India – Pakistan:

Offline animosity of India and Pakistan continues over Facebook also. There aren’t many connections between two countries. However it’s noticeable that strongest linkages between two countries are of:

• Karachi – Mumbai
• Karachi – Delhi
• Srinagar – Islamabad/Rawalpindi
• Lahore – Indian Punjab

No surprises here, eh? Certainly not for the Karachi Connections

South vs North India:

South India is much better connected than North. Besides Delhi, Lucknow – Kanpur and Jaipur, North does not have much to speak. Whereas the triangle of Bangalore – Chennai – Hyderabad is super connected with each other. Also whole of coastal Kerala is quite connected, among itself and also to Gulf. Again, no surprises, eh?

Chennai – Truly South India:

Delhi is well connected with Hyderabad and Bangalore, but not with Chennai. Talks a lot about why Chennai specifically represents the South India than the other two cities – distinctly different and still very regional to become a cosmo city like Bangalore or Mumbai.

Cities hunt in pairs:

Bangalore – Mysore, Mumbai – Pune, Ahmedabad – Surat – Baroda, Lucknow – Kanpur, Indore – Bhopal, Nagpur – Raipur, Hyderabad – Vizag connection is very evident. Just like pace bowlers in cricket, cities also grow in pairs.

Facebook is still blue, no red on it… yet:

And yes, thankfully naxals are not on Facebook. Big hole in Dandkaranya and interiors of Bihar – UP makes Facebook a safe place to be

For reference, here’s the complete world map:

Freemium is a business model where the basic or core version of the offering of the business is made available to the end-customer for free and a premium is charged for the advanced or special version of the offering for the end-customer. The word ‘Freemium’ is a combination of words ‘Free’ and ‘Premium’, reflecting the relationship between the the se two different version s of the offerings of business essential for formation of a sustainable and viable revenue stream and hence a business.

Internet has been one of the most disruptive innovations for mankind, and this Freemium model of business is emerging as one of the most disruptive and popularly applied business model for internet companies. As such, the interest levels in exploring and understanding the economics of this business model and establishing the norms and theorems for the model has been an upcoming area of research for new-age economists. While the classical economics moves around the interplay between the demand-supply and marginal utility and marginal cost of business offerings, these dynamics are getting redefined in the context of creating a huge demand by providing one version of business offering free, and supplying a revenue-generating marginal utility to the customer who are willing to pay a premium for it.

This series of articles aims at exploring this dynamics of economic principles in the wake of the emerging Freemium Model of Business.

What is not a Freemium Model of Business?

The core of the concept of Freemium model of business is linked to the existence of minimum 2 versions of business offerings – of which one is offered for free and other is offered for a premium. Customers paying a premium for the offerings are essentially a sub-set of the total customer base. These core features of the Freemium business model differentiate it from the other business models which are based on providing business offerings for free.

A model of offering a bundled set of products or services wherein at least one product/service is provided for free with other product/service which is being charged does not conform to be called as Freemium (eg.: Promotional schemes offered by FMCG companies of giving a bucket free with a packet of washing powder). Over here, the free item is not available to the customer unless he purchases the other item which is paid, thus making it different from the Freemium model of business.

A business model where the base product/service is offered for free but its basic utility to the customer is severely limited unless he purchases the premium product/service does not allow it to be categorized under Freemium model of business (eg.: The famous Gillette razor and blade model of business wherein the razor blade is sold for a concessional rate but the subsequent blades are sold at a heavy premium). The basic difference of this from Freemium is that the offerings are not independent and stand-alone versions on its own, and always need to be used together for deriving meaningful utility to the customer.

A business model wherein a business offering is provided for free to generate large customer demand, and hence the customer base is monetized through a different channel by a different set of customer is again not Freemium. (eg.: Google model of sponsored ads over internet search users, where Google creates a huge customer-base by offering the search facility for free, and generates revenues from a different set of customers – i.e. advertisers, who are sponsoring advertisements to this customer base using the free services). The difference here from the Freemium model of business is that the premium customers are not essentially a clear sub-set of the total customer-base of basic business offering.

This list can be longer, but the above three models are the closest to the Freemium and as such needs special mention.

What exactly is the Freemium Model of Business?

Having specified these differences, it becomes pertinent now to explain what exactly is this Freemium model of business?

Freemium is based on the concept of versioning an offering of the business where the basic free version is used as lowest possible barrier of adoption of the offering by the end-customer and hence create a large customer base for the business; and convert a part of this customer-base into paying customers who are willing to pay the premium for advanced special version of the offering.

Freemium business model needs existence of two types of customers who are primarily differentiated by their revenue generation potential. One set of customers (named ‘free customers’) consumes the offerings of the business for free and other set of customers (named ‘premium customers’) consumes the offerings of the business for a premium. In process, the paying premium customers cross-subsidize the free customers and form the core revenue stream of the business required to cover the cost of acquiring and servicing both free and premium customers.

Examples of Freemium Model of Business:

The premium offerings consumed by the premium customers can be differentiated from that consumed by the free customers in several ways. A few examples of this differentiation are:

LinkedIn.com:

LinkedIn is a very popular professional networking website across the world. LinkedIn offers the basic networking features for free, but services like posting a job opening in this network of professionals is made a paid service. Here the premium offering is differentiated by providing a special utility to the paid customers over the basic offering being offered to the free customers.

It is important to note here that the special feature becomes worthy of paying the premium because of the basic offering which is being offered for free. Because the basic professional networking is being offered for free, LinkedIn can source a large pool of professionals who are seriously looking to network professionally and hence form a lucrative target segment for the recruiters who have job openings to fill with such professionals

Flickr.com:

Flickr is a popular photo-sharing and storing website across the world. Flickr offers the basic service of photo storing and sharing for free, but this offering is limited by the number of the photos user can upload using a free account. Premium customers of Flickr buy a Flickr Pro account, which offers customer unlimited storage space and also many advanced methods of sharing and enhancing the photographs. Here besides the advanced nature of the offering, the differentiation is created by the capacity being offered to the customer.

Getting a Flickr Pro account also attaches a perception of being serious photographer about the user. This creates a distinct customer-class and as such provides the satisfaction of being in an exclusive club of experts or serious professionals in the area. This exclusivity being offered by creating a separate class of paying customers forms another differentiation and reason for making the premium offering worth the premium being charged.

Pandora:

Pandora is an online radio streaming service. It offers the basic radio streaming for free and has a paid service called Pandora One which is has added benefits.

One of the key benefits of the paid service of Pandora is that streaming is uninterrupted for longer period of time. Online streaming of radio is cut after 1 hour of inactivity on the computer system in case of free users. However premium customers of Pandora One can continuously listen to the radio service without bothering about staying on system to escape cutting of stream due to inactivity on computer system. Here the differentiation between the paid and free offerings is being created by the amount of time the service is available.

The above three examples of Freemium business model application to internet companies demonstrates the popular methods used for creating a differentiation between the paid and premium customers. These can be listed here as:

• Advanced and enhanced features
• Enhanced capacity
• Creation of exclusive customer class
• Longer duration of time for which offering is available

Besides these popular methods of differentiation between the free and premium customers, there are other methods by which this differentiation can be created. These will be explored in the subsequent articles of these series on Freemium model of business.

Implication of differentiating customers into free and premium groups:

While the differentiation created in the Freemium model of business is the key to the model, this differentiation means that it is only the group of premium paying customers who form the significant revenue stream for the business.

Once the basic web offering is developed, the cost of running the business of internet companies primarily can be put under the cost of acquiring new customers, and cost of servicing them. These customers can be both free and premium. However the revenues being generated from the business is coming only from the set of premium customers. This implies that the set of paying customers are subsidizing the cost of acquisition and servicing of both free and paying customers. These points towards the necessity of having the right mix between the paying and free; so that this cross-subsidizing results into a profitable and viable business. To achieve this, the free offering of the business should be compelling enough to attract a large customer base. It is expected that a small number of this customer base will convert into the paying customer segment. Determining the right funneling channel to reach the desired conversion ratio at which the business becomes a sustainable and profitable venture hence becomes an important element of study of applicability of Freemium business model.

Revenue generated by the business is essentially a product of the unit price and number of paying customers. While the number of paying customers is determined by the user-base created due to attraction of the free offerings, the unit price is determined the real and perceived value of the premium offering to the potential customers who would pay for the premium offering. As such, determining the right trigger point, at which the utility of the offering enhances to the a level sufficient enough for getting a customer to pay a premium for it becomes another important aspect of studying the applicability of Freemium model of the business.

Thus, determination of right distribution of free and paying customers and identification of right trigger point at which a premium can be charged for an offering becomes two most significant aspects of studying the applicability of the Freemium business model in a business.

Conclusion:

Freemium model of business forms a very interesting application of classical economics principles of demand-supply and marginal utility dynamics. As it finds maximum applicability to the new-age digital businesses based on internet, this has the potential of redefining the contours of economics as per the innovative revenue-generation attempts of the emerging companies with disruptive technologies and business game-plans. This series of articles will be exploring the different dimensions of Freemium model of business and look to explore how the basic principles of economics get reinforced through the development of this model.

<This post is being reproduced from e-zine on Economics named Arthsaar>

I had seen his technology and realized the immense and game-changing potential it possesses, but around 10 months back in Feb 2009 when he showed it for the first time in TED US meet. Here is the link to that. No questions about the amazing invention it is, and humongous new revolutionary possibilities it opens up. But what pains me is that this news was totally missed back then in Feb-March 2009 when it first came out of labs and was demoed to real world. We say we live in the information age today, whole world is a village, it takes not more than a blink to break the news to each and everyone across the world. And what are we seeing here.

Pranav Mistry became source of national pride only after some media guy gave it that twist. It becomes a rage across Indians when invention actually travels to India physically with its inventor and people get to see it. Is this any different than the middle-ages, just that the modes of transport has improved now and so transportation across seven seas now needs not more than few hours.  Why didn’t this ‘Sixth Sense’ took every Indian media by storm back then in March 2009 itself?

Why are we talking about? We are talking about a really really futuristic technology, but fail to take advantage of very basic applications of information access we all have right now. Why are we riding a bullock cart on the information highway? I can understand we need to be fed news, but we can choose which source to consume and also need to give some thought before consuming it. Why do we act so dumb and take whatever is thrown at us as a Gospel truth? Information is good, but let us treat it as that only and retain the ability to decipher it with a little application of the reasoning we have.

Makes sense?

Applications, quizzes and games have been a key differentiator for Facebook over other social networks (read Orkut) and were among the key reasons for its stupendous rise in popularity across the world. Official Facebook worldwide statistics put the number of active applications on Facebook at 350,000; and every month more than 70% of Facebook users engage with platform applications. This application platform has attracted more than one million developers and entrepreneurs over 180 countries. It would be interesting to see how these 1 million developers of Facebook applications react to Facebook Lite.

When it comes to Facebook usage in India, a quick look at the Indian traffic data for Facebook applications on Vizisense shows that different applications residing on Facebook apps server are accessed by 2.9 million Indian unique users per month, which is a sizable chunk (36.61%) of the 7.91 million unique users per month base of Facebook in India. Also it is a known fact that Facebook has seen more traction and early adoption among the more evolved internet users in India. It has significantly higher following among the high-income and more-educated users who are expected to have access to high speed internet connections; and also are more evolved and regular internet users to understand and appreciate these Facebook applications. Facebook usage among income-group of more than Rs. 15 lakhs is 1.62 times national average, and that among PhD/Doctorate is 1.38 times the national average. Facebook has been a welcome substitute for people who had got bored with Orkut and also irritated by the spamming, privacy concerns and fake profiles over it. Check the screen-shot of Vizisense data below.

This user-experience over Facebook Lite (with no applications) will not be a new thing. Those who access Facebook over its mobile site (m.facebook.com) get to see status updates, photos, external links, events from friends, but no applications. Facebook Lite will be extending this user-experience over web, of course with a much cleaner and easier page-design. Official Facebook statistics say that Facebook Mobile has over 65 million active users worldwide and that these mobile users are 50% more active than those over web. Assuming that more activity means more page-views, in India however numbers seems to be telling a different story.

Above table clearly shows that Facebook usage over mobile is yet to pick up in India and engagement levels are dismally small as compared to overall Facebook; and my guess is that absence of applications is one of the key reasons for this.

In light of this data, absence of applications over Facebook Lite page does not seem to be the best step forward for Facebook in India, one of the only 2 countries (other being US) where Facebook is testing its Facebook Lite page. There seems to be more to this move than what is meeting the eyes, and better and faster service to users with slower internet connections certainly does not look like the end-objective of Facebook Lite.

Having said that, only time will tell if this new lighter Facebook Lite page which downloads quickly on slower internet connections – but with no applications – will change the above data and demographics for Facebook in India. If it’s succeeds, it would be interesting to see whom does it dethrone – Orkut or Twitter  .

[Reposted from older version of this blog. Post first published on Sept. 20, 2009 here]

• Flikr Integration:

  Yahoo! had a fantastic integration of Flickr in Image Search which made it comparable to Google in terms of relevancy. Will Yahoo! open Flickr to Bing as well? Image search on Bing sucks big time

• Mobile Search – oneSearch: How about ‘oneSearch’? Yahoo! has a good mobile search product in oneSearch and its federated search result pages were a big hit, and had higher market share than Google in many local markets

• Local Search: What happens to Yahoo! Local Search? Or for that matter other search verticals like Jobs, News, Maps? Of all these, Yahoo! had poured a lot of money in Local Search, and I guess Bing is nowhere close to Yahoo! in these verticals. The minority of loyal Yahoo! search users is only going to shrink further if Bing powers these search verticals. A huge opportunity to compete with Google in these verticals (where actually Yahoo! was not lagging way behind of Google and was doing comparably well) goes down the drain

• Social Search: There was a lot of talk of integrating Del.icio.us with Yahoo! Search, which I thought had great promise. Search needs to be more social, and success of Twitter as search engine is for everyone to see. With a strong social bookmarking product like Del.icio.us with it, Yahoo! could have done a lot in search. Wonder what happens now with search technology getting outsourced to Bing?

• Glue: What happens to Glue? Yahoo! launched it last year as a new search product and Yahoo! India Search have Glue pages for a large chunk of popular queries

These questions may be of no relevance once Yahoo! says that its technology is not the one which can provide the best search experience to its user. And as it says that, Yahoo! writes-off all the investment it had put over years in improving its search engine and adding those awesome search features like ‘Search Assist’ to the latest one of ‘Search Pad’. With this, it also writes-off all the effort engineers there had put in building the search and its various features. Carol Bartz announced that there will be lay-offs in search team, and am sure elsewhere also in Yahoo! there will be a huge attrition now.

May be Yahoo! should have just spun-off Yahoo! Search as separate company. That would have unlocked the real value of rest of Yahoo!’s businesses in which it is doing quite well (It is still the most trafficked portal in world. Display advertisement remains Yahoo!’s forte altogether). Market would have determined the right value for this separate search company, and am sure Yahoo! would have got a better price for it than what it has got in this deal.

[Article first published on older version of blog on July 30, 2009 here]

Selling the user-base to the marketers:

In today’s internet world, there is an increasing trend of letting the end-customer use the service/product free-of-cost; and instead charge institutions (read marketers) who are interested in reaching out to these end-customers through this medium. This activity of marketers advertising to end-customers need to be so well blended with the key proposition of the business, that the end-user does not mind it; else this can result into dilution of the very proposition on which the business has built the traffic and audience.

Let me explain this with an example. Twitter is today one of the hottest internet startups and has an exponentially growing user-base using the service for free. Also several social-media marketers have started using this channel to promote their stuff to this audience. Now tomorrow if Twitter starts charging these marketers hefty fees for using their channel, these marketers will also have to become aggressive in their promotions and advertisement in order to get a decent return for their investment. This might end up in making Twitter a commercial place with more spam content than actual micro-blogging generated content. Twitter will have to ensure a balance between this commercial content and the actual core offering of communicating “what are you doing”.

Of course this will be an extreme case, but the point is that if Twitter tries to generate revenue through this mechanism, it always risks spamming itself. Take example of Search business. We have one Google which owing to its almost monopolistic market share can afford to limit the number of ads to be shown on its search result page, allow only relevant ads and push up the price (revenue per search) through an auction-based model. The lesser successful search engines have to resort to showing as many as 4 or 5 ads above actual search results, and may also have to take all advertisements that they can get and compromise on relevancy of ads – resulitng in spamming their own service – to sustain their business. And still their price (revenue per search) lags Google. Startups should try to innovate around revenue model for search, instead of force-fitting one (by copying one which has been successful for Google and end up playing a catch-up game).

Making the service/product paid:

In a bid to force-fit a revenue model, one may stop offering the service/product for free, and ask the end-customer to pay a nominal fee to use it. The end-customer will pay the fee if the value he derives is more than the fees charged. However again, there is a chance that this may dilute the very proposition itself.

For example, say tomorrow Facebook becomes a paid service (at a very nominal cost like say Rs. 10/- per month), there would surely be a drop in the registered users. Even if I am ready to pay the fee, if my current network on Facebook shrinks, it reduces the benefit I am getting from the service. Then there are problems of collecting such nominal amounts through e-payment methods and so on. Something like LinkedIn – which offers basic service for free, and advanced features (which are an integral part of the core offering) for a charge – might work, but then this needs to be thought about at the beginning itself. What Facebook or Twitter service would you as a normal user would like to pay for?

Acquisition and Other Methods:

Entrepreneur by definition is an optimistic person, and acquisition will always remain a very attractive exit option. While every entrepreneur always starts with a confidence of building the Google-killer and hopes of getting acquired, having a sound revenue model is of utmost important to make that happen. An acquisition for the audience/traffic built will be possible only if the startup is among the top players in the segment. For others, having an operationally profitable revenue model becomes absolutely necessary.

There might be several other ways of monetizing the generated traffic and audience (like CPM based online advertising, database marketing, etc.) but one need to be ensure that the payoffs from these are enough to sustain the business on a daily basis.

Extending innovation to revenue model:

Entrepreneurship (even social entrepreneurship) is not philanthropy; instead it should be financially fulfilling for the entrepreneur, only then he will be able to continue. And for that to happen, devising a viable and sustainable (and also flexible) revenue model at the outset should be integral to the idea of entrepreneurship. This model might undergo changes as the business evolves, but it should always be of prime consideration for the entrepreneur. Postponing revenue-model for a later stage and then trying to force-fit one can be a very dangerous choice to make. Entrepreneur should not limit his innovation to the service/product alone, but should extend it to revenue model also, and have a rewarding entrepreneurial experience.

[Article published first on older version of this blog on July 15, 2009 here]

Given this, I am surprised that neither of these two socio-nets has a feature of image search among the friends’ network and public photos on these sites.

Often when we are planning a trip or vacation to some place, we try to search online about the destination. I would always love to know if any of my connection on either Orkut or Facebook has been there and has put up any photos of the place. A friend’s word would always carry more credibility than the most authentic commercial profile page/wiki for the place. In fact, a few days back Orkut themselves had run an online ad campaign wherein they showed one animated user talking about the great trip/vacation he had and other asking him to upload photos from this trip/vacation on Orkut. So I am quite sure that photo sharing (especially of specific locations) is a big traffic booster for Orkut and Facebook.

However right now there are no means to find out if there are any photos of interest available on these socio-nets to which I have access. I have to turn to proper photo-sharing networks like Flickr.com and try my luck with photos from some stranger with whom I might never be able to connect (Yahoo! sucks in all its social network efforts  ). This one application can overnight convert Orkut and Facebook into a serious competitor for all photo-sharing sites like Flickr.

This image search facility should allow me to search for photos to which I have access on these socio-nets, i.e. photos from my friends or photos which have been made public purposefully by their owners. This search can be based on tags/album name or whichever image search technology is best suited. I am sure Google with its best search technologies will not have much of an issue in developing an image search for Orkut. Besides, Google maps/Google world should be integrated with Orkut and geo-tagging of photos should be allowed. It will only make image search more accurate when searching for photos of a specific location.

While privacy has always been a key concern for these socio-nets, and more so with photos, this search facility needs to be very particular in searching only among those photos to which the searcher’s account have access to. Facebook has the famous privacy bug still unresolved wherein if any of your friend comments on a photo from a Facebook user who is not your friend, you still get to see the entire album of photos of that person. Bollywood actress Sonam Kapoor’s private photos from Facebook had leaked out once because of this bug, however still it remains unresolved. Wonder if it is now an intentional bug that Facebook wants to be alive to drive more page-views.

As a plain user of these socio-nets, I sense a need here for an application which can provide this image search facility. I hope some Product Manager from either Google of Facebook listens to this and evaluates the opportunity. But before that, what do you guys think of it? Is there an opportunity for building such an application for Orkut or Facebook?

[Article first published on older version of this blog on May 31, 2009 here]

Games2win.com has come up with invisible ads which they term Inviziads. These ads do not show up when the game is being played on www.Games2win.com. However the moment this game is stolen and put up on some other pirate site, these ads become active. Ads detects that the URL of the game is not the original one (i.e. of Games2win.com) and hence the ads become visible. Alok says that within hours of him putting up a new game on site, it gets copied on thousands of sites, and this provides him with a fantastic distribution network for Inviziads. Not only these ads are bringing loads of traffic back to www.Games2win.com, he is already selling these ads for a good profit.

Quite an intelligent way to use piracy for own advantage, isn’t it?

[Article first published on older version of blog on March 09, 2009 here]

While comScore does provide an elaborate analysis of the website traffic and is considered a standard worldwide, one needs to understand the methodology used for this tracking.  comScore has a panel of around 2 million worldwide and they use extensive statistical methods to come up with the numbers they have (more details on methodology here). But what needs to be noticed is the fact that comScore excludes traffic from cyber-cafes and users under age 15. For India, I am sure that is a sizable mass of internet users. And when it comes to activities like online gaming, I am afraid, absolute numbers shown by comScore might be drastically away from the reality. Cyber cafe still remains an important point of access for Indians and excluding this traffic can result in misleading conclusions. Internet is being taught in schools and at least in cities, school kids are using internet extensively for both studies and entertainment purposes. In such situation, excluding users under age 15 might not always provide the best traffic numbers, especially for activity like online gaming.

Other best bet in terms of tracking online traffic is Alexa.com. However in over more than a decade that I have spent on internet, I have not seen a single browser with Alexa toolbar. Alexa again, is a panel study based on the information gathered through their toolbars. Apart from the high-end users of internet, I wonder if an average internet user would actually go to www.alexa.com and download and install their toolbar.

There are some other tracking and measurement services available, but mostly it has been Alexa and comScore who are quoted for such purposes.

One can argue that both comScore and Alexa work based on a random sample and hence same error in reporting would appear across traffic measurement for all sites. Given this, Alexa and comScore can be reliably used to compare two internet destinations or to detect any deviation from normal trend. However for absolute numbers, I guess there is lot more needed to be done.

For developed countries where most of the traffic originates from home, school or offices and very less from cyber cafes, these numbers might work, but for India with its huge cyber cafe traffic, I guess a more extensive tracking system is required. Cyber cafes continue to be important point of access, often the only access point in tier II and III cities. I have seen young school kids flocking these cyber cafes which serve more as gaming parlours; parents creating matrimony profiles of their kids with the help of assistant (generally the owner) at the cyber cafe; and young college students playing pranks on their friends through Orkut and also getting their first experience to mature content over internet. comScore is missing this traffic  by excluding cyber cafes.

Although this traffic might not be very huge in terms of absolute numbers, general observation is that these new users of internet (who learn how to use internet in cyber cafes) are more likely to click on ads as online behaviour has not matured to differentiate an online advertisement from a genuine article. I once saw a school kid trying to fill up a life insurance form because the advertisement offered some lucky draw prize on filling the form (Of course he never completed the form for the lack of PAN number ). This audience would be of the least interest to all the online advertisers and brands since they hardly convert into any transaction; however these would be the guys who would most likely click on all those online advertisements and hence form important part of the online advertisement industry.

I am sure that all hosting servers do have the exact numbers about traffic coming to them, however key is in profiling this traffic and consolidating and analysing this information into useful insights. This system should be encompassing enough to take care of diversity in internet usage as we see in India and in developed western countries and also in non-English speaking countries.

Creating such a tracking and measurement system for India would need investment, and given the current level of online advertisement spends in the country it needs to be analyzed whether this investment is justified.

Do you guys see an entrepreneurship opportunity in this?

[Article first published on older version of this blog on March 09, 2009 here]