Beware of Free Services

Everything has a price, so beware of companies offering free services. After all, what will they do when they become desperate for money? asks David Coursey, who also questions social network and blogging companies.

Beware of companies that dont show you a clear business model. Why? Because you can never be sure what they will end up doing to make a buck or whether you can rely on them long-term. Put another way: What might these companies do, especially with personal information, when they become desperate for money? Or when the new owner arrives on the scene?

I am not accusing anyone of anything, but you have to wonder how Plaxo, the most notable example of this, plans to make money. Sure, the company is now offering "VIP support" for $19.95 a year, but that hardly generates the sort of revenue stream that Plaxos venture capitalists are going to get excited about.

Given that a Plaxo competitor, Good Contacts, offers limited free service and then charges $99.95 a year for essentially what Plaxo has been giving away since November 2002, youd think that by now—nearly two years in—Plaxo would have a real revenue model to show, rather than just a support plan that few "customers" should really need.

The cynic in me keeps wondering what Plaxo is doing with all the information it has access to, essentially its customers entire address books. I am not accusing Plaxo of anything, but isnt it about time for them to earn their keep?

Likewise, I am skeptical of "social network" companies and, to a lesser extent, blogging companies, though for different reasons.

Im sure its just a lack of imagination on my part, but I dont see a huge business in social networking, besides pairing up people for sex or romance. Social networks might be a part of other products, like gaming, but as a stand-alone service they dont turn me on. My concern is that these companies are asking people like you and me to invest a lot of energy in creating personal networks that they can then sell access to.

The problem with this scheme is it turns something that looks a lot like a cooperative, where everyone enters his or her own contacts in exchange for access to other peoples contacts, and tries to make money by dropping a troll into the middle, collecting a toll on the contacts people end up making.

Again, maybe this is a great deal. But it concerns me that social networking business models have been so slow to emerge. Sure, people will pay for highly value-added contacts like sex, romance and access to people who never in a million years would answer their e-mail or take their phone calls.

Of course, are those people youd want to talk to—knowing they paid some social networking vendor $10 to get to you? Maybe we should all just create PayPal accounts and offer to accept anyones mail for, say, $5 apiece. Maybe wed even answer a few.

But how much would you—should you—pay for an introduction to someone I know and you dont? And why would I want you to pay? What happened to the old "Ill do you a favor and someday youll do me one in return"?

Again, no accusations here, just a concern about whether the time and effort we put into creating social networks is a worthwhile investment or just fueling some entrepreneurs efforts to separate investors from their money while giving us little or nothing in return.


For more insights from David Coursey, check out his Weblog.

I have concerns about blogging companies as well. For example, who really owns the content and can a blog be easily moved from one provider to another? Not a huge deal, but if your private blog suddenly becomes public because some vendor screws up or the company suddenly fails and you cant get your content back, then youd have a problem.

I dont know about you, but I dont mind paying for the products I use. Not that free isnt great, but everything has a price and I like to know whos paying it. For example, we sell advertising and you get for free. Thats a deal I understand. Plaxo and some of the social networking companies I have to wonder about.


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