Worry about Free Web Applications

by Krishna on February 7, 2007

This blog is hosted on Blogger. It is a great platform and I love many of its features. It is also free, as in “totally free”. No monthly fees. No advertisements. Nothing.

That scares me.

Sooner or later, someone at Google is going to point out the tremendous expense that Blogger is incurring with its infrastructure without producing any tangible revenue. Maybe it is a loss leader for Google’s other features like AdSense, but how many bloggers are using AdSense? Many people I know blog because of interest or for fun, not for money. What happens if a blogger gains a large audience in the thousands, but does not want to monetize it?

What happens then? Will Blogger automatically start showing AdWords in the screen? Will they start charging for the account based on data transfer?

I don’t want to single out Blogger or Google. As I said, I use Blogger because I love it. But I don’t know what will happen when they finally decide to cash in on the community of people who are using Blogger. The uncertainty is very worrying. I can imagine many reasons why they would not want to say when it will stop being free, but that does not lessen the confusion.

Every free application on the Internet will face this problem. An application may be offered for free to attract a lot of new users. It could also be used to attract an audience to another application sold by the company. Regardless of the reason, the application is losing money. All the time, the company incurs costs of development and infrastructure.

As the application becomes more popular, these costs go up tremendously. For example, scaling the application may need a lot of time from specialized development and administration teams, not to mention expensive hardware and networking equipment. Once the application crosses a certain threshold of popularity, the floodgates can potentially open to thousands or tens of thousands of users. Since the application is free, there is hardly any barrier for a new person to start using the application.

Somebody has to pay these costs. When the application is free, that “somebody” can be the VC or other private and public investors. They may keep eating the cost until they can sell the company to somebody bigger like Yahoo! or Microsoft. But this is just shifting the burden: Now the bigger company starts emptying its pockets. Eventually, the pyramid scheme has to break – somebody has to stay “stop” because the application is just hemorrhaging bucketloads of money without bringing in anything.

There are many ways of bringing revenue such as paid user accounts or serving up ads. For blog hosting software, I am in favor of paying money, because I think having paid advertisements on the site can sometimes conflict with the content on some blogs. Also with advertising systems like AdWords and Panama, the blog author has no control over what advertisements are displayed. Sometimes, there may appear advertisements of companies that the blogger disapproves of or disagrees with.

In an application like Yahoo! Mail where the content is private, advertisements are not a huge problem as I can easily ignore them. But on a blog, the site author doesn’t even get to know the ads that site visitors see. However, many bloggers may have the opposite opinion – they may very well prefer AdWords or even join AdSense instead of having to pay money for an account.

In a capitalistic society, one should do exactly that. If you have an audience benefiting from your blog’s content, it makes sense to use an ad (pun intended) system to gain some reward for the efforts you are putting in. After all, that is what this whole post is about, isn’t it? I would suggest that someone should do a study about people’s preferences if they haven’t already. I remember Yahoo! asking me long time back about how much I would pay to use one of their applications.

With a cash-rich company like Google, it will be some time before they wake up to all the money-losing applications they have. On the other hand, Yahoo! is always all about getting hold of your wallet or advertiser’s dollars from Day One of the application. Beware of the other free applications out there who have no clear strategy on how they are going to pay their expenses. And if you are developing a web-based application and plan to give free access, start thinking today of how you will be making money to pay for the product.

A final link on the topic: Google to charge businesses for Google Apps: Seems that they are slowly embracing reality.

{ 2 comments }

Anthony Feint February 8, 2007 at 5:10 pm

Maybe Blogger will just introduce a “premium” account feature. I doubt they will ever charge all users. They might also consider putting adsense ads on all sites or as part of the feed

MV February 11, 2007 at 9:11 am

Google is definitely doing a commendable srevice by providing free publishing platform at Blogger. I too have often wondered how they are able to maintain this. It will be a good idea for Google to put Adsense ads on all Blogger powered blogs as part of their policy.

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