Here is my latest reply to Chris Anderson in our debate about his book Free: The Future of a Radical Price. See my earlier post An interactive review of Free by Chris Anderson for details.

Dear Chris,

You are right: this debate has been far too civil, so let me get less friendly. I don’t believe you. Or, to be more exact, I hope you turn out to be right but I fear you are not.

I suspect you of advocating Freemium because Free turned out not to work. Not long ago, there were many calls for content owners - music and publishing companies in particular - to make all content free on the internet without any Freemium element such as premium subscriptions.

The idea then was that Google had uncovered a gusher of online advertising and that the lower yield of online ads would be balanced by the low cost of digital distribution. In other words, advertising would meet the entire costs of content delivery.

But, as we now know, that has not worked so well. I am sorry to use the example of newspapers since Malcolm Gladwell’s review prompted you to note (rightly, I think) that journalists find it hard to write about anything else in the context of web economics. It is, however, a good case.

Most general interest newspapers give away their content free online but have little hope of making up the yield gap between print and online advertising. So several newspaper groups in the US have gone into Chapter 11 bankruptcy.

Now, you arrive with an amended theory, which goes roughly: OK, advertising-supported content did not work out but here is something else for you to try.

Freemium may well be the best available option for a lot of companies, but how much hope does it really provide? Take your own figures on the Freemium economy in the US.

You quote a figure of about $1bn for spending on Web 2.0 premium services, which is not very much considering how much chatter there is about Twitter, Facebook etc.

You add to this $30bn for services relating to open source software - premium software, consultancy etc, and throw in a further $4bn for the casual games market.

My criticism is that a lot of open source services are provided by companies on the back of what you would call the “gift economy” - ie software developers working for free. So the enterprises that are offering Freemium-style services do not bear the full costs of production.

The economics are tougher for companies that that give away software and services they have built from scratch and then attempt to turn a profit with related premium services.

The true Freemium economy is extremely small and many companies are trying out business models without clear proof that they will work. If they fail, it will be hard or impossible for them to retreat to charging for their products and services.

So I fear that Freemium could turn into just as big a trap as Free.

What do you say?

John

July 3, 2009 7:00am in Media, Technology | Comment