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February 17, 2009

Internet Services Worth Paying For

Can you charge for your new Internet service? You're always up against the expectation that Internet services are free. Moreover, you won't grow as fast if you charge as you will if you give something away. On the other hand, a service has to be very large and have lots and lots of hits (or be dominant in certain niches) before advertising'll pay the freight. Capital is currently at least tough to get and much, much harder without a revenue plan (but not impossible, see twitter).

If you're going to be able to charge for your service, you have to make the case that your service is worth paying for.

An easy case is online backup. I happily pay Mozy for this service because I wouldn't want my backup vendor to be monetizing our relationship in any other way than payment from me. If Google offered me free backup, I'd respectfully decline; I don't want the contents of my hard disk to be part of anyone's index. Generalizing, you can charge for a service if there's a very high expectation for privacy. I pay for Paytrust, an online bill management service, for the same reason. (However, I wouldn't recommend them because it seems like owner Intuit is letting them languish and service is deteriorating).

Although it seems counterintuitive, some directories are worth paying to get into even if you're not selling anything. In the old world, you have to pay to stay OUT of 411 and the white pages because your landline provider is making money by selling your access information. I'd pay to be in a directory if I can have control over who has access to my information. The SIP directory maintained by FreeWorldDialup (in which I'm an investor) requires paid registration for maintaining a listing after a 30 day grace period. This was a tough transition for FWD which was launched in the days when everything was free and only eyeballs mattered.

Some services can charge simply because they're demonstrably better than their free competitors. TypePad, on which this blog is hosted, is an example; it charges a minimum of $4.95/month to host a blog. Competitor blogger, owner by Google, is free. But TypePad hosted blogs look more professional (IMHO) so bloggers pay to be hosted here – those to whom it's worth paying for the difference. Six Apart, the company which owns TypePad, has apparently decided it's better to have fewer blogs and get paid for all of them. That's probably why they're still in business and still independent.

FeedBlitz (in which I'm also an investor) used to offer a free service (as well as a paid upgrade) for sending blog posts or other RSS feeds to email, IM, and twitter. As of the beginning of this year, the minimum monthly fee charged to new publishers using the service is $1.49 after an initial free month. The service is still free to those who subscribe to publications. Founder Phil Hollows explains the change:

"FeedBlitz has grown from serving zero to nearly 7 million active subscriptions. From zero to nearly 73,000 publishers. From zero to over 216,000 lists. FeedBlitz has grown into the leading independent automated email marketing service, routinely and reliably delivering over 60 million automated messages a month directly to subscriber inboxes…

"FeedBlitz needs, then, to keep up and ahead - indeed, you expect us to keep up and ahead - as we scale up to handle hundreds of thousands of publishers, to continue to add features and capabilities, and to be there for you in the future. To fulfill your expectations, FeedBlitz needs to generate commensurate revenues to fund both current services and future plans.

"The FeedBlitz business model has ensured our survival and funded our growth so far. Still, to build for the future, starting on January 1st, 2009, we're updating it.."

FeedBlitz competitors have sprung up from time to time. They usually fold. There is a free much less rich service available from FeedBurner, now owned by Google (and currently somewhat neglected by them). FeedBlitz' future, much like that of TypePad, is to serve those publishers who need a service worth paying for. The publisher count'll grow slower than it did when FeedBlitz was free; but new volumes'll bring new revenue. Important to its publisher-customers, FeedBlitz isn't at the mercy of a new round of funding to keep adding both capabilities and capacity.

So can you charge for your new Internet service? Well, it has to be a service demonstrably worth paying for. And you still can't create a twitter-like hit based on a paid model. If you have a free competitor, than you have to be much, much better and you have to explain why you're better. Services sold to support other services and content – as TypePad and FeedBlitz are – have an easier time selling a paid model; but services sold to individuals can succeed on a paid model as well.

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