Now we know the tech profitability formula: get a slew of free subscribers, then get a small fraction to pay. Then, if you’re really smart, get the free ones to spend money without thinking about it: sell ‘em power ups, templates, or some other tiny add-on. In stark contrast to the Dotcom ’90s when “we’ll make it up on volume” was more irony than accuracy, it’s now the reality.
Of course, this makes life that much more fun for those of us who consider ourselves quant geeks, and especially when the quant side can be combined with Marketing. Oddly, not only do stats become more central, but so does sophisticated messaging: if you’re going to try and get consumers to slide into spending, you can’t take them on headfirst. Rather, you have to create a narrative that they slipstream into.
Consider Zynga’s Facebook games - they don’t dive into getting you to pay. Rather, they get you into the game, and dangle the opportunity to proceed more quickly by buying a little something here, a little something there.
In fact, I was talking to the CTO of a large social network a couple weeks ago that has never actually taken money from their users - but who is now working on how to do so. The challenge is to drive a revenue stream without busting their long-term narrative: users have an expectation of their relationship with the service, so while they’re likely going to be fine paying for premium services, this has to be a subtle addition to the offering.
And ultimately, this is the Marketing innovation that’s going to be required the next couple of years: building a narrative that attracts a bumper crop of free users, while leaving the door open to collecting a road toll of some sort later in the journey. You can’t spend the first two years yelling nothing but “use this, it’s totally free!” then turn round and shut everyone out unless they pony up (ask the myriad online news sites who worked this out the hard way). At the same time, you can’t open up yelling “it’s free now, but watch out, we’ll be charging you any time now” if you want to gather the optimum audience.
Craigslist actually did this really well - the core audience of traffic never pays anything, and most of us don’t think about what it costs to post a job (until we have to pay for it!). By segmenting the users into those whose traffic is valuable even when unpaid, and those who place an economic value on access to that traffic, Craigslist kept their narrative consistent. [Their ‘CENSORED’ approach to closing the adult services section speaks as much to maintaining the narrative and relationship with their users as it does to anything else.]
Facebook are also doing a nice job with their Facebook Credits - rather than charging directly, they provide a ‘virtual economy’ that users tend to buy into through 3rd parties providing apps, rather than being sold by Facebook - of all the controversies Zuckerberg et al have created, Facebook Credits seemed to create the least stir.
So if you don’t have a handle on your tech business’ narrative, now is the time to start. If you want to make a shift, you need the right angle, and to build the story to the right place. As much as we want to move at lightspeed, sometimes the best things take a little time…about which more later.