Thursday, February 12, 2009

Twitter is Mainstream - Will this change the Freemium Model?

A classmate, Jim Schweitzer, posted this update to his Facebook page today "CNN likes twitter now too: i don't know if it's cool anymore."

For those that haven't heard about Twitter, it's an online "micro-blogging" service that let's people and companies communicate in short, 140 character messages.   People use it for fun to send status messages to friends ("at work but want to meet up at bar for drinks at 7pm") and various companies are starting to use it as a way to communicate with customers or about their current projects.

Twitter is a free service, with over 1,000,000 users.  To run this service, Twitter obviously has to provide massive amounts of computing services (servers, bandwidth, software programming).  So how does it stay in business if it collects no revenue?  Welcome to the "freemium" business model, where the primary goal is to create as many users of your online service as possible, and then figure out how to eventually get at least a small percentage of them to pay for an enhanced version of the service. Or maybe nobody ever pays for the service, because it's subsidized by online ads. 

I bring this up for a couple of reasons:
  1. People have become such big fans of Twitter that others are running contests to help Twitter come up with a business model.  Most of these models involve Twitter charging users for some aspect of the service.  
  2. With the economy being where it is today, people have less to spend, VCs are funding fewer opportunities, and companies that aren't cash-flow-positive aren't going to survive very long.  This means asking for money will be difficult (from customers or VCs), but it's almost mandatory to survive.  Tough spot to be.
  3. For one of my StratMktg Analysis projects, I'm going to explore the Freemium business model and how companies can evolve into hybrid-Freemium or full-paid serivces.  I suspect it's going to be interesting psychological research, since most customers prefer to see prices go down than up.  
The project isn't due until April, so I have a little bit of time, but I'm really looking forward to seeing what ideas may come out of this challenge.  It's not the same problem I recently mentioned with Facebook, but they have similar challenges.  I hope to explore both aspects.  I'll post the results when the paper is finished. 

[UPDATE:  Looks like Twitter just got a bunch more VC money, and hired their first BizDev person.]


Anonymous said...

It should be noted that I tweeted that post and it propogated to my facebook page. The integration points (such as this) deserve some discussion as to whether there's business to be done there.