So it seems that social media is coming of age: the ning platform (AmbITion Scotland’s network is run on it) has announced that they are changing from their freemium business model, and ning will now have to be paid for. Read The Guardian‘s report. Facebook have said that they’re thinking of moving to the freemium business model, and beginning to charge some users. What is the freemium model, and why and when is it considered suitable?
The term freemium is coined using two powerful words ‘Free’ and ‘Premium’. The freemium model is easy to understand. Freemium is giving away a quality product for free in order to sell complimentary products to a small percentage. Some basic, entry level of a digital service is available free, and this encourages people to join-up fast and en masse, and guarantees that the platform doesn’t become obscure (anyone heard of Facebook? Just 400m users at the last count…). However, about 10% of the user base will become superusers of the platform, strongly manipulating its services and utilities, highly valuing its content and usability highly. The users are the premium users, and will buy a premium service if its offered, once the value of the free service has become established in their minds and lifestyles. So the freemium business model is this mix of free and premium services for different audiences. It takes time before you can implement freemium, because the offer needs to be valuable in people’s minds, but freemium essentially generates revenue because of the freely distributed content. How? Because large numbers of eyeballs on free content is usually ad supported.
Freemium hasn’t worked for ning. Why? The advertising revenue stream they’re showing the eyeballs (that’s network memners – like you and I) is targetted Google ads. Ning is essentially the middleware for Google to advertise on behalf of their clients to targetted networks. Ning makes the middleperson’s share of the revenue. Facebook on the other hand is the ad server – owning the advertising channel and charging the clients, and owning the customers too. Freemium will work very well for them, I suspect, and can work well for cultural organisations too – if enough consideration is given to what actually is premium, and if enough sensitivity and targetting is applied to the ad revenue strategy around the free content.
What I suspect will happen with ning is that organisations who have networks that they value (and we value our AmbITion network) will pay to continue using the platform, and other networks that don’t see many members or updates will shut down and move to another platform that remains free. Its a good reminder that no free online service is guaranteed to remain free, or even to survive. Its possible that in the long term, at least 90% might disappear. So back-up member data and content in other places. This applies to data that you place in free cloud computing services – it needs to be backed up elsewhere.
So with less free services around, we may see some networks needing to consolidate, challenging organisations with the need to think about whose network might enhance/benefit their, creating a stronger sum of their individual parts. In fact digital consolidation across the cultural and heritage sector is something that I think we’ll see more widely as funds for digital become scarcer.
Apparently, the Heritage Lottery Fund are currently out to consultation to find out whether they should continue investing funds into digitisation and digital availability of resources – the kind that can be found on any heritage organisation’s website. I think yes of course they should: it increases the reach, scale, access and impact of their work. It helps them sustain their work. But presumably, HLF are finding the investment hard to justify. This might be because they don’t measure the impact of digital, and therefore can’t see a clear return on their investment. Or it might be that they don’t require benificiaries of their funds for digital to measure useful impacts and report them back.
Historically, our venues have been requested by funders to post annual footfall numbers, and the digital version of this has been website hits, or unique visitor numbers. However, we all know that setting foot inside a cultural venue does not necessarily mean we’ll be having a cultural activity. We might just be wanting a cuppa – or the loo, for that matter! Likewise, levels of hits or unique visitors doesn’t give us a useful insight into whether or not our customers are participating and engaging at a deeper level with culture. If you want to know what to track to guage how your customers are engaging with you through digital channels, watch this AmbITion Scotland Masterclass on Tracking Impact.
It’s a fascinating discussion. Social networks have a long history of mergers, acquisitions and closures. Bebo has gone from being the biggest (teen) social network, worth $850m in 2008 to a site which may close within weeks.
Facebook thrives on its numbers. It’s a virtual country in its own right, with its own rules and moral code. It is also soon to develop its economy when Facebook introduces a “credit” system – a virtual currency which will have an exchange rate with “real world” currencies. Facebook can make money this way because it is so popular – it makes sense to use Facebook as a commercial platform in the same way as it makes sense to use eBay.
There is a strong argument in favour of paid social networks from a privacy perspective – rather than making money from mining data and selling it to advertising, marketing and research companies as Google and Facebook do, consumers can simply pay for services directly and, as part of the deal, continue to own their data.
The portability of data remains an issue. It’s not particularly easy to export my friend list, photographs and dialogues from Facebook and, if I do, use it to populate another social network. That may change over time – standards exist – but Facebook wants to be the hub of all social interaction so is unlikely to give up its dominance easily.