'Free-mium,' self-funded models set to gain traction

Sites dependent on advertising will see a tough 2009. It's time for start-ups to switch to subscriptions and premium services, and not expect to get VC for an iPhone-based business.

Dave Rosenberg Co-founder, MuleSource
Dave Rosenberg has more than 15 years of technology and marketing experience that spans from Bell Labs to startup IPOs to open-source and cloud software companies. He is CEO and founder of Nodeable, co-founder of MuleSoft, and managing director for Hardy Way. He is an adviser to DataStax, IT Database, and Puppet Labs.
Dave Rosenberg
2 min read

Sooner or later, I will put all my 2009 predictions together, but in the meantime, I've come up with two business trends that I think we'll see next year:

  1. Web start-ups will move to premium services and subscriptions
  2. Self-funding will rule for "ecosystem" plays

Ad-supported sites will move to a "free-mium" approach or die by the end of the year.
Free-mium and paid services will become the norm next year, as advertising wanes and companies realize that ad-supported business models were not that great to begin with. Even Digg, with all its traffic, has little to show for the advertising model.

Large sites will start offering subscription services with premium functions, content, and lots of virtual goods, while product-oriented sites will start to look like those of 37signals: fairly cheap, with decent functionality and good-enough support.

It's one thing for advertising to be a crutch, as you scale up, but it's quite another when all of your revenue is totally dependent on it (even if you're Google.)

There are areas where we'll start seeing a lot more advertising that will seem like a boom--specifically in games and virtual worlds. The sites that figure out how to attract users will figure out ways to keep them engaged with bite-size chunks of new things. Adoption won't be enough in a down economy.

Start-ups looking to build a business model based on other people's products will not get funded.
Building a company to run applications inside of Facebook, or maybe trying to make millions of dollars from an iPhone game? You won't get funded--investors know that Apple and Facebook can easily take your idea and stomp you out of business (even without malicious intent.) Even if you get venture funding, you are looking at painful deal terms. If you are going to build those kinds of applications, your best bet is self-funding.

Building on top of a platform like Amazon Web Services is probably fine, as you could (in theory) move your application to another service. However, there are still some big question marks about building atop something like Force.com that is largely only applicable to Salesforce.com users. You can probably build a business, but it's hard to see raising money for such an endeavor.

Considering the sad state of the economy, the depressed advertising and housing markets, and the fact that there is a tremendous possibility that many companies will be out of business next year, the most likely scenario is a lot of ups and downs.

Follow me on Twitter @daveofdoom.