How did the web lose faith in charging for stuff?

The reason that the web lost faith in charging for stuff is that marginal cost is so low. What is the cost to 37signals of having another customer sign up for one of their services? If I sign up for the $49/mo. Basecamp product, they are offering me 10GB of storage as well as bandwidth and application processing. None of that has a high marginal cost. Maybe $5/mo? Plus, many users won't use all that space so it's a maximum of $5, but the average marginal cost would probably be a good deal lower.<p>So, while many applications might have very high fixed costs (like paying people to create wonderful applications like those in 37signals portfolio), they have marginal costs that are so insignificant that people would like to charge customers less and get more customers - often ending up with them wanting to give it away for free for maximum uptake (with the whole profit thing put off until later).<p>Beyond that, some applications you can't charge for. 37signals has a portfolio of applications that don't get better for users as more people use it. That's unlike Facebook, Delicious, Digg, Wikipedia, etc. If those services charged a monthly fee, it would degrade the content that the sites have. Facebook isn't useful if they only retain 10% of their user-base because they're charging $10/mo. So, some websites must try alternative ways of monieization since charging users isn't an option.<p>Finally, the web often forgoes charging for stuff because they get big paydays for it. StumbleUpon got $75M. Reddit commanded at least a few million. Digg is looking for hundreds of millions while having no plan for profitability. Facebook is looking for tens of billions with no plan to make money! Jaiku was bought for millions. YouTube for $1.5B. I don't need to go on. People get rewarded for the behavior of creating a site with no expectation of profits. As long as that's working, they'll keep doing it.<p>Personally, I think 37signals has the right idea. But that won't stop people from making free sites with no profit plan which they hope to get bought since it happens enough. Yeah, I'm not going to create visions for myself of taking over the world, but others thrive on that. As long as there is some potential of getting bought for millions and a low marginal cost, people will create those free sites.

I think a large part of it was that back in the .com craze it was:<p>a) Extraordinarily hard to actually charge money. The user experience sucked and people were being told that these strange new cyberpredators could drain their bank accounts on a whim if they ever even exposed their credit card digits near a monitor.<p>b) The main product offered was textual content, which has <i>always</i> been an extraordinarily hit-driven business in which the misses do not monetize in any sort of scaleable fashion.<p>c) There was a whole lot of stupid money, and if you've got stupid money burning a hole in your pocket, then who needs to charge customers when that is just going to depress the metrics that get you more stupid money?<p>d) There's also a problem that the web is <i>relentlessly</i> youth-focused. People who came of age in that brief no-money twilight expect everything to be free. People who have not hit that age yet have some transactional difficulties in paying money. (Though they clearly pay money for things that people assume are unmonetizable -- I know more than a few people who spend no money on "music" but several hundred a year on iPods.)<p>It surprises people every time I mention it, but there is an entire world of users out there who are perfectly on board with the notion of paying money for value. They have money, they have payment instruments which are easy to use online, they have problems which they currently treat with expensive and ineffective non-digital solutions. As an industry we need to focus on these folks in addition to the 21 year old unemployed WoW player who seems to attract about 85% of our efforts. [And though I mock overfocus on that market segment, you certainly see, e.g., Blizzard and Apple making a killing out of that guy.]

Brilliant. I love the idea of bootstrapping start ups, but I love it more when the start up has some kind of business model behind it. The real achievement is not only to get 'eyeballs' but paying customers. After all, once you're keeping yourself afloat, you can continue to do what you do.<p>There was an article titled 'Free is Killing Us - Blame the VCs':<p><a href="http://www.businessinsider.com/2008/4/-free-is-killing-us-blame-the-vcs" rel="nofollow">http://www.businessinsider.com/2008/4/-free-is-killing-us-bl...</a><p>This might sound cruel and heartless, but I hope the financial crisis has the VC-funded toy-companies fail and the legitimate small businesses prosper sooner than later.

&#62;&#62;&#62; It seems that the web has been so thoroughly infected by the memes of “the future is free”, “we’ll all live from ads”, “VC money will get us there”, and “acquisition is nirvana” that it has almost lost its faith in the simpler ways. &#60;&#60;&#60;<p>This is funny. I remember it to be just the opposite - web was created with the idea of free exchange of information, at first mostly between scientists and universities. Later, commercial entities came and tried various ways to make money from the web. A few succeeded, a lot more failed. This guy just reversed it.

I wish there were more prominent examples (like 37signals) of small software companies that subscribe to this model. The VC funding, ad driven model has many, many examples and I think we can all benefit from a more diverse landscape of perspectives. I'd definitely be interested in hearing other examples people know about.

Charging for stuff is the "mom 'n' pop" way of doing things; if you want to get big, that's going to be extraordinary hard. Youtube, Digg, Facebook, Myspace, etc, none of those would be as big as they are today if they charged users.<p>However becoming big is hard, so you're left with a big decision — a hard, if not impossible road to become massive while still being profitable and not charging users, or target only the (smaller) paying audience, but remain profitable from near enough day one. Or you could of course meet in the middle with a freemium model.<p>I don't see the problem with the free model, you just can't charge for everything.

A more useful discussion would be, what kind of apps should be paid? and what kind should be free? In my opinion paid apps/services have to meet a few criteria:<p>1. substantially better than free alternatives 2. deliver significant value at limited (user) scale 3. not built on open source technologies w/restrictive licensing<p>For broad consumer-services, those 3 criteria actually limit the universe of services significantly.

On an earlier post they describe how they came up with the pricing for their products - "Just think to yourself what you'd pay". Well, for myself, and a fair number of others, that figure is 0. So you have to think of other ways to make money.<p>Clearly no one would ever pay to be able to use google to search, yet we all value it enormously.

I find the emphasis on marginal cost somewhat interesting because biz that don't recover average costs lose money.

The web didn't invent advertising as a business model. It has worked and been around for a very long time.

what are you successful consumer subscription products?

To succeed on web, be <i>opportunistic</i> and sell of <i>quickly</i>.

There is no wonder that the rules of the game were dictated by big players, like facebook or google. They taught ordinary internet users (the mass) that good quality (usable and well-designed) services could be free.<p>So, if you trying to establish another service for masses it must be free, and meet the de-facto standards of quality. Tweeter is a good example.<p>It is possible to charge users for some very special and unique service, but only for a limited time, because free (no-cost) alternatives will emerge sooner or later.<p>It seems to me, that if someone wants to build such service he should think about some market-place or ecosystem (like in adult segment), not for public services for masses, because this market is already divided by rich and strong players.