“Fragility of Free”

March 15th, 2011

Ben Brooks:

The fragility of free is a catchy term that describes what happens when the free money runs out. Or — perhaps more accurately — when the investors/founders/venture capitalists run out of cash, or patience, or both. Because at some point Twitter and all other companies have to make the move from ‘charity’ to ‘business’ — or, put another way, they have to make the move from spending tons of money to making slightly more money than they spend.

Exactly right. Ben argues that rather than go the free route, build a user-base and “figure out how to make money later,” companies should just charge from the beginning. This makes sense for a number of, if not most, services—it makes the service stable for users and the company, and that’s good for everyone.

Ben applies this to Twitter, saying the recent quickbar controversy in their Twitter for iPhone app is due to their lack of a business model, and that rather than deal with the quickbar or a timeline full of advertisements, he would rather just pay for the service.

He certainly diagnoses the problem correctly—Twitter never knew how they were going to make money (that is, be a business), and now they are offending users by doing a number of unsavory things. The solution for Twitter, though, wouldn’t be to charge for the service from the beginning—Twitter never would have taken off if they did. You could argue that there isn’t anything wrong with that, because the people worth following would pay and it’d eliminate spammers and people on the border of it, but that would be a very different service than what we’re using now and love to use. We wouldn’t be using Twitter as a means of coordinating events or meetups; we wouldn’t be hearing details about news events moments after they happen, things the regular media has no way of reporting on until days after the event; and, to the extent Facebook and Twitter have been used to organize protests against the Iranian government and the Mubarak regime, Twitter would have no role in that whatever.

Twitter’s value lies in it being a communication utility, where anyone and everyone can quickly communicate information. That’s incredibly powerful, and it simply couldn’t exist if it wasn’t a free service. This doesn’t mean the strategy Twitter pursued is correct; rather, it means their error was in being so cavalier about a business model. They assumed if they reached a critical mass of users, turning it into a profitable business would be easy—and they’ve discovered that isn’t really true. It takes just as much thinking as building the actual product does.

They need to get creative, and an overlay of trends and advertisements in a first-party Twitter client isn’t it. Foursquare, a dramatically less useful service compared to Twitter, is taking their business model very seriously. It’s integrated into the service’s very concept. Allowing businesses to provide deals for users who check-in is the first step, but imagine the potential.

What if Foursquare allows you to save restaurants you want to try into your Foursquare account, and then when you check-in there, Foursquare serves as an intermediary so the restaurant can pay the source that you heard about it from? E.g., let’s say you read about a restaurant in the New York Times, and add that restaurant to your Foursquare account using a Foursquare button on the page (or whatever other better way they can come up with). Then, when you check-in at the restaurant, they pay the New York Times through Foursquare.

There’s a lot of potential there, and Twitter needs to get creative in the same way. Move away from advertisements, and move toward making money by being useful to your users. Rather than work against what made your service successful—third-party developers, enthusiastic users—work with them. There’s ways to do it, and Twitter’s sin was not taking their business model seriously.