Raja Jasti’s Blog - Renaissance Thinking

37signals, a web productivity apps startup, always preached charging for stuff that you make. They were doing this even during the halcyon days of web2.0. Now that the advertising market is in a free fall, their message seems to find some resonance.

I think the days of the traditional San Francisco startup approach are numbered. It’ll be flushed down the drain along with CDO’s and zero-down mortgages.

On the other side we’ll have a world where having a price will be the expected. A world where Jason can’t make headlines saying “free is not the future”. A simpler world where most people, even on the web, will live from direct customers.

Mediapost also thinks that the days of free services may be numbered.

The current economic crisis will serve as a forcing mechanism for Web site business models. While we all love free sites and services, there just won’t be as much of it around as advertising shrinks, and a multitude of businesses fail. The successful sites will be those that add value to their products and services and move away from crowded niches to areas where content can be monetized through subscription-only or freemium models. That transition is not an easy one, but once it’s done, the model is not as vulnerable to economic fluctuations as the pure advertising model. For many companies that have adopted the model, it has already proven more stable and predictable.

In the long term, this is good news not only for businesses but consumers. The approach will continue to drive healthy new crops of Web startups for years to come. And consumers will be assured that their favorite sites, which might be struggling with their current model in this economy, will not vanish because they can’t sustain themselves.

There is no doubt that the market reality makes it very difficult for web companies depending solely on advertising to be viable unless they have huge userbase like facebook. This situation is not going to change anytime soon. So these companies must figure out a way to charge at least for some of the services (freemium model) like linkedin does. This means that they offer something that people are actually willing to pay for. If not they will die or get eaten by sites with critical mass or money in the bank.