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Web 2.0 Expo Berlin 2008 - Limiits to FreeConomics

Presentation for Berlin Web Expo conference

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Web 2.0 Expo Berlin 2008 - Limiits to FreeConomics

  1. The Limits to FreeConomics Alan Patrick Web 2.0 Expo Berlin
  2. Today Discussion <ul><li>Reducing costs on the web 2.0 value chain, and the rise of FreeConomics </li></ul><ul><li>Limits to FreeConomics </li></ul><ul><li>Post Crunch Business Models </li></ul>
  3. Today What is true – Metcalfe’s / Reed’s Law Aggregation Distribution Creation Customer Environment Archive Material Data Availability Bandwidth People
  4. Today What is true – Moore’s Law / Learning Curves Aggregation Distribution Creation Customer Environment Creation Costs Archive Material Data Availability Bandwidth People Search & Aggregation Cost Hosting & Distribution Cost Equipment Costs
  5. Today What is not true: Lower cost = Free ! Volume of Business P f C f Time <ul><li>At First…… </li></ul><ul><li>Cost of Start 10x Lower </li></ul><ul><li>Transaction Costs are non-zero </li></ul><ul><li>- Losses are affordable via capital funding </li></ul>
  6. Today Free fails due to transaction costs Volume of Business P f Time - Every new node has transaction costs, and they also follow Metcalfe’s law - Transaction Cost losses are eventually unaffordable via capital funding - Requires income..…usually fast FAIL!
  7. Today The Hope…… Seedcamp 2008 Business Models via (Courtesy Guardian)
  8. Today The Reality.… Total Online Ad Spend 2009 $50bn Google 27% Next 3 30% Next 20 ~ 25% Long Tail <ul><li>Post It Note Analysis: </li></ul><ul><li>If everyone wants to be a $100m company… </li></ul><ul><li>… .and there is about $ 10bn tops to share easily…. </li></ul><ul><li>… it means, on average, there is enough for c 100 companies… </li></ul><ul><ul><ul><ul><li>..Globally ! </li></ul></ul></ul></ul><ul><li>Chances are, it won’t be you </li></ul>eMarketer, Jefferies & Co, Broadsight Analysis 2009 2008
  9. Today Paddle, sir ? Credit: Funnypix
  10. Today The game theory of “Free” Price Demand P £ D £
  11. Today The game theory of “Free” Zero Price Infinite Demand P £ P f D £ D f
  12. Today But if everyone else dives to the bottom too ? Thanks to
  13. Today The liferaft game Price Demand P £ P f D £ D f Your Increased Share Everyone else’s little increased shares
  14. Today Spending a fortune for users who pay nothing Zero Price Finite Demand P £ P f D £ D f Your spend to keep Your Share Everyone else’s spend to keep Their Shares
  15. Today Deja View
  16. Today The 4 FreeConomic Myths Aggregation Distribution Creation Customer Environment UnmeteredHosting & Distribution Open, Free Services SustainableFree content Others will give you stuff for free - forever
  17. Aggregator Today A bit of theory – standard supply chain Buyer Goods Pay Creation Goods Pay
  18. Aggregator Today A two sided market Buyer Goods Pay Supplier Goods Pay Pay
  19. Aggregator Today Free Content Forever – a UGC market End User Goods Content Creator Goods Fund No Pay
  20. Today “ Digital Sharecropping” ?
  21. Aggregator Today A multi sided market Buyer Goods Supplier Goods Fund Advertise Pay No Pay
  22. Today An example Video Video Pay Ads Create
  23. Today An example - Act 2 Video Video Pay 4 % Sue Sue Goods
  24. Aggregator Today “ Offset” Economics User Goods Supplier Goods Fund? ? Pay No Pay
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  26. Today What is your Net Present Value? Cumulative Income Money Time NPV of Cumulative Income
  27. Data may be free, but its everywhere in chains
  28. Today Those who pay the pipers choose the tune
  29. Today Bandwidth too cheap to meter? Volumes Payment £ >> 0 Capacity 1 D £ D free Time Demand Capacity 2
  30. Today Or The End for Aggregators on a Cheap Ride? All utilities become metered at some point, typically when capital replacement costs become an issue
  31. Today The User Shall Not Pay ? Cost of Media Production favours Cr*p in Free market Poor Quality drives out Good Quality from Market Quality customers - then advertisers - exit market 500 Channelz… … .an nuffinz on Cr*p Quality
  32. Today Gamechange ?
  33. Today Companies under risk (1) – acquisition costs Many Players, Sticky Unique, Sticky Many Players, Not Compelling Unique, Not Compelling Churn / Lifecycle of customers Competition for customers Marketing Cost Community Care costs
  34. Today Companies under risk (2) – distribution costs Video, 1 to 1 Text, 1 to 1 Video, Social Net Text, Social Net Complexity Bandwidth & Hosting Transport Costs Community Care costs
  35. Today Companies under risk (3) – no added value Entertain Dead Sheep Inform Enterprise Productivity Quality Quality Costs Reliability Costs
  36. Today FTW?
  37. Today Safe Harbour
  38. Today “ Near Freeconomic” models (1) Razr & Blade
  39. Today “ Near Freeconomic” models (2) - Freemium
  40. Today Pay per Poke
  41. Today Make it easy to advertise…. ABC Today Don’t Worry, Be Happy TV Lessons Predictability CPM / CPC Quality Content Good Metrics
  42. Today … .pay to have Ads removed ? A recent IBM study found that the TiVo generation is officially online, with 11% of respondents happy to pay ' a little' to remove all advertising from videos. Consider the numbers: Google-owned YouTube pulls in something like 50m unique users a month; let's assume it can charge 'a little', a couple of dollars a month maybe - let's round it up to $24.99 a year for a 'premium user' service. Now let's assume that 11% of users sign up. That's a revenue stream worth $137m annually... Source: eMarketer (
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