

There's a divide between getting something working (almost there) and making it into a product many web sites/businesses will benefit from. I think the "smart" user profile/database is part of that bridge.

Re: Freemium and Freeconomics

stanleyyork — Wed, 08 Jul 2009 19:43:27 -0000

oh, it wasn't so much a criticism, just an interesting observation. i agree with you tho.

Re: Freemium and Freeconomics

fredwilson — Wed, 08 Jul 2009 19:26:23 -0000

I'm not against people charging for content. In fact I think its important that there is paid content as I mentioned in my post

And I didn't know about the free version when I wrote my post

Re: Freemium and Freeconomics

fredwilson — Wed, 08 Jul 2009 19:26:21 -0000

I'd like to see it when its working. Do you want an intro to the zemanta folks? People tell me their api is better than open calais in terms of relevancy and accuracy of tags although I have not done any comparisons myself

Re: Freemium and Freeconomics

iamronen — Wed, 08 Jul 2009 13:27:28 -0000

Thank you!
(a) I would be happy to hear more about such companies.
(b) If/when it is possible - I would love to learn more about how your business-oriented perspective meets and connects to these companies' visions and missions. How socially oriented companies fit into a VC perspective!

Re: Freemium and Freeconomics

Ben Atlas — Wed, 08 Jul 2009 12:08:13 -0000

Mark, I agree with you virtually on all points, but I think you underestimate the decisive power of the "super influential folks". The decisions are made on the executive level without the benefit of crowd sourcing and they do gamble and define the direction forward.

Re: Freemium and Freeconomics

stanleyyork — Wed, 08 Jul 2009 11:17:21 -0000

interesting how you linked to the "paid" version of Chris's book, not the "free" version

Re: Freemium and Freeconomics

Mark Essel — Wed, 08 Jul 2009 11:12:58 -0000

Hey it was worth the click through, thanks Ben. Followed the arcs of discussion you linked to and got a clear image of where the various view points were coming from.

My guess is that the monetization model will evolve independent of what we propose (even the super influential folks). One of the few things we can do to help the situation is develop tools that allow content creators to cash in on their fine work, and to receive credit for their efforts.

Re: Freemium and Freeconomics

Mark Essel — Wed, 08 Jul 2009 10:23:48 -0000

Brad and other web content consumers (all of us) will be in luck soon. Proof of concept in the works.

What I have know is simple php script that grabs a users latest status (twitter) and gets back some semantic keywords from Zemanta (API).

Next stage is firing up an openx server and popping up an ad. (this afternoon's task after getting some exercise walking)

Then packaging it within a wordpress plugin. (hope this doesn't take too long)

Was hoping for a quick "enter twitter username here" and bang, have it work out of the box.
Zemanta wants users to have their own API key, so they'll have to get sent there to register before the plugin would become active (each zemanta key has 4k uses per day, open calais has 10k uses per day).

Later on: add some cool bells and whistles so users can customize which tweets the plugin uses (stored in browser cookies and a database I setup), and choose their semantic keyword client or a merge of multiple algorithms (more work later). Have a user profile page so people have full control over their info, even though we're grabbing it from public streams, they can do with it what they wish (wipe it, restart it, manually add their favorite topics/keyword tags). Eventually have the simple plugin contact the database host and get back personalized topics and an ad to pop up. Eventually I'd like to datamine the user profiles.
One idea is to create suggested topic communities (hey you guys all love the same stuff).
Another favorite idea: dynamically created web pages based on sucking in info (temporally fresh) related to their favorite tags.

I think that'd be cool for me since I blog about wanting tools like that all the time, making one for selfish reasons that other people can enjoy would be sweet.

Although the standalone software lives in php, I hope to move it into scala for later database support/utility scaling.

Re: Freemium and Freeconomics

fredwilson — Wed, 08 Jul 2009 10:00:24 -0000

Etsy was that

We are looking at kickstarter, a few personal manufacturing opportunities, some hacking education opptys, and some hacking banking opptys

I think all of them fit into your criteria

Re: Freemium and Freeconomics

fredwilson — Wed, 08 Jul 2009 09:28:28 -0000

One laptop per child is the right idea but the wrong platform. It should be one iphone (or one mobille smart phone actually) per child

Re: Freemium and Freeconomics

fredwilson — Wed, 08 Jul 2009 09:27:30 -0000

That's why I'm so jazzed about what marc canter is doing in NE Ohio

Re: Freemium and Freeconomics

fredwilson — Wed, 08 Jul 2009 09:26:18 -0000

My partner brad has always wanted an offer in box instead of a random ad unit

Re: Freemium and Freeconomics

iamronen — Wed, 08 Jul 2009 00:58:20 -0000

well.. at least we gave it a try! this feels like a good place to stop. thank you.

Re: Freemium and Freeconomics

Prokofy — Tue, 07 Jul 2009 22:42:10 -0000

Er, I don't have any "pain" or "frustrations," so please *do* shed this hortatory posture where you get to be All the World's Bide-A-Wee Home, okay?

I really don't care for warmed-over treacly Westernized Buddhism, where people cherry-pick certain ideas they like from them -- oh, karma, or indifference or whatever it is that floats their boat -- and then impose this imported framework on another person in the Western world.

What's *most* reprehensible of the fake Buddha stance is its *coerciveness* -- so unlike the actual Buddha. That shows up in spades with statements like, "can you feel something changing in you as I slightly elevated my writing into an attack?" It's a deep-seated belief on your part that you can coerce other people by adapting this deeply, deeply false posture of "calm" and "dispassion" and all the other things that Westerners think they understand about "the Orient".

I don't know where you're getting all your mumbo-jumbo about Facebook, but I've been on Facebook for some time -- I don't find it very interesting as the same friends on there are on Twitter or Second Life, so it's like going into an echo chamber going there, which I don't need. Still, it has its occasional uses so I keep it up.

I deplore the Facebook indulgence of the Holocaust deniers. This was morally wrong and ethically wrong -- and frankly against their TOS, which has language restricting the uploading of content that incites hate or racism. So either they come under the First Amendment, which I'm all for these services to do and stop trying to have it both ways, OR they should abide by their TOS. But they are selective, discouraging anti-gay expression and tolerating anti-Holocaust sentiment.

Take a hard look at yourself, if that is possible, and note how judgemental you are, under the guise of an enormous amount of Buddhist gunk. You assume that this one or that one is too caught up in their technology, or the ego, or whatever. It's silly.

Try this. Notice your feet. Feel them. Now, try to walk across the street. Try to mark the moment when your mind wanders and you forget to sense your feet crossing the street. Try also not to get hit by a car.

Ultimately, there is an us and them, there are principles and there are morals, and it's more than fine to identify them, to draw lines, and to decide which side of them you're on.

I'm willing to bet dollars to donuts that yoga/Buddhism/meditation is not part of the religion of your nation or your ancestors. Naturally, I could be wrong about this, but I find that it is usually Westerners who tell other Westerners -- by implication, with not-so-subtle coercion -- to "go on their yoga mats" -- not Buddhists themselves, who never feel any of the need to tell others what to do.

Proseltyzing is a particularly American feature of religion, and combining it with Buddhism is an unhealthy combination.

My wish for you would be that you go out and have a cigarette. And if you quit smoking, well, have a Twinkie. Just one. Celebrate the passing of the man who invented the Twinkie, and eat a Twinkie.

Then, take a ride in an SUV, read the Bible, and stop for McDonald's on your way to a tractor-pull rally.

: )

Re: Freemium and Freeconomics

S. Pandya — Tue, 07 Jul 2009 18:32:10 -0000

@ prokofy
@ ben atlas

Your arguments are impressive, but they contain one flaw - that individuals don't derive value from disruptive technologies, and that additional value chains are not being created on top of disruptive technologies

A few thoughts:

> People don't get "brainwashed" into crowd-sourcing opportunities. People do it because they derive value from projects of a communal nature." You put information on Facebook, so that you can build strong ties with your friends and continually stay in touch with your network, not because you want to enable Mark Zuckerberg to make another billion. And the reason Mark makes another billion is because he *allows* you to effectively accomplish *your* agenda.

> If individuals prioritize open-source *projects* and *hobbies* (such as Facebook, Youtube) than their professional/student lives, and in doing so put their survival at stake, those individuals are ripe for social darwinism in the first place. The only exception is when the individual is already in unfortunate circumstances (unemployment for example) and is using the crowdsourcing/collaboration as an opportunity to escape those circumstances (LinkedIn for example)

> If companies are dying from disruption, it's because they are inefficient to begin with. Remember "water always settles at the lowest level."

Re: Freemium and Freeconomics

iamronen — Tue, 07 Jul 2009 14:17:28 -0000

jpjacks - thank you for those links, they were interesting and fun to learn about, but haven't struck a chord with me... so I let the silence reverberate a bit.. and came up with this...

I would love to find an active, applicable project that is (1) in the spirit of "making the world a better place" and (2) a good business investment. Something that Fred, as a VC, can get behind and support?

Any thoughts?