Ning Takes the Free Out of Freemium
April 15, 2010
Ning provides tools and hosting for social networks. Like many other social media services, it uses the freemium model. But it won’t for much longer, according to an email to all Ning employees from CEO Jason Rosenthal.
When I became CEO 30 days ago, I told you I would take a hard look at our business… Our Premium Ning Networks… drive 75% of our monthly US traffic, and those Network Creators need and will pay for many more services and features from us.
So, we are going to change our strategy to devote 100% of our resources to building the winning product to capture this big opportunity. We will phase out our free service. Existing free networks will have the opportunity to either convert to paying for premium services, or transition off of Ning.
Matthew Ingram at GigaOM describes Ning’s move as a sign that the much-hyped “freemium” model might not be the road to riches many seemed to think it was. While it’s true that Ning are about to drive off that road, I don’t think that anyone ever claimed freemium as a sure road to riches.
Rather, freemium sometimes seems like the best way of forging a trail on the social media frontier. But Ning is no longer on the frontier. It’s a well-known settlement, in charted territory. Ningsville is known to everyone who might want to set up shop there. Those who have set up shop are being told to pay up or move out.
This is hard on those who didn’t want to set up shop, but just wanted to hang out. It’s harder on those who wanted a storefront to do good things – in other words, it sounds really tough on nonprofits. I wonder if Ning will continue to offer free service to nonprofits.
You may have noticed that I disagreed with Matthew there, but did so very gently and mildly. Others prefer to disagree with fellow bloggers more vehemently. Here’s for example, is 37signals’ David, taking issue with TechCrunch’s Jason Kincaid.
Ning is laying off 40% of its staff and dumping free versions of its service. That’s a shitty day for the people who lost their job and the folks left behind without their coworkers… But I can’t help but be puzzled by the coverage of this. Here’s TechCrunch on the situation:
While the massive layoffs are obviously a big hit to the company, it isn’t all bad news for Ning: the service is still seeing its traffic grow according to comScore. But traffic growth is no longer good enough for the company — it needs to start generating some serious revenue, and advertising clearly isn’t cutting it.
Are you kidding me? The company has blown through $120MM of VC funding over six years, built up massive traffic, yet just had to slash and burn, and you’re saying that “traffic growth is no longer good enough”. How the hell was it ever good enough?
One of the point frequently made in favor of freemium is that the free users don’t cost much. The above quote from Jason R suggests that’s true of Ning. So why cut the free networks? To give David something to gloat about? Unlikely. Because the conversion rate from free to premium isn’t high enough? Maybe.
Because Ning needs to raise more money? That’s what I’d bet on. I suspect that Ning needs more funding, and wants a new story to tell when it passes the hat. Freemium is the old story. Double down on premium is the new story. I don’t see a happy ending. How about you?