Taking the P out of Freemium

The numbers in the Freemium business model are similar to direct mail.  2% of the users buy.  Fortunately for the businesses selling their services through the Freemium model, serving the 98% is about as cheap or maybe even cheaper than sending out direct mail pieces.  Better yet, the cost of servicing the users that don't pay is offset by selling access to them and their data to advertisers.  

All good?  Yeah!  But wait, what happens when some other company swipes the 2%?  In an emerging marketplace where new entrants create new sectors and then have them all to themselves, this all works great.  But as the market matures and competitors flood in, it is pretty easy to see how there could be a company that gets the Premium customer and does not have to give away their service to 98 out every 100 users.  

What if small businesses try out cloud storage with DropBox, but when it comes time to pay, go to Box? Box bills itself as the enterprise version of DropBox and it could play out that users perceive that it would be silly to pay DropBox when they could get an enterprise version at Box.  Maybe this is why Box has been able to raise $150 million even while Google is entering the market with Google drive and Microsoft is entering the market with Skydrive.  Could those companies be serving as Freemium providers just driving Premium users to Box?

This is what Apple has done.  They dominate the Premium part of the hardware market and their share of the profits in the industry far exceeds their share of the market.  

The Cloud is Out of Our Control

Anyone familiar with network diagrams knows that the cloud symbol is used to refer to the things outside of the control of the network owner. In the old days it meant our network connects to the Internet here, or connects to the telephone network here.

Wait, that is still what it means!  By this definition we have had cloud computing since the 50s. What is the big deal about all of this “Cloud Computing” then?

True to the definition, we are shifting more computing from inside our networks to the part of the diagram depicted by the cloud – the part out of our control.

Web email (gMail, Hotmail…) was the first mainstream application of this, but network administrators know that the migration to the cloud started well before that with security services, enhanced phone services, distributed computing grids.  And everyone else is watching as we are now getting cool cloud apps like Dropbox, Evernote, Google Docs, and Office 365.

So are we just back to timesharing the VAX? Well, no.

Yes MS Azure, AWS, Google App Engine, OpenStack, and the dozens of other offerings do look a lot like mainframe timesharing with one big exception – the new cloud services talk to things inside your network, and talk to each other.

All of this talking is done with Application Programming Interfaces (“APIs”).  These are instruction sets that enable people or computers to interact with systems, without being in the system. 

We will all be hearing a lot about APIs in the weeks ahead because how they are used and who owns them is the center of the currently front page lawsuit between Google and Oracle.