Today I had lunch with a friend in Kista, Sweden’s Silicon Valley, and he shared some great ideas for a new dating site. A few weeks ago I had a prospective client tell me about a cool concept for a niche social networking site. Both, however, are thinking of subscription fees as the planned revenue generator. I think this is a big mistake.
A subscription-based site might make you some spare change. I think a neat subscription-based niche site with 500 subscribers at $5 a month isn’t too shabby. Maybe it’ll get to 1000. But it won’t reach huge proportions.
Notice what the sites worth bajillions of dollars, from MySpace and Facebook to Google, have in common: they are free. They came up with a cool concept and instead of trying to cash in immediately by charging member fees, they opened up to the world. Why are they so valuable? Because they have millions of users. Now they can come up with any number of creative ways of squeeze revenue out of those users, from consumer-oriented advertising to selling stupid goddamned icons or premium memberships to just owning the universe like Google does. Can you imagine Google or MySpace charging membership fees? Simply laughable.
Both my buddy and the prospects said that perhaps charging membership fees would serve as a kind of guarantee that only “serious” people use the site. There is kind of a point there. We all know how pathetic those half-abandoned niche sites look, where a user or two will post periodically to a largely dead audience (I call them the Detroits of the Web). And, similar to the concept of buying a gym membership as an incentive to actually work out (”I can’t let my investment go to waste!”) there is a hope that a site’s membership fee will ensure that the user will return.
However, this too is faulty logic. What you should be building should be so awesome, so revolutionary, that your users come back compulsively and almost obssessively. Google doesn’t need a fee to spur on searches. MySpace doesn’t need fees for people to update their profiles and message friends instead of working.
Basically, if your web idea is good enough, it will invite a ton of serious, repeat users. The ton of repeat users will be worth a lot of cash without subscription fees. If you don’t think your idea is good enough to drive that kind of traffic, revisit it until it is.
15 Comments
I cant agree with you more, especially now adays. Perhaps there was a period of time where paid memberships made money but not now!.
If you want your customers to pay, then you have to provide them a service that goes beyond a “profile” or “access to our media”. For example, if you wanna give comic artist a 5 Gig webspace to save thier flash comics!!!!, (bad example, but you get my point).
Absolutely. And yes, your example IS bad. Hosts these days offer hundreds of gigs, hehe.
i knew it was bad, thats why i said so!!!, :p
While I basically agree with you, I see is one flaw in your logic: of course everybody wants to be google or myspace or youtube – however, not everyone has the money to sustain himself financially until that happens… If somebody runs an one-man-shop (or max 2-3 people) which is quite typical today, and none of the founders has enough money to hold out for months or perhaps years then it is hard to do this, even if you have the guts and skills to potentially attract the critical mass where you can begin to set the rules.
Besides this, I guess 37signals proved that the subscription model (especially the freemium variant) is a viable solution – if you offer something that people really want. A few bucks (or even a few $10) monthly is probably below the hourly rate of a developer (or whatever trade inside they target audience) – so for the quality they ship, personally I am happy to pay that amount.
I do agree but there is a also a place for subscription based services on the internet. I would not pay for social networking but I have paid for games on the internet.
World of Warcraft, runescape, second life etc. However geeky and lame they all have huge user bases with millions of paying subscribers. I am sure that they are making an absolute fortune!
I would be interested to find out how many people would stay addicted to myspace if they started charging for it.
The subscription model has sure worked well for SmugMug in the face of competition like Flickr, photobucket and picasa, etc.
Free can certainly work as well, but you better make sure the traffic and target audience will be there for the kind of advertising you plan to do. Sites like Digg and YouTube bring a ton of revenue, but not necessarily high profit (until they get bought). On the other hand, the PlentyOfFish.com is known for making good profits. Really good profits.
And in your friend’s case of dating service, there are many good example of successful subscription based services, from e-harmoney, match.com and to all the adultfriendsfinder kind of sites.
Sex sells, and these sites won’t have problem getting money for people, who want love.
Thanks to everyone for your insightful comments. While you are perfectly correct, and there are sucessful subscription-based services on the web, I still believe that free services are an order of magnitude more successful. Sometimes I wonder what would happen if WoW, Meetup.com or Match.com were free. Would their popularity would surge to MySpace proportions? My feeling is yes. For chrissakes MySpace is a piece of crap and these are useful services; why is MySpace more successful?
Hey Mariya,
I completely agree that right now , a business model consisting of advertising is the way to go for social networks. Its the norm. However, there is the harsh reality with all this, you friends need to get big in the hope of making any money off a social network. What your friends can mimic is facebook. Facebook had closed off its network to college kids only. This was a great move as created an air of exclusivity in the those crucial beginning stages and developed a lot of Brand loyalty among their main demographic. They rode this to huge traffic levels and loyalty and then opened up their system. This might be an option for your friends.
Hey Mariya,
I completely agree that right now , a business model consisting of advertising is the way to go for social networks. Its the norm. However, there is the harsh reality with all this, you friends need to get big in the hope of making any money off a social network. What your friends can mimic is facebook. Facebook had closed off its network to college kids only. This was a great move as created an air of exclusivity in the those crucial beginning stages and developed a lot of Brand loyalty among their main demographic. They rode this to huge traffic levels and loyalty and then opened up their system. This might be an option for your friends. Keep in mind though that the subset of people they closed it off too was still a pretty big group, college kids.
What about basecamp? They have millions of subscribers. And there are several more in that class. I think you just kinda made this up.
Basecamp is a niche (project management software) that could never have MySpace-level traffic for one simple reason: not everyone needs project management software. In a niche market it makes sense to charge subscription fees. In a general market it does not.
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Sorry, taken.