Recession from an Internet User’s Point of View: We Are Ready to Pay
by
on January 25, 2009,
There are always two sides to any conflict and any business process as well so the major reason for any misunderstanding is that people simply see one side of the process and fail to understand what the other thinks. But trying to understand what the other side has in mind could be just the right thing to do to solve a problem or find a compromise you did not realize existed at all in this or that situation.
Unfortunately many companies in the crazy times that we live in behave exactly like this: they do realize they are in trouble and they begin to look for solutions to improve the situation but since they only see one side to the problem - the side they are on themselves - they can’t think of the problem from any other point of view so they try to improve the situation by changing the way they work - trying to cut costs, laying personnel off, learning how to live longer on existing investments and even trying to do something totally outrageous and unexpected of a web startup - coming up with a business model.
Since the very beginning of the financial crisis we are currently in I’ve been pretty enthusiastic about the way companies will have to change their operations in order to survive at these crazy times - and the fact that web startups will finally have to learn how to earn money in addition to raising money and also spending wisely is something I myself am pretty enthusiastic about, even if it will inevitably result in certain losses.
But the problem still remains and there are still tons of companies that have not figured out how to survive the recession - even after they cut their costs to a bare minimum. And the vast majority of companies are looking for an internal solution - cutting costs and laying people off. And there is only a handful of startup trying to look at the problem from the other side - and coming up with a business model in order to make enough money instead of learning how not to spend money.
But the good thing is that there are some brave companies that have realized earning money could be a better alternative to avoiding spending money - and working in that direction coming up with new ideas on how to monetize their web businesses. These are the companies that see recession as an opportunity, not only as a huge problem and they understand that a recession can provide plenty of tools to help their businesses flourish among the competitors who are not that brave and don’t know how to handle the recession.
We have recently seen a few examples of internet startups finally coming up with business models after years of trying to operate without thinking of money or focusing on how happy a user must be when he is offered everything for free. Such examples include social bookmarking service Ma.gnolia and genealogy social network Geni coming up with pro accounts and online storage solution Allmydata expiring all free accounts and increasing payments for their existing paid accounts.
On the one side, I think it is definitely good that these startups are brave enough to finally try and make their users pay for what they have come to expect for free but on the other side it is quite understandable that there are users who will tell that the crisis is not the best time to come to your loyal users and ask for their money when some of them have probably been hit by the crisis themselves already and are not in the right mood to spend more than they are accustomed to - especially paying for the products or services they used to get for free.
So this obviously means that there will be plenty of users who will not be particularly happy about the idea of having to pay for your service once you decide that the recession has damaged your business bad enough for you to come up with a business model. But in the discussion around one of my recent posts on this subject I was told by one reader that recession may be just the opposite and it can also be exactly the right time to begin charging your users if you have some freemium business model in mind.
The explanation is pretty simple here: there is nothing stable in this world any more with companies going bankrupt here and there and even giants like Microsoft and Google laying off thousands of people. In these hard times you simply don’t know what company you can trust to be here for the next few years and paying for a service serves like some kind of a guarantee and makes the user feel more secure about the selected product or service.
The thing is that we don’t live in a vacuum now and internet users have realized that so many things are insecure that anything can happen to just about any product they use - and whatever results of their work they store in that product. Many people have learned to rely on online applications both for their personal and even business tasks and of course they want to be sure all the information they have in these applications will be available to them when they need it.
In the world where pretty much anything can happen to the most powerful companies and even Google has to finally make solid business decisions and close some services that don’t generate revenue (causing a few people some distress about not being able to use Google Notebook in the future as they used to do, for example) you can not be 100% certain that when you wake up tomorrow you will still be able to use your favorite service without having to migrate elsewhere.
And it looks like this insecurity provides a great opportunity to many companies that offer viable solutions to certain problems and know what they could charge their users for. Basically when a person uses a product that is free, he does not feel that the service provider earns anything off his participation and does not consider himself a customer (even if watching ads can often be an alternative and is considered to be one by the majority of ad-supported startups) so he does not expect any reliable level of responsibility from the service provider. But everything changes when this very user happens to pay for a service as he already feels that the provider pays bills partly with money coming from his pocket.
This is why I think that during a recession a user will often prefer to pay a reasonable price for a product or a service (even when free alternatives are still available) if only to make sure he himself feels secure about the product he has chosen. Besides, knowing that the service provider has some revenue stream generated by his subscription payments and similar payments from other users, he will also feel that the company will probably not go bankrupt and will be able to offer the same service for a long time.
So it turns out that users may be more willing to pay for a subscription to a web application that actually matters to them than at any other time simply because they want to feel secure about both the product and the company. And any startup that knows how to offer good value for a reasonable price will probably be able to explain users why the idea of paid service is a good one and how it will help their favorite service to be here as long as they need it - and finally start charging for it.
