Does the name Ethan Zuckerman mean anything to you? No. Well, I can guarantee you that his creation has annoyed you. In fact, I can also guarantee that Ethan’s invention has made people lots and lots of money. What did Ethan invent twenty years ago?
Ethan invented the pop-up ad.
This single event ushered in the ad-based business model that every single free website on the plant now uses to make money. The ad-based business model has enabled sites to give away their services for free for the opportunity to annoy you with ads.
Here’s the Dilemma
Giving away something for free is a great way to get lots of potential customers. The only problem is how do you make any money at it. Lots of mobile apps and websites struggle to figure out how to capture the attention of customers and then turn that attention into revenue. The dilemma that each face is figuring out what to give away and what to charge for. There ain’t no such thing as a free lunch.
Case in Point
Pop up ads, curated ads, banner ads, content based ads or splash ads are all ways that content providers use to make money.
Ads have been around since we have been consuming media. It’s just a part of everyday life. Sometimes ads are subtle. Sometimes they are in your face but always they are trying to appeal to your lizard brain to remember the product and eventually purchase it.
Companies like Angie’s List use subscriptions so they don’t have to bore users with ads. This makes the experience more pleasant for the users yet it can limit the impact of a site or service. That’s why most SaaS companies have a hybrid or Freemium business model. The Freemium model, used by companies from spotify.com to Surveymonkey.com, give away a limited set of features for free and then offer upgrades to higher levels of functionality. It’s the ultimate try before you buy approach.
The History of the Advertising
Modern advertising dates back to the 1880’s when businesses figured out how to make standard products (soap, canned foods and cigarettes) in such mass quantities that it was essential to find customers for this new found bounty.
Advertising was not just for manufactures. Companies like Macy’s, Marshall Field’s, Sears Roebuck and Montgomery Ward started to get creative about copy and text. The famous Sears Roebuck catalog sold everything from clothes to houses to eager consumers. Why is it important to understand this? The reason has to do with getting the attention of your customers and that has a lot to do with how easy it is to get them using your stuff.
Take-a-way: Advertising/Sponsors are the only way to pay for a free service
Capturing Attention
There are a lot of apps out there that are vying for attention. Nowadays, it’s not enough to give away your product — you have to get above the noise so that people will use it. This problem is the digital equivalent of the traditional market bizarre. Imagine hawkers yelling at the top of their lungs trying to get your attention. There is so much noise that it’s challenging to sort it all out. The good hawkers have something unique about them that grabs your attention so that you purchase from them.
Even if you give your product away from free, you still have to entice customers to show up and use it. Once you have them, you still need to keep them engaged since the next big thing is bound to come along and try to steal your customers. The bigger strategy needs to be how do you capture and retain customers so that you can convert them to paying you or to convince a sponsor to pay you for your customers attention.
Take-a-way: Even if your produce is free, you still have to capture and retain peoples attention
Decisions, Decisions, Decisions
Pricing is always a continuous battle between customer acquisition/retention and company profit. There is no silver bullet solution to knowing when to charge or how much to charge. Consider some of the points below to better determine whether you should go free, paid or somewhere in between:
- Competitors Take a look at similar products to see how others position themselves.
- Feature Set: Determine the minimum features required for a useful product and what could be ad ons.
- Trails: Experiment with free trials to determine uptake and upgrade conversions
- Usage Model: Pay as you go, monthly, yearly or by download. Consider these in conjunction with features to craft more ways customers can stay engaged with your product.
Take-a-way: Factors such as competitors, feature set, trials and usage model need to be considered carefully
In the End, Someone Always Pays
It was inevitable that the pop-up ad would get invented since someone has to pay for the services, connections and content on the web. Pop Up ads are just like the Mad Men era of TV advertising which created the Soap Opera to sell soap or those late night infomercials that look strangely like a documentary.
All of these types of advertising are meant to support the content creation. Even movies get paid for product placement. The best example of this was Taco Bell sponsoring the movie Demolition Man. In the future, how could Taco Bell possibility win the restaurant wars. Ridiculous!
Take-a-way: Eventually, someone has to pay for your product or service
Ask Yourself This
- Can you give away a part of your service or product to get customers to use it?
- How does your product scale with different levels of pricing?
- What costs are associated with customer acquisition?
- What is the average worth for a customer? How does free increase/decrease those numbers?
- How long can your company sustain a free model before customers have to pay?
Dig Deeper
- The First Pop-up Ad
- Paid Apps are over
- In App upgrades are where it is at
- How Angie’s List works
- The history of Advertising
Next Up
The free vs paid dilemma goes hand in hand with our next dilemma, product vs service. Giving your product (or sample of your product) away is as old as commerce itself yet give away too much and no one may want to pay full price. Product vs service is the same kinda game insofar as how much customer interaction do you really need to keep them giving you their hard earned money. That’s up next.
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