The curse of the free revisited

The Freesphere has been bugging me for a long time. For the technology and publishing industries it's a major challenge to see how we are going to make money out of the services people are increasingly expecting to get for free.

Fred Wilson has a challenging blog entry on his VC blog on how it can work, he also links back to Chris Anderson's latest entry in Wired.

The fallacy in all of this thinking is that free is not the entire business model. Fred himself admits in his blog comments that of the businesses he's invested in "none use it as a primary business model but many use it as a part of their business model".

Chris confuses things in his Wired piece by comparing the Freesphere with the razor blade business model where the razor is sold cheaply, or given away, and the money made on the blades.

That business model is valid and works, but it's not comparable with the current free mentality on the Internet: You might be giving away the razor for free but your customers are getting their blades from the guy up the road whose business model is the exact opposite of yours.

In fact, Chris even touches on why the Freesphere model fails by mentioning how King Gillette was unsuccessful selling his razors below cost to the Army and banks in the hope soldiers and customers would like the product and be prepared to pay for it.

That's exactly the model many of today's free services use without success. We see Yahoo! fighting for independence, the New York Times laying off hundreds and even Google's share price fell today on fears the ad revenue that underpins the free services is threatened.

The simple fact is Milton Friedman was right; there is no such thing as a free lunch. Someone, somewhere pays.

Until now it's been willing investors that have picked up the tab. If in the new era of scarce and risk adverse capital we find investors are no longer prepared to pay for providing this free stuff, then a lot of people are going to have to get used to paying for things again.

Giving away products for free can be good marketing, and there's nothing new there, but simply giving everything away for free isn't the recipe for a successful business.

The final goodbye to Yellow Pages

I was wakened out of my massive head cold recovery by a call from our Sensis rep. Despite what she said previously, she did call back to try and get me to see the light of renewing our Yellow Pages advert.

In our conversation, she mentioned another Sensis product, Clickmanager. A look at their website indicates this is part of their Bidsmart program.

It seems to me Sensis are playing catch up in this market, like their search engine they are behind Google on this product.

This wouldn't be so much a problem if Sensis were leveraging these products using their existing sales channels, but once again they have a separate set of salespeople to deal with them.

If they had an online console system they'd be able to offer these services directly. I'm also amazed the sales lady didn't mention these earlier.

The sad thing for Sensis is they have a massive range of products, many of which are attractive to small business. They seem to go out of their way to make it difficult for small businesses to learn about them, let alone buy them.

You can't help but think that unless Sensis can snap out of this mentality, then it's doomed to a slow decline as Internet searches improve and the paper directories decline.

I've said previously that Telstra need to sell Sensis. The more I look at it, the more I think this is the only way for Sensis to survive in the long run.