In a blog post today, legendary Internet Billionaire, Mark Cuban says businesses that are “free” are doomed to failure.
“Lets look at the rule that eventually KILLS all freemium based content plays:
There will always be a company that replaces you. At some point your BlackSwan competitor will appear and they will kick your ass. Their product will be better or more interesting or just better marketed than yours, and it also will be free. They will be Facebook to your Myspace, or Myspace to your Friendster or Google to your Yahoo. “”
Cuban’s blog post then goes on to say Google is doomed as well.
“””Google is not unique. The same happens to all companies based on free.””
“”The same will happen to Facebook, Twitter, pick any company who lives off of free.”””
“”When you succeed with Free, you are going to die by Free. Your best bet is to recognize where you are in your company’s lifecycle and maximize your profits rather than try to extend your stay at the top.””
All and all an interest post with plenty of comments already posted.
My personal take is Mr. Cuban is wrong.
You can have a very successful business built around “Free”.
FreeCreditReport.com has done just fine over the years, and by the time Google is replaced by some new search company, plenty of millionaires will have been made by founders, workers and shareholders.
Moreover, the flip side is that just because you charge for your product you can go out of business just as easy.
Bear Sterns, Lehman Brothers and GM, just to made a few companies, did nothing for free. How did it work out for them?
Making blanket statements usually gets you in trouble.
Google makes a Ton of money not charging users.
Yes the bottom line is making money and sometimes “Free” can make you a lot of money.
Check out the full post by clicking here.
FreeCreditReport.com is most certainly not free. Their gimmick is that they are “free”, which they are not. The name of the website and their advertising is misleading consumers.
annualcreditreport.com is free.
I agree that Mr. Cuban is wrong.
Just because “Free” is in the domain name (FreeCreditReport.com) does not mean the business is based around “free”. They sell credit reports, they just give you a little taste that is free.
I also disagree with Mr. Cuban’s viewpoint. It seems to me that Mr. Cuban’s points did not specifically apply to “free” services, but simply business in general.
“Their product will be better or more interesting or just better marketed than yours”
That is the story of business, not simply free business, but all business.
You can give away plenty of free things as long as you are generating revenue. Once another company comes along that is better at generating revenue, and keeping it, then you will have begun your decent…
Facebook is not a “free” business model, it is a business that “sells” advertising, but uses a “free” service to get the eyeballs to put the ads in front of. This is also the way that free TV works.
(it is too late at night to take any longer on this… I’m going to bed=)
FreeCreditReport.com is nothing close to a free product Cuban refers to. Do a quick search and you will see just how many people they bill month after month.
Cuban is talking about freemium based content plays and not FreeCreditReport marketing models. Freecreditreport is simply a marketing concept offering a free trial, a perception of free thats not really free. Youtube, myspace, facebook.. are free content sites supported by ads and thats what his point is.
I understand that & he is still wrong
“Your best bet is to recognize where you are in your company’s lifecycle and maximize your profits rather than try to extend your stay at the top.”
Cuban undoubtedly is recalling his sale of broadcast.com to Yahoo for $1B. Talk about timing the company lifecycle….As Frank would say, what a bag of smoke Yahoo shareholders had to inhale. Speaking of broadcast, broadcast television is as free as Google, does not seem like that model was bad.
Basic TV, AM/FM radio…
Well Google is not Free they make a lot of money in a lot of areas to call Google free is naive IMO to search is free but they want that so you click on sponsored links that are not free, Now Twitter needs to find a way to make money or they will have problems IMO.
IMO Michael you cannot say he is wrong in a blanket statement either, a lot of free cool sites have gone away and users get pissed each time.
BrightCove ran a free version then did away with that, pissed a lot of people off. Homestead which is still doing well and sold out to a bigger company took a lot of flack for doing away with free. You see a lot of web 2.0 companies who are still around did away with the free component VideoEGG for one.
I think you need to have some plan toward getting $$$. Facebook has two large groups that are about “We will never pay” If I am Facebook with 200 million members I would rather have 50 million paying $4.99 a month and screw the other 150 million, bottom line if the site is such a big part of their life a good percentage will eventually pay the $4.99 rather than become a social outcast or affect their business. Again IMO
Dot
A lot of free sites have gone away and plenty of companies that charged for their products have gone away as well.
That is way blanket statements don’t work for business.
I agree with that, I think he is focused on Social Media don’t you ? Maybe he is looking at investing and trying to bring the valuation down, never know with Cuban a lot of disinformation in what he blogs a lot of the time.
“FreeCreditReport.com has done just fine over the years…”
… by not being “free” at all!
Those “credit watcher” charges add up… they make a mint off those monthly billings and you must sign up for that to get your report. Sure, you can cancel it before the first billing cycle but it is amazing how high the percentage is of folks that don’t.
Google doesn’t really belong on the “freemium” list, it has done quite well charging advertisers. And, unlike the social networking sites mentioned – people click those ads. If they didn’t, most of us would be in another line of work…. however much Google has
degraded our payments.
But as to the basic premise – the social networking “freemium” (I love that word.. haha) sites like MyFace, Twaddle, Mugbook… what Cuban’s saying really does ring true. Ad revenue sucks big time in comparison to their user base because none of the users are there for any other reason than their own – to use the “free” service.
Facebook will fall out of fashion soon enough, that cycle has been demonstrated many times.
Some newer, more feature rich, hipper, slicker, cooler platform will come out and folks will then flock to that.
Problem is… it will need to be free also in order to get the user base… and around the wheel the hamsters go again…
i wish more sites would offer free trial option slamming it into a recurring + cross sells. freeCreditreport.com is the second most successful free site after AOL.com software. Like i said earlier we’re off topic here and this has nothing to do with Cuban.
FX
Adult sites have been doing this for 10 years or more.
Adult always leads the way on the net.
I think SOME of you are missing the point of what Mark Cuban means. I have often wondered how Twitter stays in business. Give it time it will be operating just like a Google.
Very good article.
I also added your site in my rss reader great post.