Does free work in the long tail?

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Good Old Trend

I saw Chris Anderson at Media Evolution in Malmö the other day (along with everybody else). I liked it, and it made me think.

A thought: does free work in the long tail?

I’ll try to keep this short.

If freemium works by letting 90-something percent get the content for free, and the remaining percentage pay for everyone, the site has to have a certain number of visitors to make any business viable. That number will vary depending on the cost of the site. But is there a lower number of visitors which simply can’t create enough revenue for any business to survive?

If this is the case, freemium doesn’t work in the long tail. And in a further perspective, perhaps freemium will have difficulties in any market with a limited amount of potential users – measuring by language, interest or any other parameter.

An example: Erik the entrepreneur runs a website with a freemium model in Sweden. A Swedish full time salary costs a company about 500 000 SEK a year, with taxes and all. Say that a typical premium product (Flickr Pro, or similar) costs 300 SEK a year.

This would mean that a freemium model would require him to have 1666 paying customers a year, just to pay his salary. With a payment rate of 5% that would mean that he needs 33 320 visitors regularly to break even, without counting any costs. For Sweden, that’s quite a lot of visitors, placing him a bit up in the tail.

Apart from cutting salary and all of those arguments (not relevant as these are hypothetical figures anyway) – could it be so that there is a limit, somewhere down the tail, where freemium simply doesn’t cut it? At least not as a business model.

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