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There are so many examples of popular free services that could not make the jump and had to shut down: Friendster, Napster, PubSub, Lycos, AltaVista come to min

There are so many examples of popular free services that could not make the jump and had to shut down: Friendster, Napster, PubSub, Lycos, AltaVista come to mind immediately, but there are many more examples. And if you count revenue-less firms that got acquired (and were saved from having to figure it out later), the list is even longer.

nostrademons 19y ago
Many of those shut down from causes other than lack of money, though. Lycos and Altavista were killed because Google came along with a better product. Friendster collapsed under the weight of its own scalability problems. Napster was put out of business by the RIAA lawsuit. I'd never heard of PubSub - it looks they did run out of cash, but you could argue that they didn't have traction anyway. Many of the replacements also started as free services and did just fine. Google went for 4 years before it discovered a revenue model. FaceBook and MySpace are doing just fine (profitable, even) as free services. Kazaa managed to turn a profit until it too was shut down by the RIAA. The only companies I can think of that managed to get traction and still failed due to lack of revenue were those that deliberately priced their product below cost and had no other differentiators, eg. AllAdvantage.com, WebVan, Kozmo, Pets.com, Value America. This is economically very different from the current crop of web services, though: most Web2.0 sites get revenue over their variable costs (even a $1 CPM still leads to 80% margins over the cost of hosting & bandwidth for any non-video site), and so they can make up their fixed costs in volume. The Web1.0 E-commerce sites were pricing their product below variable costs, so they ended up losing money when they tried to make it up in volume.
- dpapathanasiou 19y ago
  I'm not sure about all your points, but think of it this way: companies with revenues can overcome all kinds of technical and managerial gaffes (I'm looking at you, Microsoft). OTOH, you can produce a popular, well-executed, low cost per user, etc. free service and still fail.
  - nostrademons 19y ago
    The inverse is true too: companies with popular, well-executed, low cost per user free services can overcome all kinds of technical and managerial gaffes (I'm looking at you, MySpace & LiveJournal & PlentyOfFish). OTOH, you can produce a company with revenues and still fail. (Webvan, Kozmo, Value America, etc.)

nostrademons 19y ago

Many of those shut down from causes other than lack of money, though. Lycos and Altavista were killed because Google came along with a better product. Friendster collapsed under the weight of its own scalability problems. Napster was put out of business by the RIAA lawsuit. I'd never heard of PubSub - it looks they did run out of cash, but you could argue that they didn't have traction anyway. Many of the replacements also started as free services and did just fine. Google went for 4 years before it discovered a revenue model. FaceBook and MySpace are doing just fine (profitable, even) as free services. Kazaa managed to turn a profit until it too was shut down by the RIAA. The only companies I can think of that managed to get traction and still failed due to lack of revenue were those that deliberately priced their product below cost and had no other differentiators, eg. AllAdvantage.com, WebVan, Kozmo, Pets.com, Value America. This is economically very different from the current crop of web services, though: most Web2.0 sites get revenue over their variable costs (even a $1 CPM still leads to 80% margins over the cost of hosting & bandwidth for any non-video site), and so they can make up their fixed costs in volume. The Web1.0 E-commerce sites were pricing their product below variable costs, so they ended up losing money when they tried to make it up in volume.

dpapathanasiou 19y ago
I'm not sure about all your points, but think of it this way: companies with revenues can overcome all kinds of technical and managerial gaffes (I'm looking at you, Microsoft). OTOH, you can produce a popular, well-executed, low cost per user, etc. free service and still fail.
- nostrademons 19y ago
  The inverse is true too: companies with popular, well-executed, low cost per user free services can overcome all kinds of technical and managerial gaffes (I'm looking at you, MySpace & LiveJournal & PlentyOfFish). OTOH, you can produce a company with revenues and still fail. (Webvan, Kozmo, Value America, etc.)