Getting Paid For Free & Business Models

Fred Wilson writes that from a free model to a paid model for value added services can actually be beneficial, - is really interesting and needs to be better understood. He cites Google giving away an incredibly powerful Internet search service every day millions of times a day & getting paid by advertisers who also get to run their text ads for free. The only time an advertiser pays is when the ad is clicked on. Free to use, pay for performance. It doesn't sound that different from the Red Hat model. Flickr is the best photo site on the Internet by a long shot. And its free. Turn pro means means a paying customer.You can get a really great free experience uploading and sharing photos on Flickr. But if you are like many of us who love taking and sharing photos, you'll turn pro in about a day.
Fred adds that his portfolio companies have an enterprise software/service that customers pay for. But there are huge network effects in the deployment of their service. The more users they have, the more value accrues to each user. They are thinking about the role of free code and data in their business. And well they should. Because free is a great way to make money. You just have to know how you are going to get paid for being free.
My Take: Several network effect raising suites may have seen growth – these have been huge but converting customers to the paid version - no matter how fast you build features and improve the customer experience—is an uphill task. Free is an excellent way to get immediate big band mileage, exposure, a7 create competitive differentitators but ahuge majority have failed trying to make this model a winnable one - Not everyone is a google or craiglist – there are several hundreds who have failed trying similar things. For a google - there is a failed altavista, for an adsense there is a Kanoodle that is failing to take off.In the medium to long term the competitive barrier for free services anyway melt away.