Did you get Ning-ed?

By Subraya Mallya - April 2010 | Topics - Cloud Computing

In their quest for profitability, Ning recently announced that they will end the free service and become a 100% paid service. You can read the detailed announcement from the CEO Jason Rosenthal here. The writing was on the wall that big changes would be coming after Founder, CEO Gina Bianchini quit her job and Rosenthal was asked to take over.

Ning provides companies and organizations easy tools and platform to create white label social communities without having the need to understand and work on the plumbing that goes towards getting the site up and running. Armed with 100+ million dollars in venture funding and the backing of Marc Andreesen, this company made waves much before Facebook came around, only to be overshadowed since. They started with the Freemium model allowing people to setup up communities for free with an ad supported model. Organizations that wanted their own custom domain, flexibility and more capacity could then graduate to a tiered paid model.

Freemium, according to Wikipedia, is a business model that works by offering basic Web services, or a basic download-able digital product, for free, while charging a premium for advanced or special features.

The term “Freemium” was first coined by Fred Wilson on Union Square Ventures back in 2006 and the business model draws from its pre-cursor from client server world – “shareware”. There are some very successful businesses bootstrapped by the freemium model – like YouSendIt, AVG Anti-Virus, Evernote, Skype, Google Apps, Dropbox, Freshbooks to name a few.

A Freemium model is best characterized by the following strategies.

  1. Keep the free version easy, self-service based and clearly defined. Having multiple criteria to determine what is free version with kickers for overages creates hurdles for viral growth.
  2. While the free version allows you to build relationship with users, ensure it adds very little overhead to the vendor’s organization in terms of support. Keeping the cost-of-service low for free version is absolutely essential.
  3. Freemium IS your marketing. What you would otherwise be spending on marketing is being spent in the form of offering free version and should replace any needs for extensive advertisements. Provide as many avenue as possible for users to spread the word about your service.
  4. Monitor, Measure and ensure free customers are using the application frequently. The more they use it the more their dependence on the application and more the chances of their graduating to the paid service. Not to mention the increased chances that they will share it with their friends/colleagues. Conversely, having a lot of casual free users is just an overhead. You still have to manage, maintain their data for no real benefit.

So why then would Ning terminate their free version? Just when you think, with a track record of few years behind them, their marketing machinery (read mind-share) would have started bringing in new customers and the conversion rates of incumbent free customers to paid ones. Apparently not.

One could also argue that it was wrong to pull the rug from under the unsuspecting customers who signed on entirely for what was advertised as free and were happy with it. The responses to the announcement allude to the fact. One of the fundamental tenets of a premium model is to keep the free version consistently lest customers would loose belief in this model and create a lasting reminder when choosing another freemium offering. It is one thing to eliminate the free version if you are a Anti-virus or Spyware, but completely different when you have customers/companies who have built their community, mind-share not to mention all the data. Now their only choice is to pay-up or go elsewhere minus all their discussions, interactions.

That said, the company is under obligation to right by the investors and do whatever it takes to become profitable and eventually generate the returns for the investors. Also it is not a crime to ask for people to pay for service that are truly benefiting from.

In my view, the biggest problem with Ning using the freemium model was that they were trying solving too big of a problem. Add to that the fact that they allowed anyone and everyone to build networks. While it is great to just get virality but very tough to do customer segmentation. Freemium works best when the problem is simple and contained – think YouSendIt. When the success of your solution involves care-and-feeding by casual user stakeholders it is a recipe for success-by-meandering.

Here are somethings I would do if I were the person responsible for strategy.

  1. Ning is not Facebook. So now that you have realized that going after casual users who setup a network to share their photos of picnics and road trips, is not good business, focus your attention to communities in real world. Let Yahoo Groups take all that not so useful groups. There are lot of non-profits, trade associations, professional groups that do a lot of collaboration and would need communities to engage with their “customers” (customers here is used in broad sense). Sell to them to get them on-board and help them engage with all their constituents.
  2. Every company worth their salt (and understands the true meaning of marketing) is looking for ways to socially engage with their customers, partners, you name it. Target them for your white label community offering – while you continue to amass the data and create potential for aggregate mining in future. If they cannot afford to have people to manage, curate them, offer them services. VAR partnerships can be great here.
  3. Setup broader communities that you manage yourself. These could be for causes like “Breast Cancer Awareness”, “Grassroots Financial Education” and recruit experts in the field to contribute. Hold on-line webinars, broadcasts that will pull captive audiences in. This is the platform that Facebook should be and is not.

What do you think? Would love to hear.

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