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Web 2.0 and the Freemium business model

WatermelonI recently attended a lunch 2.0 event at Hitachi Data Systems. There were some pretty cool companies there showing their wares. The mood was reminiscent of the booming dot com days, filled with buzz and optimism. I was particularly impressed with Pandora, a music streaming service geared towards discovering new music based on your current musical interests. I spent a while talking with Tom Conrad about the features. Although there is no classical music in their collection, they still have an impressive amount of music catalogued. I tried it out last night and was impressed. I do wish you could hear a clip of songs already played. If you were listening casually and remembered a song you liked earlier, it could be hard to figure out which song you liked. I would still recommend it for people who would like to expand their music collection to new/different artists without wasting time listening to radio.

A friend sent a picture to me from the lunch 2.0 event via flickr, and I got to thinking about the business model of flickr. In general, most of these new 2.0 web sites seem to be using the "freemium" business model, a term coined by Jarid Lukin and elaborated on this blog. As a person with kids, I am wary of wasting my time. I think of the time people spend uploading, organizing and tagging photos to flickr. I wondered to myself, "what if flickr goes under?" Sure it is free, and you get what you pay for (though power users do pay), but there is an inherent risk with the "return to mainframe" software movement.

With all this Web 2.0 hype, the looming bubble 2.0 could be lurking in our future. I am curious about the revenues these companies really get from ads. Are they significant? Is anyone making a profit? A lot of these new sites may be hoping to be gobbled up by yahoo, microsoft or google--or perhaps that is the safety net should things go sour. One can only wonder the shock of users of a site like flickr should it suddenly close up shop for lack of profitability.

Comments

In Flickr's case, they were gobbled up by Yahoo!. But even so, you're right, it's all still a gamble.

Flickr and Gmail are about the only Web 2.0 apps I regularly use. If Gmail dies, oh well, nothing major lost. If Flickr dies, I haven't lost my photos, but I have lost all that time you mentioned. There have been talks about developing a standardized export format for site like Flickr to not only allow you to take your photos to another service, but also have a back-up of all the meta data you've spent so much time organizing. I hope that sees the light of day before Flickr goes belly up.

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