Growth5 Blog

Wednesday, August 5, 2009

Live By Free, Die By Free

A couple weeks ago we posted the Social Media Timeline created by our web division's Chief Creative Officer, Sean Carton. One of the takeaways was that over time it has been difficult for most of these sites to stick around for any period of time despite being immensely popular at one point in their life cycle.

Mark Cuban wrote a great post as to why a lot of these sites don't last: When you succeed with Free, you are going to die by Free. Some highlights:
1. The more success you have in delivering free, the more expensive it is to stay at the top... The more important remaining successful is to management, the more money they will spend, the more chances they will take, the more infrastructure they will build, the more people they will hire. All of the things that will prevent them from staying lean , mean and flexible. All of the things that distract them from innovating within their core competency.

2.The rule that eventually KILLS all freemium based content plays: There will always be a company that replaces you... Their product will be better or more interesting or just better marketed than yours, and it also will be free. They will be Facebook to your Myspace, or Myspace to your Friendster or Google to your Yahoo... Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience.

3. Google: For Google, who lives and dies by free, we dont know who their [replacement] company will be... The only question is when... They are spending incredible amounts of money in search of the “next big Google thing”. When their [replacement] competitor appears, they won’t be in a position to compete with the newly presented model, particularly if its free based because their ecosystem has bloated to the point where they can no longer create anything for free.

The same will happen to Facebook, Twitter, pick any company who lives off of free.

4. Making money: Its not that they can’t make money offering free. They can , have and will. The problem is that they know that its literally impossible to be the king of the mountain forever. But that won’t stop them from trying. And that is exactly what will kill them.

5. When you succeed with Free, you are going to die by Free. Your best bet is to recognize where you are in your company’s lifecycle and maximize your profits rather than try to extend your stay at the top.

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