The New Business Model Axiom

I believe strongly that the web — and the traditional PC and mobile app businesses that it touches — is going through an evolutionary process. Many of the old business rules are broken — things like how to market, how to charge, the value-price relationship (more expensive means more value). Ten years ago we could make a connection and say “such-and-such a product was marketed and sold this way so we will have success by doing the same.” But now that is no longer true. Everyone’s trying to figure out these new rules from scratch.

As we move FastFigures forward, soon overtaking the core capabilities we offered in our powerOne applications and then turning our attention to the new and exciting features we have planned, this disparity between the way we used to do it and the way to do it now are hitting home.

So I asked for help. And Albert Wenger at Union Square Ventures was kind enough to provide some clarity. My first question was regarding the so-called freemium model, where some features are available for free and some features cost money, and where to draw the line between the two. I was also struggling between companies that seem to go without charging customers and some that charge right away. Albert gave me excellent advice:

As a general rule I would say if your business has a network effect, i.e. more users make the service more valuable to each user, then you should worry primarily about adoption and about pricing later.  If that’s not the case then you want to get pricing in place right away.  It is best to charge for those features that will discriminate between business users who can charge to a business credit card and everyone else.

This is simple and straight-forward, dare I say an axiom for the internet age. If there are two customers — consumer and business — then businesses will pay subscriptions and consumers won’t. So the portion of the service that attracts consumers should be free for them to use and (potentially) monetized some other way, whether that’s advertising or virtual land or  transaction fees or something else.

I find this enlightening. It encapsulates so many of the web businesses I see more succinctly than I have ever seen it before. Thanks, Albert!