The Mind of Alex

Ad rates are going to fall. More. CPM rates are going to become more pathetic than ever. Web startups are going to need to start charging for their top end feature sets, or go under begging for low valuation funding. Revenue is the new traffic.

Freemium, giving away your basic product for free and charing premium users, works. It will limit adoption rates. But, it gives hard revenue, and assuming you charge monthly/yearly, reciprocating renvue that you can project. Freemium has many detractors, (see this and this), people saying that you cannot grow with it. Maybe.

But how many startups fail saying "we grew too much?" They actually say "we ran out of money and no one will give us any more." Forsaking a percentage of your growth for revenue is not just sane, its smart. And some people are finally listening. Recently, Vimeo launched Vimeo Plus, charging 60/year for the top end of their service. At the same time they curtailed their lower end. Smart move. Multiply their cash flow, expand the service for people that love it, ding unprofitable free users, and set their business on the right foot all in one action.

This model is standard across a few sectors of the internet, such as the web analytics industry. Clicky web analytics has been doing this to great success for over a year now. It needs to expand to consumer/social startups as well.

Companies such as FriendFeed, Twitter, Veoh, and LinkedIn could easily charge their high end power users for their site usage. People are willing to pay a few dollars a month for something that they really value. Most are not, and that is why Freemium is so great. Let them stay, give them basic (or even well expanded) usage for free. All you need to do is get your top 5 or 10% to pay.

Welcome to the road to profitability, welcome to Freemium.