No such thing as a free lunch..

Posted: April 4, 2008 in business, free, vc

I came across a very interesting and “on the money” blogpost today.
Hank Williams (no not that one!) writes about the culture of free, the addiction of scale and the lack of sustainability in a lot of “web 2.0” ventures.
There are a plethora of “companies” out there that really offer no more than a nice gimmicky idea or a handy service. Their product/service/idea/whatever in itself is not something that a sustainable business can be build on. the only way they can attract users is by offering it for free.
That way they chase users which calculates into hits to their site which in turn makes their site interesting real estates for advertisers.
So basically their whole business model is built around nothing more than a virtual billboard offering advertising spaces. They use their product/service/idea/whatever solely to attract viewers to these billboards.
According to Hank it is all VC driven. VC’s will give certain start-ups funding but expect them to grow rapidly so that the VC can make a quick exit and keep their primary investors happy.
This does lead to a business model that is not sustainable in the long run. If you attract users/viewers to your site by offering a service/product for free they won’t keep coming for ever. After a while they will move on tho whatever is the next big (free) thing and your exposure rate will drop and your advertisers will run with them. leaving you with a product that you have been offering for free and now have to start charging for in order to survive.
Now I am not saying that this will never work but it this model can be seen more and more. A lot of current web based business seems to display lots of bling but no business sense…

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