Just in the last couple months there has been a huge focus in the tech press and amongst developers on application (app) monetization.  I believe it started when Twitter shut off some of its APIs to some other apps as Twitter struggles to figure out how to make money.  This prompted a big backlash in the developer community that were building on top of Twitter APIs (and Facebook’s too).

Then an independent developer, Dalton Caldwell, started app.net which is a Twitter-like clone with a subscription model.  He raised over $800K to get it started.  He was able to do this because Fred Wilson, one of the most famous VCs in the world (at Union Square Ventures) and the lead investor in Twitter, responded to Dalton’s missive on why advertising is bad.  The blogging battle between David and the Goliath is what got Caldwell the publicity he needed.

It makes one pause to realize that Twitter, wildly successful in every way, cannot monetize itself.  And Facebook stock is half off.  Zynga and Groupon stock prices have plummeted.

Last Wednesday, August 22, 2012, for the first time, the WSJ wrote about the freemium business model – negatively (When Freemium Fails, by Sarah Needleman and Angus Loten).

App vendors are struggling in every domain – PC, web, mobile.  None of the monetization strategies are working – free, freemium, premium — except for the handful of app vendors that manage to get bought,  or have created the handful of utilities that people just can’t live without and the app vendor has no real competitors (e.g. Evernote).

The cloud storage market is a war zone with tens of app vendors all in a land grab passing out gigabytes of free storage.  Some are only able to do this because the VCs are pouring money into this space, hoping that one of their portfolio companies will get bought by one of the few actually free standing profitable tech companies left (e.g. Microsoft, Oracle, Amazon, PayPal, Google).

The article “How Free Apps Can Make More Money Than Paid Apps“, in TechCrunch, by John Manoogian III, co-founder and CTO at 140 Proof, a venture-backed start-up for targeted Twitter advertising is another example of app vendors (or VCs) defending their business model.  You can imagine this author has a reason to push ad monetization!

Is it  about to be revealed that the emperor has no clothes? – that all of these app vendors cannot survive long  term with their current monetization models – and especially all of the VC backed ones?

In reality do people only have so much:

  • money: and every app vendor can’t get $5/mo from their users because of the enormous overlap in user bases?
  • attention: and every app vendor can’t get the same users’ attention again and again for their ads?

Is the end game going to be just like in the content business – people have only so much of their day they allocate to news, and when services like Twitter and Facebook came along which provided friend and colleague news, it cut into local, national, and world news?

Or like in the real world — if you go into a Costco with $100, you can only buy $100 worth of stuff, no matter how many free samples you taste.


For background information about freemium see also: