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The Internet is full of people who expect that everything should be FREE. In Economics, this phenomenon is referred to as the Free Rider Problem: when people consume value without paying their fair share. Obviously, some people DO pay their fair share. This makes the 'free riders' take advantage of those who pay, making the whole equation unsustainable in the long run. Creating value is expensive. Capitalism assumes that value gets created with the understanding that those who consume that value are going to pay for it. If that assumption is violated, the system, eventually, collapses.
If you are an Internet or Mobile entrepreneur in the twenty-first century, chances are you are, somehow or the other, being affected by this challenge. The Media industry, in particular, has dug itself a gigantic hole and climbed straight into it by offering content for free. Now, the apocalypse has set in. The industry is doomed to oblivion for the most part.
The Education industry, with MOOCs, had started going down that path, but at least is pausing to think, thank heavens!
A recent Developer Economics survey offered the following observation:
A new 10,000-developer survey by Developer Economics says that 50 percent of iOS developers and 47 percent of Android developers are “below the app poverty line” and making less than $500 per app per month. That means “the majority of app businesses are not sustainable at current revenue levels,” Developer Economics says.
Why do you think this is the case?
Because, developers are confusing 'customer' and 'free user'. A free user is not a customer. Your goal is to get paying customers, not just free users.
If you have a product that customers don't want to pay for, but they want to use for free, then you don't have a business.
It's a charity.
So, please be careful about giving lots of value away for free if you want to be successful as a business.
Notes:
To build a business on advertising, it requires that you amass millions of users, which is very hard and expensive to do. If you can do it, and if there is a reasonable ad rate you can pull in, then you have a viable business. Very few businesses get to succeed with this model. Ad rates have dropped to rock bottom prices.
If you are doing Freemium, conversion rate is key. Free trial is better, usually, for monetization.
Over 99% of business who look for financing get rejected. You can't do a WhatsApp or SnapChat without VC money.
Looking For More Hands-On Advice?
I receive many emails from entrepreneurs who want to discuss their specific businesses. I’m very happy to discuss your situation during my free online 1M/1M Roundtables, held almost every Thursday. During each roundtable, up to five entrepreneurs can pitch their businesses and receive my immediate and straightforward feedback.
To give entrepreneurs all over the world access to Silicon Valley’s knowledge, methodology, and network, I founded the One Million by One Million (1M/1M) global virtual incubator. 1M/1M aims to nurture a million entrepreneurs to reach a million dollars each in annual revenue and beyond, thereby creating a trillion dollars in global GDP and ten million jobs.
For those still testing the waters of entrepreneurship, I’ve written my Entrepreneur Journeys book series to inform and inspire.
If you are interested in entrepreneurship topics and my writings, you can follow me here. I hope to publish two articles on LinkedIn every week.
Cartoon: Book by Sramana Mitra and Irina Patterson. Art by Mike Varouhas.
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