Personally, I believe the advertising industry is in a bubble which is ready to burst. It is a semi-self-fulfilling industry that has been growing at a rate out of proportion to the businesses revenue which support it.
The concept of freemium is to offer a free service, and if users want more content or functionality, they must buy a subscription.
One of the most common freemium products is the music service, Spotify. Users can download Spotify and immediately listen to music. If users want to be able to listen to the music when an Internet connection is unavailable, or they want to listen to ad-free music, they need to pay a monthly subscription.
Working on a month of 22 weekdays plus 4 weekends, the Daily Mail sells 52.1 million newspapers, read by 129.4 million people. Whilst it’s difficult to compare those readership figures with the website’s monthly unique visitors, there’s probably the same level of inaccuracy in both figures, which can make them ballpark comparable.
Back to the website for a moment – how can a monthly readership of almost 190 million users be turned into revenue?
When I started this blog, it was with the main aim that when I repeated something at work to multiple customers or colleagues, my aim was to document it here. This could be a news article, or a new technology or process.
During a recent conversation with a client, I realised that one of the key discussions that I have never documented are five key Internet trends, or what they would now be termed ‘megatrends’.
These megatrends are based on several years’ experience working across multiple sectors – including sport, insurance, retail, banking and recruitment.
This is the first of five posts, each dealing with a specific trend. Once I’ve covered all the trends in detail, I’ll put the full presentation on Slideshare.
I’m happy to discuss each of the trends, either here on the website, or to discuss on Twitter, or just give me a call.
High quality content and services can’t be free for much longer
It costs too much money to send someone a very small amount of money
When we can solve the small payments problem, piracy will significantly reduce
Our children will look back on this period of the Internet and be shocked at how many services we receive for free. Google searches, music from Spotify, news from Sky, an encyclopaedia from Wikipedia, photos from Flickr, email from Microsoft, word processing and spreadsheets from Google, the list goes on and on. It’s quite easy to use the Internet at the moment without paying a penny.
It’s unsustainable. It can’t be ad-funded for much longer – and I’ll discuss this later on in another trend “Real money”.
Content web sites such as those from newspapers and films are moving to a subscription model, but this is an inflexible model. I want to read The Sunday Times on the weekend, the Metro during the week when I use the Tube, and once a fortnight I’ll read The Financial Times.
On the Internet, this model isn’t possible. At the moment, users need to subscribe to The Sunday Times or The FT on a weekly basis. I only want to read for one day, and next week I want to be able to go back to the content without paying again. It’s not possible.
The newspaper model is the opposite to the music industry’s. You can’t just buy a single track on a CD, you need to buy the entire album. On the Internet however, you can buy just a single track.
There are authors who earn a reasonable living from successful blogs. When I say successful, it’s in terms of traffic levels. The blogs have advertising, and the authors rely on readers to click on the adverts. Neither authors nor readers want advertising. Authors would much rather a model where each reader pays a small amount for the content.
In the future, we’ll have a central company which will have a pot of our money. As we visit websites, the central company will provide the websites we visit with nanopayments, which are tiny amounts of money – perhaps less than a penny, on a per-page or per feature (e.g. sending an email, or searching the Internet) basis. This will be an automatic process, and we’ll have some sort of browser plug-in which shows how much money we’ve given to this website, and the remaining balance in our centralised wallet.
As a result, nanopayments will significantly reduce piracy. If the price point for content can be reduced to nanopayments, perhaps on a per-play model, users will find this model as easy to use as the illegal models. (This is one of the was the music business combat piracy – buy allowing legal downloads at less than a dollar per track, the price point is acceptable, and piracy is less desirable).
Currently, content owners need to charge a higher price partly to cover the transaction processing costs. If the transactions costs are significantly reduced, we could move to a per-play model. So instead of paying 89p for an mp3 track, users could pay under 5p for the track each time they listen to it.
There has been a lot of discussion on the web this week regarding three separate services: Google Reader, Evernote and Posterous. I have talked about how our Internet trust will be broken soon, and each of these three vendors have demonstrated this in their own ways.
Google have shut down their Reader service. It doesn’t bother me too much – the service was satisfactory, nothing more, and I prefer to read RSS feed in Outlook. Reader was a free service, and its users’ main complaint is how it knocked other services out of the market only to stop the product years later when everyone has gone bust.
Evernote announced that it’s service has been compromised, “…but don’t worry…” passwords haven’t been compromised. What its users don’t understand is that the content in the thousands/ millions of notes probably was compromised. So if you used an Evernote page for passwords or other confidential data, well, it’s probably not so confidential any longer.
And while Posterous announced a while ago that they would be shutting down, I’ve spent a few evenings this week moving this very blog from Posterous over to a new provider. I’ve actually bitten the bullet and moved the blog over to my own personal server. I just didn’t want to go through the hassle of moving it again.
Playing Devil’s advocate, the services above are free. You pay peanuts (or nothing), so you don’t get a chance to say “Hey, I was using that…”.
As a learned friend of mine once said, “Today’s gift is tomorrow’s expectation.”
So what’s the advice for the future?
Firstly, corporates take note. If you use these services, be prepared for here today, gone tomorrow. Use PaaS (Platform as a Service) vendors – Salesforce, Google Analytics, Endava (shameless plug), etc., but make sure your data is transferable, accessible and secure (not necessarily in that order).
Secondly, consumers need to be similarly aware. I have a simple approach – I assume all new startups can be gone in an instant, and are operated by a fourteen year old in their bedroom somewhere dodgy. Only once the trust builds up will I invest more time with content.
As I mentioned before, Google Reader doesn’t affect me. Posterous… well, whenever I’ve been to blogger meetings, everyone is talking about WordPress and I felt like I was on the wrong platform.
Evernote is the one that has annoyed me the most, because it’s (present tense) such a great product. But I can’t trust it. And my corporate security guys have said we can’t use it any longer (or any similar services).
So I’ve started using OneNote again. A few guys in the office use OneNote, and since I got the new convertible Ultrabook, OneNote makes sense. And then I discovered the OneNote iPhone app, which syncs with my laptop… and boom! I now have an enterprise version of Evernote.
Whilst writing this article I noticed that Menshn has shut down as well. Menshn was a great idea, and I was lucky enough to be one of the first users invited. I say it was a great idea, although I hadn’t logged on for a couple of months, so it hadn’t quite replaced my preferred social networks.
But the morale of this post is that if I had invested huge amounts of time and content, I’d be pretty miffed at the moment that it’s now all gone.
We have a Spotify Premium account at home, mainly because we want to listen the tracks offline (such as in the car), and also because the freemium model limits the number of tracks available.
I really like Spotify – the PC and iPhone apps are both easy and no-nonsense to use. The quality is great, which is important because we have speakers wired around the house.
I read an article last week explaining that when ATM machines first arrived, it was assumed that the ATM would see the demise of high street bank branches. However, 45 years after the first ATM machine in the UK, we still have bank branches.
Why do radio stations get such a large audience in the 21st century? I think there are a number of reasons:
It’s free to listen to the radio
There is a huge percentage of the population who only listen to the radio in the car, and who spend huge amounts of time in their car (such as commuting or as a professional driver)
Radio stats are probably as extrapolated as TV audience figures
I listen to the radio mainly for discovery. I like the radio playing a random song, or a brand new song, when its different to anything else I listen to.
The problem with Spotify and its equivalent ‘radio’ modes is that they are trying to find music that is similar to the music you already like. There are some basic algorithms in some music players, which try to determine whether you prefer groups, male or female singers and then play only those to you. Spotify provides a little wider coverage in its radio mode, but it still won’t play something as left-field as the FM radio channels.
In a world where we select what we want to watch, when we want to watch it, and which output channel we want to watch it on (web, phone, tablet, TV, etc.) – radio has defied the odds.
As regular readers will know, I am interested in small UK businesses, mainly because my grandfather started a small shop in Camberwell shortly after the war, which my dad looked after until retiring some five years ago.
I’m acutely aware that small businesses need as much help they can get, and in some ways the Internet has created a level playing field, but small businesses struggle with the complexities of the Internet and it takes too much time to research the necessary material.
Step forward Rob Tyson. Rob has created a subscription based website which helps small businesses understand the nuances of Web marketing.
His website is based on a freemium model – a lot of content is free, the first month costs £1 and thereafter it’s £19 a month.
I spoke to Rob at the event, not for as long as I’d like because there were lots of others there, and he seems a genuine guy who wants to help small businesses. I asked him what his long term plans are, and whether he would help large companies, and he said that he wants to focus just on smaller companies at the moment – usually less than a dozen people, running a business as well as a website.
At the networking event was a wedding photographer who has reduced his marketing spend (at one point he was spending 50% of his revenue on marketing) through Rob and a charming lady who is setting up a London tour guide business and needs help promoting it online.
I’ve read Rob’s blog, and it’s straight up, direct content. There’s no fluff, and something to take away from every post.
LinkedIn have had a third quarter and with quarterly revenues up 81% to $252m, they are set to have annual revenues of $1bn.
It’s still staggering how on revenues of $252 million they still only make less than 1% profit of $2.3m, although being fair to them, their EBITDA is $56m – 22% of revenue.
Their income is split as follows:
55% Hiring Solutions (recruitment)
25% Marketing Solutions (advertising)
20% Premium Subscriptions (sales and headhunting)
This is a healthy mix – I’m still concerned how many Internet businesses are based on an advertising model. It works so well for some (Google), not necessarily for others (Facebook) and I prefer mixed models where it’s closer to a freemium or retail model (Spotify, Amazon and LinkedIn).
LinkedIn have successfully implemented the freemium model perfectly – most users can get value from the site without paying a penny. Users who want more information about other people’s profile, or want to contact people they’re not connected to, or look at who’s been looking at their own profile, can upgrade.
LinkedIn has become synonymous with Internet based recruitment and B2B business networking. Two thirds of LinkedIn’s revenue comes from the US, so there’s still huge opportunity in Europe and Asisa (22% and 7% respectively). To continue the B2B toolset acquisition, I would expect them to buy an events organiser such as EventBrite.