Charging Money For Your Website
How do you charge for services on your website, when just about every website on the Internet (with the exception of porn) gives it away for free?
I came across an article by Eric Ries on Three Freemium Strategies and it got me thinking about how we could charge money for premium services on ZoeCity. I believe this is an important question especially in today’s economy. Ad revenue spending is decreasing and the days of VCs favoring growth over revenue is long over. Revenue is once again (and rightfully) an important question. You see media today questioning Twitter’s business model or Facebook’s new drive for monetization. So how do you arrive at the right equilibrium between free and premium?
This brings us to service-oriented subscriptions. There will always be ad-supported businesses that make sense i.e text ads on search results. However, there is an increasing number of new Web 2.0 style utility applications where it does not. How will TinyURL, currently the biggest URL shortening service, make money?
One method to identify your premium services is to first segment your users based on the value they bring to your website. Let’s use the example of Digg. Here we have the classic 80/20 model. You have a subset of very active Digg users (20%) who will contribute 80% of Digg’s content. And you have 80% of Digg users who mostly consume content but contribute only 20% in return. The reality is closer to 99/1 but I digress.
Active Users – 20% primarily producers.
Passive Users – 80% primarily consumers.
The Active Users create value to Digg because they create content that is consumed by the other 80%. Because they create value, you should build every tool, customization and option possible for them and give it away for FREE, absent of any ads. It should be pure, elegant and cater to the producer’s incessant need to produce. Charging these users to access these tools is suicide because you may loose them and hurt the value proposition of your site.
The Passive Users on the other hand mostly consume and you can segment them further:
Passive Contributing - consume and contribute via sharing, comments, rating of content etc.
Passive Blackhole – consume substantially with little to no contribution
Passive Contributing users contribute value to your system because they interact with your content through comments, voting or resharing. With this group, the free services would have to be very compelling before they would even consider paying beyond. The key to charging these folks is to identify the pain points that will greatly enhance their user experience but not decrease their value contribution. In other words, if the user chooses not to purchase the premium service, it will not decrease their existing value contribution of sharing, commenting, and rating back to the system.
Passive Blackhole users on the other hand, is where you need to make a judgement call. They provide almost no value to your system and is in fact a huge cost to you because they consume your system resources but do not provide any value to other users. They key here is to determine if your ad revenue for these users can sustain your serving cost to them. If it does not, then you must identify the features that these users are interested in and charge them for it. If they pay, they become “useful”. If they don’t, you save from not serving them. Either way, it’s a win-win situation for you.
There may be other factors that could make Passive Blackhole users “useful”. Is there a marketing benefit in cross-selling or up-selling them to other services? I know of businesses who make money from seminars and conferences. The content on their website is the feeder to these revenue-generating opportunities.
In short the key is finding the right balance of charging for compelling features but yet maintain the user’s value contribution. What do you think?
Colin Wong lives with his wife and three kids in the always sunny, never rainy wonderful land of Seattle.
