Feb
21

The Business Model of Free

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Last week I interviewed two companies for an article I did for WebHostMagazine.com. You can check it out at Ecwid and Yola Partnership Democratizes Professional E-Commerce Site Creation. No really go ahead and read it, I am not going anywhere.

Anyway, not that you are back or faking that you went ahead and read it, there was something that both Ecwid and Yola said that has been sitting in my mind since the interview.  I am getting a little bit ahead of myself though. First, intros. Best way to describe Ecwid is shopping cart as an app. Fully integrateable into any site, to include Facebook pages, Ecwid is 100% AJAX, it hauls, and is super easy to use. Yola is a web host that focuses on being able to create an advanced website without the need of technical skills. Okay, so if you didn’t read the article you are now up to speed.

When asked about how Ecwid could afford a free version, CEO Ruslan Fazlyev said, “you cannot afford not to have a free version.” Yola echoed these statements when they discussed their free solution. The free version gives them a foot in the door to compete against larger companies such as GoDaddy and they are confident that once someone uses their solution that they will be so pleased with it they will stick around and “move up the chain.”

Everybody Wants to be, Closer to…

Free seems to be one of the most popular business models on the Internet. When we look at what people use, what downloads are popular, what sites get the most traffic, or any other metric that shows performance of some kind we will see free models come out on top.

For many service industries the differences between providers is not what they look like on paper but how they are experienced. Unfortunately, the large companies will net more users regardless of experience merely because they are known. Therefore a smaller company must use some sort of tool to ensure the audience experiences the service they provide. If the smaller company has done their job of selling that experience (high quality, targets the actual problem of the user, etc), then they keep the customer. If they don’t the customer moves on. This is especially true the lower the cost of the service is. If you only invested a few bucks, then its not too difficult to leave a company. If you invested several thousand you might pass up companies who may or may not provide what you need.

Free is as low an investment as you can go and provides ample reason to leave if the service even seems remotely subpar.

Not Everyone Can be Free

For many companies free ends up being a liability. A few months ago, I read an article on Groupon and how a few businesses were moaning that they placed coupons there for free what have you, and the customers came in and only wanted the free item and nothing else. These businesses lost hundreds and thousands in some cases. Why you may ask, well mainly because they didn’t change their business model to accommodate the two problems of the free business model.

There are two problems with the free business model when applied for the first time to a company. The first one is a problem of moving free customers to paying customers. The second is an extension of the first, how can we make the free option look better than a lot of the competition’s paid for solutions, but not as good as our own paid for solutions.

Bottom line

Do I agree with Yola and Ecwid? Sadly yes. By sadly I mean that I wish it wasn’t necessary. However, I think for many Internet businesses offering a free solution is a necessity. Free solutions commoditize industries and I think place the focus on the wrong subject. Instead of looking for quality or for a solution that truly fits a lot of customers instead go for what’s cheap and if it doesn’t work move on. Free helps to push this sort of behavior and unfortunate small and midsized businesses pay the costs. These businesses generally cannot benefit from economies of scale and unfortunately have to either find a parent company, fold, or offer a low cost/free solution AND make it better than the larger companies. Some businesses do this well like Ecwid and Yola, both offer a great product. Others however fail more rapidly once a free offering is introduced.

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Closed captioning is often used by the deaf, hard of hearing, or people like myself (too many people in Hollywood seem to think mumbling is acting and I often lose words because of this whole talking under the breath craze). It is a full transcript of the video given in subtitle form. Although it’s mainly used in this capacity, closed captioning has several uses that can greatly aid ALL users whether they require captions for understanding or not.

Let’s consider video for a moment. Video can present complex ideas and thoughts, it can teach, and it can entertain. It’s no secret that video searches are becoming very popular, and that the growth in video searches is continuing to grow. However, despite this growth search engines cannot parse the video to search for context. Instead they rely on titles, tags, and other information available on the same page as the video. Through closed captioning, if you present the full transcript of the video on the same page, the search engines now can parse ALL of the words used in the video and thus your videos will be ranked far better and more accurately.

More over, closed captioning provides a means to navigate your video far easier. If there is a complete transcript of the video available, than anyone can search for words and phrases they want to watch within the transcript and jump to the appropriate time in the video and view it.

Lastly, new laws are coming out that dictate that a lot of online video needs to be closed captioned. Some might say I should have opened with the “you have to do it or else” bit, but I figured I will start with how it will help you.

For a practical demonstration of the benefits of closed caption we can look at CNBC. CNBC has a lot of video: news, interviews, etc. To get it all up to snuff would take a monumental amount of work. So CNBC contracted to a company called RAMP and what RAMP did was automate the process of transcribing the video. The benefits of this process are many. First it allowed a rapid way to add captioning to all of CNBC’s media on the fly without the aid of a poor intern slaving away in front of the computer constantly hitting pause, rewind, play. Secondly, the transcript was datamined for keywords, terms, stock tickers and the like. Thus the search media was found and added. Next the service includes a full searchable transcript that allows the user to skip to whatever they are highlighting. This adds a high level of navigation to the video.

And the pay off? According to RAMP, the added features increase session length by almost 90% and video completion by almost 70%. Video is not something easily interactable. However, by adding closed captioning, not only does the video become interactable, but it becomes navigable and searchable.

So if you don’t want to do us a favor, do yourself a favor and add closed captioning.

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Nov
05

Quantity vs Choice

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This past week I have been going through the latest group of reviews that the independent review panel have churned out. Many are quite good. Not too leave any spoilers, but AISO did exceptionally well in the Green Hosting category. But it led me to thinking about the current situation for the web host industry.

It reminds me of the cable TV industry actually. Now you too can be the proud owner of 10,000+ channels for your viewing pleasure. But come on, how much TV do we really watch? For myself, I watch very little. I have a handful of shows I watch when I can (normally I save them up for a weekend of melting my brain) and a few non-fictional shows that I find diverting. But in all, I imagine I watch shows from about 6 channels.

I dropped cable and dish network because of this. I can see all I want to see on Hulu and various online video sites. And I know I am not alone. Even my friends who enjoy letting their brains ooze out their ears from TV meltdown also spend more time on Hulu than they do on cable TV.

How many online users use the 10,000+ features a web host has? I would imagine they too are like TV watchers, they have a few features they require and won’t use any of the others. I suppose its comforting to know that you can add ColdFusion to your site, even though you are running pure PHP, but honestly, isn’t it like having the Golden Oldie Polka channel alongside your Food Network (or substitute for favorite channel)?

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Nov
04

Price is not the Main Criteria

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I am tired of reading on supposed help sites that price is the main factor when buying web hosting or anything else. When you go to the grocery store and buy lettuce do you check the price or check to see if the stuff is rotting? When buying milk do you check the price or the expiration date? When you buy furniture what is the first then that catches your eye? How it will look in your living room, or the price tag?

Price is not the main factor. If you make price your main factor you are going to wind up disappointed. Instead let me offer a replacement to Price and that is Cost.

Surely I jest yes? Isn’t cost and price the same? Some of you already know where I am going with this and others need an explanation. Price is how much you pay from the outset. It is the sticker cost of an item. For instance, $1.99 a month for a web hosting plan, the price would be $1.99. Cost is how much you end up paying over the long haul of the product or service.

For instance, taking a jaguar (price at a cool $60,000) to a mechanic to find that the parts need to be special ordered (ka-ching!) and an authorized mechanic should install them (ka-ching!). That you have to use the premium gas (ka-ching) instead of the cheap stuff. The oil put in the car must only be synthetic (ka-ching) and since the engine is constantly purging oil, the topping off of the oil reserve is a weekly activity (ka-ching). As we add all of these together we might find that the initial $60,000 is dwarfed by the total cost of ownership of that vehicle.

This can be applied to web hosting, especially those who desire the world for free from their web host. However, this brings up a bit of a quandary. If people know you get what you pay for, if people understand that $1.99 is probably really cheap (thrift store cheap) for web hosting why do they still want to have everything for a few bucks? I have to assume it is because of two things.

1) What idiotic company would sell a product without making a profit on it? The logic then goes, if you can make profit off of 1.99 a month then why are there companies selling the same stuff for 5.99? 10.99? 19.99? Are they all greedy or something? Which leads to my other point.

2) The average person doesn’t know the true cost of the service.

As a service industry, web hosting requires staff, a lot of staff depending on quality level. Employees don’t come cheap, in fact I would think that salary would most likely be the highest cost for companies who put support ahead of other factors. The unfortunate part is that this large cost is difficult to manage. Let’s face it, customer support staff has a high burnout rate. Hopefully, they are being moved to different departments if they are talented, but that doesn’t help the customer support section. New employees must be trained as old ones leave. Companies tried to lower this large cost by going overseas. Instead this often made their customers hostile. So hosts were forced to shave costs everywhere and hope it adds to big savings.

Virtualization is one of those shaves. Being able to combine more accounts on a computer and use every last resource in the data center greatly reduces power cost, real estate, and the rest. Automation reduces work load of employees, streamlines efficiencies and plays well with others, especially virtualization.

But even if you used green energy servers, topped them off full of accounts (without overloading), automated everything, purchased discounted bandwidth, used recycled air from outside… did everything right when it comes to cost, you still couldn’t justify $1.99. In fact, I would believe it difficult to get a high level of customer support for less than $10. And that is being generous. Especially considering that even with the best video FAQs and rock solid hardware (which would also cost a lot of money), there are a lot of customers that just want to talk to a real life person. And if you want to staff it 24/7 you need several shifts of customer support techs. Not too mention writers who can update the FAQ and knowledge base, while promoting the company. What’s more, the cost to acquire a customer generally put the web host in the hole sometimes by a few hundred dollars.

Though it is treated like a commodity, I assure web hosting is not. If you want nothing, then feel free to pay nothing. But, if you require something more substantial, do not balk at paying more upfront. The question then becomes is it worth paying more upfront to ensure you don no pay a huge amount later? I think you know the answer to that.

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Nov
03

Suspend Your Expert-ise

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I was once told by a very wise and eloquent man and mentor that pride gets in the way of learning and that the first thing you must do to learn is to humble yourself. Those who believe they know it all will learn nothing from others, since they all ready know it all. However, those who are humble are willing to assume that they don’t know everything and will listen to what others have to say.

One of the problems of being an expert is that we believe we know more about certain topics than others and in so doing close the doors of learning. As many know I went back to finish my degree. Not necessarily because I needed to, but because I wanted to prove what I know and that is that I could. I graduated a week ago with highest honors (yes a little self plug there) and in looking back I wasn’t always kind to my fellow classmates. By doing so I closed off many opportunities for learning.

Expert status is fun. I enjoy fielding questions, be it from email or face-to-face. I enjoy being on the ground floor of a lot of today’s innovations. But if there is one thing I learned from going back to school it would be that you can learn something from anyone, be it a new technique or just patience.

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