The bar for success in our industry is too low
This weekend the New York Times published a piece called Using ‘Free’ to Turn a Profit. The piece focused on Evernote, a web-based and smart-phone based application for taking notes, snapping pictures, and storing stuff you want to remember later.
Context & Ripple Effects
The New York Times has just run 'Using Free to Turn a Profit,' a feature treating Evernote's web- and smartphone-based note-taking app as proof that giving the product away can build a business. Within days, the Signal vs. Noise blog answers with the opposite read: an industry that celebrates free-user growth as success has set its bar too low.
The exchange matters because both sides are working from the same facts about the same company — a large free user base around a small paid tier — and disagreeing only on whether that counts as winning. In September 2009, with consumer web startups standardizing on free tiers, that disagreement goes to how the whole sector will be judged.
First-order effects
- Evernote gets mainstream validation from the New York Times feature, while Signal vs. Noise's rebuttal simultaneously drags the company into a public argument about whether its mostly-free user base is an asset or an unfunded liability.
Second-order effects
- Other freemium consumer web startups and their investors inherit a new scrutiny question — what fraction of users actually pay — forcing founders to lead with paid-conversion rates rather than raw sign-up counts when courting press and capital.
Third-order effects
- If the Signal vs. Noise framing sticks, the definition of success for ad-and-freemium consumer web shifts from registered users toward paid conversion, changing which companies get funded, covered, and acquired.
The trend: Consumer web coverage in 2009 is splitting between celebrating free-user scale and demanding proof that freemium actually converts, with Evernote the test case both camps are using.