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BeanCast 66: It's The Inflection Point, Stupid

If you've listened to The BeanCast Marketing Podcast this week, you've already heard me rant about this idea. But we all know I don't get over ideas very easily. So I want to explore "currency exchange" a little more.

To bring everyone up to speed, Brian Morrissey proposed on his blog that free services, like FriendFeed, intentionally make a contract with their users that says, "We will give you free access to our service, in exchange for you populating our site with content." And while at first this seems like a great idea, we find again and again that the company proves their concept, sells their concept out to the bigger fish in the pond and leaves the users hanging out to dry.

For me, this highlights some basic truths about the concept of "free." And no, I'm not debating whether Chris Anderson's book, Free, is legitimate thinking. I'll save that for another time. But Brian's post does clarify for me the following two points:

The Free "Model" is Not Universal

When we hear about the idea of giving away stuff for free in order to attract business elsewhere, there's this tendency to image we're talking about "sampling." Giving away free samples is indeed a solid business practice. You give away product in hope that the person will come back and pay the next time.

But this model cannot be overlaid on top of a "free service" business. Because when you offer a free service, there is no real path to profitability and people come to expect your service to always be free. (Online news is a perfect example.) Even if you offer premium service upgrades, those are really completely separate propositions. So the model for a free service business needs to be completely different.

Now let me say, this isn't a bad thing. Giving away a free service is a brand builder -- at least until your market becomes saturated with free offerings in your space. (And again, news is a prime example.) But it's clearly not a path to making money.

Free Services Only Work With Value Exchange

Which brings up the second insight I got from Brian's post: The only model that makes business sense for a free service is where the business gets something of value from the customer.

I called it a "currency exchange" in my comments on Brian's site. You as a business offer access, tools and bandwidth, then ask for access to the time/content/activities of your users in return.

FriendFeed seemed to understand this much quicker than Facebook and Twitter have. And Google has built an entire empire on it. You can offer a free service only if what your users are contributing can be resold in some manner. So for instance in the case of Google, content managers use Google tools in exchange for Google's access to their content and/or site traffic data for search purposes, and searchers use Google in exchange for the knowledge of their search preferences for resale. We users look at it as "free," but really Google is taking value from our activities, so it's anything but free.

Now the point was brought up on the show that Facebook, in buying FriendFeed, can't hope to make Google-style dollars from the acquisition. And I agree. But the data they hope to get from the FriendFeed version of Internet content aggregation is still much more valuable on the resale market than anything they currently have. It puts them in a much better position than Twitter, which can only aggregate random thoughts.

But no matter how you slice it, the acquisition of FriendFeed is acknowledgment by Facebook that their key to survival depends on leveraging more of a value exchange from their users. And I think it's time we stop thinking of these services as free and start understanding what this value exchange really means -- and whether we're giving away more than we bargained for in the transaction.

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