I have just been reading a post off Seth Godin’s blog: Too much free.
As the market for free gets more crowded, we’ll see more and more people promoting their free products, stuff that people used to have pay for. A complete shift from ‘you will pay’ to ‘it is free’ to ‘I will pay for ads to alert you it’s free’ to ultimately, ‘I will pay you to try it’.
So what comes next after the price the market will pay for any given service is driven down to (or past) free? What happens when all the freemium services are undercut by others offering all their premium services for free? Surely a market in which the price of quality online services is zero is not a sustainable one. Or is it?
How we got to this point:
- The costs of producing a web application are approaching zero.
- Nearly any web application that isn’t massively complex or dependent on expensive infrastructure can be easily and cheaply copied and undercut.
- Up until now, advertising revenue and general kudos have been enough to motivate large numbers of individuals and lightweight startups to offer their services for nothing.
There are so many conflicting trends that you can look at in this space - it is very difficult to make sense of it all. On the one hand there are products like Smugmug that have become successful by copying free services and turning them into premium paid services. On the other hand there are companies like Google who are building success by effectively undercutting everybody else who offers the same services in a paid capacity.
My prediction is that advertising (in its current form, at least) is slowly on the way out, set to have its share of marketing spend reduced as people catch on to new and more effective marketing methods. Many of those offering their services totally free-ad-supported (including Google) will have to work out alternative business models if they want to make any profit at all.
As this happens, market prices for online services will by necessity slow their descent to zero and hover just slightly above zero. It will still be wildly competitive, which will keep prices low, but there will have to be a bare minimum that your average web app producer is willing to work for. Those who relentlessly innovate to avoid commoditisation will be the ones that can ask more than the average.
The next question is: Will overall spending on online services increase in the future, as relative to other sectors? I think it will.
Is there a certain slice of people’s wallets that they are willing to spend on online services, as opposed to other (non-online) services? Will the online slice grow bigger as more and more services that people used to use offline are moved to the web, for example?
Meanwhile, the rise of the market of niches will march forward, and it will mean that people are going to have access to services that are much more personalised to their own needs. They are potentially going to get more value out of services, and be more engaged with them. Does this mean that they will be more likely to pay for services? Or does it just mean that a higher number of services are going to be servicing each person, reducing the slice of that person’s disposable income they can ask for?
So many questions. Feel free to post up your views on these issues. Meanwhile I think I should stop thinking about it so much and focus on being prolific in releasing innovative and remarkable new products.
