To recap, recently I criticized a couple of slides from Mary Meeker’s presentation.
In short: I don’t think the $50 billion dollar ad spending opportunity exists as stated in her presentation.

Different rules apply for different media.
In a recent article Joel Comm the author of KaChing talks about how he ran the same ad on TV & on youtube.

The 2 takeaway points from the articles:

1. tv ads don’t convert not even close as online ads. (it’s also very hard to cross media)
2. The ad ran on youtube for free and generated 753 conversions, almost 7x as much as the $10,000 tv ad.

From the article:
The tv ad appeared 230 times on such top-rated shows as The Daily Show, The Colbert Report, Fast Money, Man vs. Food, Mad Men, and Wall Street Journal Report. The commercials created a total of 8.3 million impressions but led to only 112 website visits, a conversion rate of less than 0.001 , and 40 form filled.
Cost $10,000

The YouTube video received 5,000 views. That led to 1,375 visits to KaChing’s website. That’s a conversion rate of nearly 33 percent. Of those visitors, more than half — 753 people
Cost $0 (beside ad production)

My take away is this: 753 signups/$0 cost.

So can you spend $50 Billion in advertising? Sure, if you do I have a bridge you might be interested into buying.
Do you need to? Nope (Unless you don’t know what you’re doing), and people are figuring it out.

So do I think the $50 billion opportunity in ad spending will happen? It depends on how fast people catch on.

I recently looked at the slides from Mary Meeker’s Web 2.0 Presentation About The State Of The Web, which can be found @ http://www.businessinsider.com/mary-meekers-web-2010-11#-1 Mary Meeker’s Web 2.0 Presentation About The State Of The Web.

While I find this analysis really interesting, tons of good data to digest here, I disagree on a couple of points.

Here are my 2 main objections/comments:

Slide #15

Completely disagree with the $50B global opportunity, it is in my opinion a pipe dream because the reasoning is flawed.

All the slides are telling you that this is an ever changing market that is already shifting to mobile faster than most can adjust. It’s revolutionizing everything that we know and creating products & markets that we could have never imagined. It’s behaving in way completely unexpected, but forget all that. The same rules of ad spending from the old media will apply!

What kind of bullshit is that. That’s literally hiding your head in the sand.

Yes, you could convince companies to make that spend but it’d be mostly wasted. Lots of people are using mobile version of websites, from their desktop mind you, because they have no ads and the sites are simpler and cleaner. If you put funny/engaging/awesome content people will do the marketing for you. Don’t think they get it. (“it” being the internet, a new medium out of anybody’s control*)

The main difference is that the publishers know that they can’t put lots of advertising without alienating the users. Furthermore content production on the internet is cheap and getting cheaper by the minute. The same is not true for old media. The market of scale doesn’t apply as much to old media. That’s just one of the many reason why we won’t see that much spending online.

It doesn’t work and It’s not needed:

1. By the product makers: Word of mouth on the internet has much greater repercussion than on the streets. Viral marketing is much more efficient & the bang has no relation to the buck.
2. By the consumer: If you have a great product, I will found you. If your product sucks, I’ll find out.
3. By the publisher: Compare the cost of putting a 30 minute show on tv $100k+/episode vs online $10/mo or free.

There are much better way to do “ad” spending. As well as there are new ways of ad spending, think groupon.

Slide #20 - Where are the great online ads?

As above it’s a different medium. Think viral campaigns, viral videos & games, viral marketing. Don’t look at ads, banner and the likes.

Campaigns:

1. Have we forgotten Obama’s “yes, we can”, then the remix by Will.I.Am? Wasn’t that the big online ad for 2008.
2. I’d say undoubtly this year old-spice campaign was the great online viral campaign of the year.
3. http://www.elfyourself.com/ was a great viral campaign a 3-4 years ago.
4. Will it blend? Blender Company made a whole series of youtube videos http://www.youtube.com/watch?v=qg1ckCkm8YI&feature=player_embedded most episodes have 5+ million views (iphone & ipad 9M+)

Videos:

1. The band Ok Go marketed themselves by creating very creative videos.
2. Lazy sunday  http://www.hulu.com/watch/1397/saturday-night-live-snl-digital-short-lazy-sunday probably caused a myriad of new  viewer for SNL. Hundreds of responses from youtube users. The SNL shorts are among the most seek out videos on hulu/youtube.
3. Family guy’s clips were available online when it was cancelled. They were incredibly viral, I used to get links to them all the time. I personally think that’s what caused the show to be put back on prime time.

Again the author tries to apply old rules to new media. Different rules apply.

Conclusion:

Go look at the slides, they are very informative and give good food for your thoughts

*why out of control?

Aside from paying some $ for access. The internet is very much unlike tv/cable/radio, where you can’t do much to change the rules and change the offering. Can anybody contribute new channels at will to every cable subscriber on earth? You can live an ad-free life if you want on the internet. Everything now has feeds, you can get the feeds and parse out the ads. RSS feeds have revolutionized how content syndication happens.

Lately there is been quite a bit of bashing of the Freemium model. The last example is given by Ruben Gamez of Bidsketch. While he makes some good points, his rhetoric seems incomplete, if not flawed, to me.

I am very glad that he’s making more money now than before, but chances are that something in his Freemium model was terribly wrong and he was literally cannibalizing his business with it. What I would have liked to see in his article is not just a pie chart showing how many free vs paid users he had. That’s pretty useless data.

The breakdown in active users vs non active and the cost of each sector in total and by user would have been greatly useful for starter. The delta in drop off after the removal of the free plan. The growth rate not just for the first month after removal but for the months afte that. Then his pie chart would have been much more meaningful.

Let me explain:

If 99% of his users are Free and 99% of that doesn’t use their account, his cost for them is very much close to $0.

They might not be the right customers. They either will never turn into paid customers or it’s the wrong timing for them.

They might like the product but they have no use for it right now. Chances are they will recommend it to other people. I love DabbleDb, I have the free account, I never use it and don’t have a use for it. Recommend it to dozens of people. My wife is a paying customer of theirs.

Ruben’s cost for them in this case is the disk space required to store their login credentials, totally negligible.

If your product is good, a portion of those free users will spread the word and you can chalk up that expense to marketing. I have multiple free accounts with the usual suspects, basecamp, wufoo, chargify, etc. that I don’t use but I like. It’s for me to explore and evaluate their product. While I don’t buy personally I do recommend them to many people that end up buying or I might buy with the corporate account. (hence I don’t result as a conversion)

(Possible Scenario) If only 1% of the free users are active and 0.8% of all free user accounts are converting. It really means that 80% of your free users account are converting. Which one is it, I don’t know. Not enough data was shared in Ruben’s article to make that determination.

His says:

If I stayed on this path, I’d soon have thousands of free users to support.

Why? You don’t have to support free users. You do if you want to. Don’t feel pressured to, though.

Here is an idea:

• Make it clear at signup that only paid customers gets free support.
• Free customer gets paid per incident support. Your time is valuable.

Now for the opposite case:

If 10% or more of that 99% users were actively using the product. By actively I mean they use it at least as much as the paying customers. Beside that your conversion would still be pretty good, 0.8% of 99% with 10% active users is ~8% conversion, enviable. Chances are you either priced the premium plan wrong or your free plan is too good. It might be in fact so good that you could charge for it.

The right thing to do at this point would have been to a/b test charging for the free plan let’s say $2-$7/mo and see how many people signed up for it. You don’t even have to code the logic for it. Just test their behavior, then if people are purchasing you code it to charge. Grandfather those accounts or charge them later.

Still chances are that you needed a shittier free plan. Coming up with a free plan that works it’s not easy and it require a certain knowledge of human psyche and good analytic data.

If 40% or more of the free accounts were active you can be sure that your free account was too good and users didn’t need anything more than that. That was a plan you could have charged for.

Btw, there are many ways to make a free plan that still makes you money or that at least it doesn’t costs you anything.

How about: Ad-sponsored free plan.

For the first 2-4 weeks let them experience the site without ads. Then use transitional ads very much like wired, cnn, msnbc, monster.com. (click here to continue type) Don’t want them, feel free to upgrade. People will either drop off, upgrade, or painfully continue and generate revenue. Still these users are squatters and don’t get free support. No need to be a dick to them but make it clear that you’re busy supporting paying customers. If you want to be evil, alternate about 5-10 interactions without ads with just as many with ads. The constant alternating of showing ads/slowing down with free flowing is a really painful thing to experience and clinically proven to be much more irritating than continuous slowing down.

When you show ads all the time, people get used to it and get accustomed to them. They become white noise and the users block them off. If you alternate they can’t get accustomed to it. Beside making them more irritating they will become also more visible. If you don’t expect it, you’ll notice it more.

Promote to use

Make them tweet a predetermined phrase of praise to use the product every once in a while a-la macheist. If they won’t give you money, let them bring you users that will.

DabbleDb used to offer a free plan where all the data was public, if you can’t live with that, signup.

How do you curb the fakers and abusers? Tie their account to their twitter/facebook/disqus account. Let them login through a pre-existing account like facebook.

Imagine you’re this user, and you don’t upgrade what are you going to do? Are you really going through the trouble and pain of creating another facebook account just to have another free account. If you do, again it’s a clear sign that the free offering is too good and you could charge for it. Reduce the free plan even more.

If any free product is too good then by all means, don’t offer it.

If I were bidsketch, my free plan might look like this:

Proposals 1/month, 1 client, 1 user. No embed images, no custom domain, yes export to PDF, maybe templates and themes, no brandable proposals.

Lastly one more thing to consider is the churn rate. What’s the delta in churn rate after removing the free plan. If with the 8x registration growth you experience a similar churn rate you’re monetizing those free user for just a month or 2. You might still be leaving money on the table by not having that marketing working for you.

I have so many questions:

1. was the removal done as a part of an a/b test? if not could the 8x increase due to something else? a positive review perhaps.
2. Has the growth rate kept going at 8x vs previous month or is it just the new plateau (before x signup/months now 8x signup per month)?
3. Has the growth rate decreased?

and many more.

The strength of a carefully thought out Freemium plans is not in the make money in early stages or the business model. Its strength is in the getting the word out and people to talk about your product.

First of all: It’s a marketing strategy, folks! Not a business plan.

A marketing strategy that will change over time. Once the word is out and you’re profitable, and having a free plan doesn’t really bring any more benefits: go ahead and remove it. It has done its job. It’s time to apply a different marketing strategy.

The one thing that I heartily agree with Ruben is to not blindly copy other people’s strategies. What worked for them at a moment in time and space, might not work for you or even be reproducible. Every niche and period in time needs the appropriate strategy.

If that wasn’t true, why don’t you go ahead and try to follow Bill Gates steps, exactly like he did. Go to IBM right now and try to licence them a DOS-1.0 like product. Why not? It worked for him, right?

Times have changed and continue to change at ever increasing pace. Strategies from 1 year or even 6 months ago might not work anymore.

Make your own, chances are you’ll understand it better and you’ll own it.