Went to my first Heavy Chef Session in the 24.com offices in De Waterkant last night with the speakers being Dave Duarte, Jon Cherry & Simon Leps!
I started writing this blog because I wanted to write about 3 very distinct topics that came up, but it soon became apparent that writing about one was becoming very long and if I type anymore, no-one will read it, as its simply to long, and in attention economics I want to hold your attention not irritate or bore you with a mini novel, so here’s Part I..
Simon Leps (who is CEO of Fontera International) said that when he went to venture capitalists in Silicon Valley to try get capital for a business opportunity he saw, the first thing he said was that you charge the user a fee for using his particular service. The response from all three top venture capital firms was that the service has to be absolutely free! This started a little debate..
I think its an interesting argument for many reasons, most people are dead set on thinking its the worst idea ever, whilst some see value in it. The value I think that it has is that obviously a service that is free is going to see exponential growth, and can take a large portion of market share much more quickly than a business that charges a fee will be able to do so. This is reflected in companies like Facebook & Twitter, where they aren’t actually even making money maybe even losing – not being able to cover their own running costs, but because they are free to the end-user they attracted millions of people who all use their services.
Someone brought up, “so if this is all free what is the business model behind it”? Is there even a model behind it? Here’s what I speculate it is, you have a product or idea that you think is amazing and the whole world needs/wants to have, or maybe they don’t even know it yet but you think that you can convert some people to the idea and they’ll spread it for you. You then get some crazy people with very deep pockets (who like to gamble, the greater the risk the more appealing) to pump millions into it. Whilst letting the end-user use the service for free, costing the company more and more every month to maintain and run, but oh wow your company grows. Its amazing. Everyone loves you. You have 300 million unique visitors a month. Google is interested. Microsoft thinks you rock. Your accounting books show loses of $50 million, but think about all your intangible assets, you have 300 million people who look, stare all day at your site, people are talking about everything you do, speculating what you’ll do next. Google estimates your company is worth $2 trillion, you’ve broken a record, you’ve become the fastest growing website ever -don’t worry the next big thing will be bigger, and its coming soon, so you better sell out. You get this ginormous cheque, happily retire after buying a super yacht bigger than Paul Allen’s or Larry Ellison’s because you’re king and you know it. You just earned the biggest pay day ever and have sold off a company with a book value of not even 0, its in the negatives. Then you sail your yacht around the world laughing and watching as Rupert Murdoch struggles to do anything with what he has just spent a small fortune on. *This is not for the faint hearted, do not try at home, well unless you have a really cool garage set up that you can talk about when you become more famous than Steve Jobs..
In all seriousness though, to me that is exactly what it feels like they are doing, there is absolutely no visible business plan to monetize the project, its a huge gamble and yes for a few people just like with hedge funds, they’ll become extraordinarily wealthy, but as someone else brought up, isn’t that why we are in the financial crisis we are in, in the first place? People are buying and selling things with money that doesn’t really exist or pumping it into projects where there are no tangible assets to sell off, there is no real book value. To me its all so speculative. Its gambling in Vegas after taking a tab (or two) of acid!
I do also however see value in having 300 million unique visitors a month, there is no real way to calculate how much this is worth, but if you are reaching that many people and are integrated into their everyday, such that they check up on you multiple times a day. This influence has to be worth something, whether it be to the people who log on, the people who run it or advertisers and once you have a quality product or service monetizing it me, seems like common sense and would be the easiest thing to do. You have more people who listen to you then all the people who watch television, read the newspaper and magazines and listen to radio than in Talyaville and they are all making a profit so why shouldn’t you be allowed to?
I have also recently been feeling like everyone is wanting and almost expecting everything for free because that is what people are getting used to, but someone has to pay for the party and in general its lands up being the large corporates advertising budget. In a recession when budgets abroad, I agree are going to be slashed, (unless you can prove your ROI and this I can see is only going to be possible in ”new medias” ..but that’s part II..) who exactly is going to pay for our free stuff?
I liked what Simon came up with, that you could have the vanilla for free, but if you want the sprinkles and topping you are going to have to pay for it. That I think that is what is going to be the most effective route, you give people the plain and simple, get them addicted, get them wanting more, and if they really want it that much (and remember they have practically stopped paying for anything) they will be willing to pay for the bells and the whistles, if you are offering something that adds value to what you are already giving them!
Please Discuss 
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? and that certainly doesn’t make me what to go out and buy the product. 
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