The End of Free

Free.

It was a model championed by websites, let alone social networks, for nearly a decade. Offer a service for free, build the user base and then sell ads on the platform.

With the possibilities of the Net, Free was a disruptive model, that worked a bit like a forest fire: it ignited, burned fast, but ultimately died of natural causes while also leaving fertile ground for new growth.

Napster arguablly set the conditions for .99 cent download on iTunes. It costs us a $1.29 today. Perhaps $1.99 tomorrow.

“Ideas are the ultimate abundance commodity, which propagates at zero marginal cost,” wrote Chris Anderson in his book Free. Anderson was right. But he was also wrong. Free is a lifecycle.

Anderson himself, the former Editor-in-Chief of Wired Magazine, which largely endures on that business model, excused himself from professional publishing and now sells commercial UAVs.

Like Anderson’s career, the free model is evolving.

Google’s Second Trick: Subscriptions

The search giant Google has signaled for a while now that subscriptions were coming to YouTube. Over the weekend, it again indicated changes were coming to its video platform, which is second in search, only to the parent company. According to the New York Times:

This week YouTube, the world’s largest video Web site, will announce a plan to let some video makers charge a monthly subscription to their channels. There will be paid channels for children’s programming, entertainment, music and many other topic areas, according to people with knowledge of the plan, who spoke on condition of anonymity because they had been asked by YouTube not to comment publicly yet. Some of the channels — there will be several dozen at the outset — will cost as little as $1.99 a month.

Marketplace, however, assures us that cat videos will still likely remain free.

Google’s venture into subscriptions is interesting on many levels. First, for a company criticized as a one-trick pony, it has as of today, some $60 billion in current assets on it’s balance sheet. That’s not the value of the company, which is vastly greater, that means it could cash a check this week for $60 billion. Second, it’s got a reputation for shuttering services, like Google Reader, that it feels lack promise; evil and making money are not mutually exclusive. Third, the ad model on YouTube, those interruptions we painfully wait to skip through, aren’t growing fast enough.

Marketplace reports:

The only problem is that while sales of online video ads are growing, they’re still just a $4 billion market, said Clark Fredricksen, a researcher at eMarketer. “The television market is a $65 billion market,” Fredricksen said.

If we can put aside the realization that Google has more cash on hand than the entire television advertising industry for a moment, we can begin to realize the market potential that Google envisions.

Free as Changing Model

Even as Posterous shut down, one of it’s co-founders was pitching a paid service as an alternative. Storage may well be cheap, but the volume at which people produce content, seems to move with an inverse correlation to Moore’s law.

Pandora is no longer free. Ning is no longer free. App.net initially pitched as a paid alternative to Twitter may well have it backwards with its new freemium model. Like Twitter for newcomers, no one talks to newbies on App.net.

Free may well be a way to barter for time — time to gain traction — yet at the risk of attracting people that just like free stuff. As a business model, free is simply unsustainable.

Quoting the Herbert Simon, a social scientist, even Anderson might concede his point, where “the wealth of information means the dearth of something else: a scarcity of whatever it is that information consumes.”

That scarcity is often quality, which is a model that has long been a path to a revenue stream. I believe we are observing the beginning of the end of free.

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