B2B Tips: Go Freemium to Monetize B2C Startups
In a recent article we discussed the possibility that venture capitalists will no longer invest in ad-driven startups. Today we’ll try to outline a few monetization models for B2C companies that want to build a strong monetization plan to attract and motivate VC investors.
Most web startups are built on a business-to-consumer model: web companies focus on the end users to build traction; providing a direct product or service to a consumer. Business-to-business companies on the other hand are companies that trade with other companies rather than consumers; and the reason why I am defining this from the start is that sometimes, Web-based B2C companies need to implement some B2B techniques to survive, as you will see below.
Freemium B2C Models
The main costs for web-based B2C companies come from development and marketing/ advertising. These costs add to other costs like payroll, data servers, customer care, and etc. Since the customers are at the center of the B2C business model, it is vital for any Web-based startup to gain enough customers that spend enough money to cover all expenses mentioned above. Most of the Web-based startups however focus on a free model: Twitter, FriendFeed, Secondbrain, Kidoz, and etc. Other B2C models adopt a freemium model, where they give a basic version of the product to the users, and charge for added functionality: Flickr, Skype, Webnotes, SM2, etc.
Some B2C companies that start out as “free” turn to freemium sooner or later – this is one probable option for Twitter to monetize in the future, however unconfirmed. This is an ideal way to monetize, however the model might not work for every B2C Web-startup. To become successful, the free part of the freemium model has to be compelling enough to make the users to “want more”, and to become premium users. At the same time, the price for the premium accounts has to make sense, and the added features and functionality need to convince even the pickiest users.
Freemium and Other B2C Monetization Models Combined
- An example of a good freemium model is Flickr. The free part of a Flickr account is enough for most of the users, but for professional photographers who want an affordable “server” to host and showcase their work, Flickr’s premium account offers great features for a symbolic price.
- Flickr uses an ad-based model to monetize free accounts, while premium users enjoy ad-free browsing and sharing. A pro account is only $24.95 for one year – the question is how much revenue does Flickr make per unique visitor? It’s hard to believe that the monthly overall revenue from ads per non-premium user is $2.07 (the price for a pro account). This is especially interesting considering Flickr’s usage/ visitors volume, and the fact that the ads usage on Flick is minimal, and that ads are only visible to logged-in non-premium Flickr users and not to the casual Web-searcher.
- The third revenue model is through third-party affiliate deals: Flickr offers some e-commerce services through various partners: photocards, posters, frames and calendars.
In 2008 USA Today celebrated Flickr’s growth and success with a raving review, that also informed us that as to March 2008 Flickr had more than 44 million members (more recent reports, by Compete, list only 26 million users). However, Yahoo! never disclosed how many of these were premium members.
The numbers are high enough to lead to the conclusion that all the monetization models Flickr combines probably work; as to how effective, you might want to read Mark Evans’s analysis, dated May 8, 2008.
The Freemium Advantage
The main and obvious advantage of the freemium model is that it provides a cost effective PR and brand awareness venue. Compelling, free services spread in record time and become popular over night through word-of-mouth via blogs and other social networking channels – see Twitter, FriendFeed and others.
The Ad-based Model Disadvantage
Using only an ad-based model is increasingly – not always a safe bet – and it actually converts a B2C business into a B2B business – because when a B2C startup depends on other companies (advertisers) to monetize, then the clients are no longer the visitors of the site, but the advertisers, who actually pay for the inventory (read Andrew Chen’s Your ad-supported Web 2.0 site is actually a B2B enterprise in disguise for more on this topic).
Suddenly, the website visitors are just casual by-passers who become statistics in an analytics report presented to potential advertisers. These will, or will not buy ad space on a site, depending on the numbers they get, niche, and etc. While creating the visitor numbers is a relatively easy task (social media traffic, proper SEO, etc); actually converting page views into clicks is a challenge. Many advertisers might get blinded by analytics numbers, but when they see that the numbers don’t pay off (no return of investment) they’ll soon withdraw their subscriptions.
Monetizing the actual users of a site through a freemium model is a more sensible thing to do for B2C businesses. We will discuss other monetization models in future articles, but two things should be clear for the reader after reading this information. First, B2C businesses can learn a lot from B2C models, especially given the declining effectiveness of conventional advertising. Secondly, much more inventive and flexible monetization models will be necessary in the near future (if not already) for anyone considering a development of any kind.
About the Author
Mihaela Lica is senior partner at Pamil Visions PR and editor at Everything PR. She is a widely cited authority on search engine optimization and public relations issues (BBC News, Force for Good, Reuters, Al Jazeera and others), with an experience of over 8 years in online PR. Mihaela writes occasionally for SitePoint, Search Engine Journal, and other online publications. Follow Mig on Twitter or send her an email at mig [at] pamil-visions [dot] com.
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Maybe if Aristotle is still existing...he will scold and tell to Hawking that his concept is totally illogical!
“Because there is ...
Ms. Lica,
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I read a news God was not the Creator: Hawking published in The Times of India/ Ishwar nei nahin banayee ...
Wow you people are silly, Just because you don't understand advanced science (not saying that i do, i just dont ...
My vote's on Hawking. 
Comment by Dragan Mestrovic on 1 July 2009:
Freemium is a good strategy to get your foot in the door and position your service in front of your clients.
Free, always attracts more users.