Freemium the 13th

If “we” had to throw away “our” jargon – blogosphere, Web 2.0, social media, and so on – and could keep one term, I would vote to save freemium. I like portmanteau words: wijard = widget + card, freemium = free + premium, etc.

Dries of Drupal, Acquia, and Mollom fame posted earlier today about freemium as used in his projects. His remarks on Mollom are particularly interesting.

We currently have more than 3000 active users that use Mollom for free. Say each user spends on average 15 minutes a week moderating his site’s content and reporting classification errors to Mollom. Mollom learns from this feedback and automatically adjusts its spam filters so that all other Mollom users benefit from it. At a rate of $10 USD/hour, we get $390,000 USD worth of value from free users a year — 3000 users x 15 minutes/week x 52 weeks/year x 10 USD/hour = $390,000 USD/year. If these numbers hold up, the value of a free Mollom user could be estimated at $130 USD/year. And that doesn’t include the marketing value they add.

Meanwhile, Chris of the Long Tail identified four different freemium models. One of these is the “feature limited” model, of which WordPress.com is an example. I pay to make this blog changingway.org (as well as changingway.wordpress.com). By the way, WordPress.com is an example of multiple free business models, not “only” of freemium.

The first comment on Chris’s post is by Ben Watson (no relation). “New platforms are often hard to learn, and you can ease rapid adoption by not putting all the bells and whistles on the free version” is a strong argument in favor of the “feature limited” model.

If there is a black belt in the art of freemium, it is worn by 37signals. Looking at the options for my Backpack account, I see a combination of the “feature limited” and “seat limited” freemium models. For example: my free account allows me 2 users, 5 pages, and no storage; a solo account would cost $7/month and give me 100 pages, a shareable calendar, and some file storage; and so on.

Long live freemium. I like, not only the word, but also what it stands for and what it gives me: good software at no charge; more features, if I am willing to pay; and something interesting to write about.

New WordPress.com Upgrade: No Ads

WordPress.com is run by Automattic, a for-profit firm. The blogging service is a good example of making money from free stuff: Automattic uses multiple “free business models” to earn profits from WordPress.com.

One of them is advertising: ads sometimes appear on WordPress.com blogs. Another is the freemium model. Although it’s free to blog at WordPress.com, there is a charge for some premium features. For example, I pay $10 a year so that this blog can go by the URI changingway.org.

There is now a new premium feature. Matt posted today, explaining (yet again) why WordPress.com needs to run ads – and explaining the new feature:

it’s easy to imagine blogs that would never want ads on them… Because of this we’ve introduced a premium option that gives you control: the No-ads upgrade.

With this upgrade, no one, whether they’re logged in or not, will see any ads on your blog. Ever. (Or at least as long as you subscribe to the upgrade.)

The No-ads upgrade can be purchased for 30 credits a year ($0.08 a day)

This is very good news, especially since this upgrade costs less than many of us expected. However, some will be disappointed that this is not the often-requested “let us run our own ads” upgrade.

But enough about other bloggers: what about me? Or, to be more precise, what about this blog? WordPress upgrades prices are per blog per year. The cost of running this blog will, when I buy the new upgrade, go through the buck a week barrier ($10 for domain mapping, $15 for CSS, $30 for no ads).

So, as a result of the new upgrade, this blog may become more, rather than less, commercial. In order to keep it at better than breakeven, I’ll have to use more affiliate links. That reminds me, did I tell you about Amazon’s new video on demand service, featuring such fine shows as Terminator: The Sarah Connor Chronicles?

Making Money From WordPress.com

WordPress.com is free: that’s free as in beer, as in gratis, as in at a price of zero. This post is a look at WordPress.com in the light of Chris Anderson’s Wired article Free! Why $0.00 Is the Future of Business. It is the second part of my series of posts addressing the question: How is Automattic going to make money?. (Hence this post is not about how bloggers can make money: but see the update note at the end).

There’s a particularly good fit between Chris’s article and WordPress.com. Chris identifies six business models. As we will see, Automattic uses each of the six in making money from WordPress.com.

The first model (following Chris’ order) is freemium: basic service is free, but there are extras for which you pay a premium. WordPress.com offers free hosted blogging; it also offers premium features under the heading of advanced services. One such feature is domain mapping: since I pay for domain mapping, this blog shows up as changingway.org (rather than just as changingway.wordpress.com).

I provided more details on WordPress.com premium features in a previous post. That post compares WordPress.com with its competitor TypePad in terms of feature pricing and packaging.

The “most premium” and least free option at WordPress.com is the VIP Hosting package.

The second business model relies on advertising. Automattic has run Google Adsense ads on blogs at WordPress.com since mid-2006. It has considered for at least that long offering bloggers control over the ads at their blogs. Currently, however, the only bloggers who can run their own ads or run their blogs ad-free are those paying for VIP Hosting.

WordPress.com uses the third business model, cross-subsidies, less directly than it uses some of the others. The essence of this model is that the free product entices you to buy another product. The different product is usually a complement to the free product, Gillette giving away razors in order to sell blades being the prime example (and indeed the example with which Chris opens his article).

One type of blade for your free WordPress.com razor is the Sonific SongSpot. An earlier post provides a description and an example. I just “snapped” the song in to the post.

The cross-subsidy model applies rather indirectly because I didn’t buy the song/blade from Automattic: I got it, free of charge, from Sonific. Sonific makes money from ads and affiliate transactions related to the music being played (e.g., the reader may buy music from Amazon).

I won’t discuss here the question of whether Automattic makes money from these “blades.” It may be doing so by charging Sonific for the prominent placement of the SongSpot service. I am not aware of any public statement from Automattic or Sonific on the terms of their relationship.

WordPress.com provides a very straightforward example of the fourth model: taking on a new blogger represents a near zero marginal cost for Automattic, since servers and other infrastructure are already in place to support the two and half million blogs currently hosted.

The fifth model is labor exchange: “the act of using the service creates something of value.” The main use of WordPress.com to create content, in the form of blog posts. There are many ways in which this content may be valuable. It may, for example, constitute pearls of wisdom that enrich the life of those who read it. Of more direct relevance here is that the content is also a source of economic value for Automattic when it is accompanied by AdSense.

The sixth and final model is the gift economy. I read Chris’s use of this term as an implicit reference to Eric Raymond’s assertion that the society of open-source hackers is in fact a gift culture. In this context, the free/open-source WordPress software was and is a gift from Matt Mullenweg and his fellow hackers to the wider hacker community.

It’s not much of stretch to view the free blogging service WordPress.com as the gift from Matt and his fellow Automatticians that seeded the WordPress.com community. That Automattic makes money, or will make money, from gift-giving is in no way counter to the ethos of free/open-source software.

We can relate the gift economy model back to the freemium model and note that the freemium model allows Automattic to receive gifts from bloggers. If, for example, I am unsure whether to pay for a premium service (e.g., CSS upgrade) for a further year, I may decide that even if I don’t really need the premium service, I feel good about paying Automattic the money, thus reciprocating the gift-giving Automattic initiated by giving me the free blog in the first place.

It is to this kind of gift-giving that the web-based photo-editing service Picnik appeals when it includes among the reasons for upgrading to its Premium Service “the warm fuzzies” you’d get for supporting Picnik.

Thus the sixth of Chris’s models (gift economy) brings us full circle to the first (freemium). It also points on to the next post in this series, which will be about making money from WordPress, the open source software. While the current post is about Automattic profiting from a free (as in beer, as in gratis) service, the next will be about the firm profiting from free (as in freedom, as in libre) software.

Before moving on to that next post, this one merits a couple of closing points. The first is about the post itself. It’s more about identifying and classifying than it is about evaluating. I haven’t attempted to estimate amounts of money, or percentages of profits, made by WordPress.com from each of the business models. Neither have I expressed opinions as to how well Automattic is executing each of the models.

The second point relates to affiliate programs. With respect to Chris’s list of business models, it’s not clear to me where such programs fit: somewhere between ads and cross-subsidies? Although WordPress.com bloggers (other than VIPs) may not use advertising programs such as AdSense on their blogs, we are permitted to use of affilfiate programs such as Amazon Associates.

I can’t think of any affiliate program used by Automattic at WordPress.com. I can think of one used at WordPress.org, but that really does bring us to the next post in the series on Automattic profits.

Update: If you’re a WordPress.com blogger who arrived here hoping to find a post about how you can make money, you’re in the wrong place. Or at least, at the wrong post: but see my post on how bloggers can make money. At the same time as I added this note, I made a few edits, but nothing major.