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By Thomas Baekdal - February 2010

Where’s the Money, Bob?

The social web is starting to sound more and more like the days. We are in the middle of a transition. The ways we do things are radically different. What works and doesn't work seems new. And many people are getting very excited about numbers, but not the right ones.

Back in 2000, it was all about traffic. Just get a million people to come to your site, and you have made it. Today people say that attention, engagement, interactions or number of fans is the new currency. Just get people's attention and you have made it!

I have this weird sense of deja vu. Haven't we been here before? Didn't people learn anything?

The bottom line is this. Money is still the new currency. I can't buy a cup of coffee just by paying attention to it!

Should content be free?

Everywhere you look, you will find many people believing that content, and in some cases, products should be free. If you ask people about paying for news online, about 40-80% say that they won't. Content should be free, just as music should be free.

But here is the thing.

I am a firm believer of freedom of content. That is anyone should be free to get any content, despite where they are or how they choose to consume it. We need freedom of content, no restrictions, no lock-ins, no 'you can only get it if you buy it on a DVD' or 'you can only read this article in this news application, and not via RSS'

But that doesn't mean that centent itself should be free. It just means that consumption of content should be free.

Content creation is a different matter. Creating content cost money and time. When you spend 5 hours writing a really interesting article, you are creating value, and you do at a cost. You spend time on it. You have to buy a computer, have an internet connection, use electricity, and the list goes on and on.

Just take this site. It costs me $4,000/year to run this site just for at the equipment and connections alone. That doesn't even include the time I spend writing content, contacting companies, preparing graphics, and illustrations etc. If I had to hire a writer to do it for me, I would have to pay her an additional $36,000/year.

So here is a simple question. Would you pay for And if so, how much? What about $9.99/year? Does that sound reasonable?

Notice: No, I am not planning to turn into a pay-site.

You know, Rupert Murdoch is right when he says that people need to understand that content costs money to make, and as such cannot be free. Free means somebody else have to pay the bills.

What Rupert Murdoch doesn't understand, though, is that he is selling the wrong product. People don't want cheap newspapers, they want highly targeted, uniquely created news. Rupert Murdoch tries to sell us a box of random news - who wants that?

Content consumption must be free. You must be able to consume content where ever you are, whenever you want, via whatever channel. People should never pay extra for a mobile version, or not be able to read it in their favorite newsreader.

But, the content and services themselves cannot be free. It costs money to create, thus comes at a price.

A Zero Rupees note... a way for people to pay nothing.

Notice: Also read: 'How Newspapers Can Charge for Content

Freemium doesn't mean free

The biggest problem with this 'everything must be free' is actually caused by lot of people and companies not understanding the concept of freemium.

Freemium is a business model brilliantly explained by Chris Anderson (Editor of Wired Magazine) and it goes like this: I will give you this for free, so that you in turn might be persuaded to buy my other products for money. Or variation of the same.

It works for all kinds of industries. Online services might provide a free basic account, in the hope that you will later sign-up for premium services.

Or, the most used freemium model of all. I Will give you free content, in exchange for being exposed to advertisement. This is how almost every commercial website operates.

When people and companies starts to believe that freemium means free then we got real a problem. Freemium doesn't mean free. It means we will give you a salad, so that you might buy a meal to go with it. Some people might only want the salad, and that's okay, but, the business model is to get people to by the meal.

Most new social startups doesn't seem to understand freemium at all. Just take almost every single twitter app ever made. They are all free, with no viable business plan, besides hoping that huge amount of traffic will somehow make the millionaires.

How long do they plan to live of venture capital funding, before being sold to a clueless media company or go bankrupt? Doesn't this remind you of the good old days?

The other and much bigger problem is when the money part doesn't cover the expenses of running the free part. This is currently the biggest issue for newspapers. For traditional media companies like the New York Times, advertising online doesn't cover the cost of writing the articles.

Seesmic got the same problem. Their business model is to build huge amount of traffic, then introduce advertising, and make billions - or so they hope. But, because the market they are in is so crowded, the second they put advertising into their product, people will simple use another Twitter client.

It is a recipe for failure.

The coming battle

There is a war coming, and it will be nasty ...and the best thing that ever happened.

The war is about companies realizing that the internet is now their primary business, their primary communication channel, and their primary sales channel. And it has to make to make a profit, otherwise, they are sunk!

It is the war against the 'everything must be free' culture, and it is won by the ones who create something worth paying for.

It is not about traditional companies trying to go back to the way it was (they are merely a distraction). It is not about advertising. And it is not about getting people to cover the cost of print.

It is about giving people a salad that is so good, that they will upgrade it to get a premium meal to go with it.


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Thomas Baekdal

Founder, media analyst, author, and publisher. Follow on Twitter

"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made ​​himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé


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