Scaling From Free to .01 Cent

Posted on March 26, 2007
Filed Under Marketing |

The truth is, scaling from $5 to $50 million is not the toughest part of a new venture - it’s getting your users to pay you anything at all. The biggest gap in any venture is that between a service that is free and one that costs a penny. I can’t think of a single premium service that has achieved truly viral distribution. Can you?

Josh Kopelman pretty much sums up the dilemma that many web 2.0 startups have, including Teqlo for that matter. People will pay for these services but they have to have some persistent utility in order to cross that threshold, but the persistent utility is what is challenging.

Here’s the other reality I am finding, free services are typically unable to develop the kind of invested relationship with users that paid services are. The value of a free service is the lead generation that it enables, it’s just another way to feed a sales process.

Viral? I’m sure there are some examples of successful companies built entirely on viral but I would be hard pressed to name a paid service that relies exclusively on viral. Free services have to rely on viral because the economics of incuring a cost of sales for something you are giving away just doesn’t make sense.

Converting free users into paying users is only challenging if you don’t ask them to pay. Premium feature sets is one way to do this, PBWiki being a good example, while increasing consumption thresholds being another. DabbleDB gives you more users for each pricing tier, other companies give you the ability to create more files, etc. Basically, the latter is what I prefer because it gives new users the opportunity to appreciate all the features while at the same time putting a limit on how much they can consume.

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