Is Freemium against loyal customers?

In addition to economic problems I have with freeconomics, the loyalty aspect came to my attention recently. This time it is with freemium, a business model which I view as rather reasonable unlike other more extreme free arguments, and so the issue is more subtle.

I was a business strategy consultant at Bain, and 'customer loyalty' is one perspective of Bain that I really like and agree. I even translated Loyalty Rules by Fred Reichheld into Korean edition while working at Bain. (You may think this is obvious for an ex-Bainee, but I have not always been very enthusiastic about perspecitives that came out of Bain. For example, I do not fully agree with 'profit from the core'.)

So, why do I think at least some variation of freemium conflicts with customer loyalty? First of all, loyalty economics says that if you care more about your loyal customers you are better off. Sounds too obvious? Maybe. But this has a very strong warning against focusing too much on acquiring new customers. Typical businesses spend too much money on marketing and sales, and too little on caring loyal customers. So what happens very often is you give discounts and all those benefits to new customers, while claiming full price to your loyal customers. Loyalty economics, as argued by Fred Reichheld, says that this is economically destructive as well as morally low-road.

Let's have a look at freemium. Some argue that you should give away your most popular contents for free and make money by making niche contents paid. This model has a strong possibility of compensating free riders (apparently not your loyal customers) with your loyal customers' money.

In theory, the free users may not be free riding. They may be contributing a lot as marketing agents, linking to your sites and talking about your contents. But the issue remains, if majority of free users are just free riders. And I am guessing that is the case.

I have not thought through this yet. So, let me just ask some questions.
- Does this freemium model have conflicts with customer loyalty as I described? Why or why not?
- If yes, is this conflict inherent and common among all freemium models or just some kinds? To put differently, is customer loyalty in conflict with 'free for a month and paid afterwards' model? What about 'free for limited features and paid for full features' model?
- How can we make (freemium or not) change the business model so that we compensate loyal customers better?

Freeconomics or Freeligion?

There are discussions about freeconomics, triggered by the publication of Chris Anderson's book. I have already written quite a few times about why its economic logic is flawed. See them here.

I cannot help asking this question. Do advocates of freeconomics think that free is the most economically effective price, or that free is the most morally right price?

I hope the former is the case. But price being determined by supply and demand, they seem arguing too passionately for for the only ultimate price. If they believe strongly that it is morally (or socially or by any viewpoint) right to price at free, they can say so. But it's different from saying 'free' is inevitable because of economic forces.

Let me step back a bit. You can be excited to find a truth that confirms your philosophical or religious beliefs. In those cases, however, you should be especially careful not to be too confident with insufficient logic and evidence.

Why aren't hedge funds failing as fast as banks? | Chris Dillow - Times Online

Why aren't hedge funds failing as fast as banks? | Chris Dillow - Times Online

Key sentence: "state ownership, for all its obvious faults, can be less dangerous than dispersed private ownership."

I don't know well how the hedge funds are performing recently or whether hedge funds have a better owner-manager structure. But I agree in theory, except for the last part about Shiller. I am not sure how it is consistent with the less dispersed ownership.

Division of a state could make people happier

Visalia Journal - Farmers Lead a Bid to Create 2 Californias - NYTimes.com

I came to believe having more choices in the type of government to live under is the way to go. This applies to Korea, and probably many countries, where people with differing views fight all the time competing for the single prize of the central government.

In the current democracy, you basically take turns. We live happily for some years, and complaining for the others. Imagine how painful you will be if you are required to use Apple or Windows, whichever is not your preferred OS, based on a poll. Is having a government whose policies you don't like less painful than using an OS that you don't prefer?

A big and powerful country have been a desirable thing, just like a large corporation has been. But the reality is that the advance of technology and the way people work together is making it much less so.

Actually, if politics reflects the underlying economic reality, I think this, more choices of government, will happen following what's happening in the market.

Whether it is delegating more authorities to the local provinces or spliting jurisdiction, we need to figure it out.

Artpoli Gallery for iPhone (and iPod touch)

Artpoli Gallery+ for iPhone (and iPod touch) has just been launched. With + version, which is priced at $1.99, you can save the images to use as wallpapers, etc. The no + version, priced at $0.99, does not allow saving outside the app.

We have some promo codes, with which you can download Artpoli Gallery for free. If you like to have this, let me know. You can have either + or no + version, but I guess the + dominates when both are free.

Lala has it all - paid music, cloud storage, streaming to mobile

Lala - Where music plays

I have been against the idea that paid music (or any digital content) does not work. I have written many posts. Here they are.

I believe one of the significant obstacles is micro payment, which I have mentioned here, in terms of both price level and payment system. And according to Techcrunch, Lala allows you to buy web-only versions of songs for 10 cents. When you want to 'own' the file in your iPod, you pay extra 80 cents.

Another pro is that they will lanch streaming to iPhone. One thing innovation does is to reduce waste. There are guite a lot of waste around music: Many people storing the same songs, storing the same song in multiple devices, songs stored but not being played often, etc. Chris Anderson seems to believe that because we have abundant storage, it is fine to 'waste' it. See his blog or Wired article. (However, he has refined his theory and became much more reasonable, focusing more on freemium.) But I am not sure if those waste is negligible given the abundance we have. Those small wastes add up.

I have not used it. In fact, they are not offering the service to people outside the US. But with their business model, I think Lala may have a chance in the crowded music market. Let's see how it does.

Pay Me for My Content - New York Times

Pay Me for My Content - New York Times: "Affordable turns out to be much harder than free when it comes to information technology, but we are smart enough to figure it out. We owe it to ourselves and to our creative friends to acknowledge the negative results of our old idealism. We need to grow up."

Mr. Jaron Lanier, I agree with you.

Self-interest and altruism (or empathy)

What Is Altruism? - Freakonomics Blog - NYTimes.com

I left a comment:

One thing many economists, or whoever doesn’t believe in voluntary giving (as opposed to forced taxation), seem to assume that one needs to sacrifice one’s self-interest to contribute to others’ wellbeing. Therefore it won’t happen easily. Therefore we need forced contribution.

I don’t agree. Whether you call it self-interest or greed or utility or whatever, people pursue happiness. And very often people feel happy when seeing others happy. Plus, people feel proud and happy when they have helped others.

I don’t know academic distinction between altruism and empathy, but I am certain that contributing to others’ happiness is not inconsistent with pursuit of one’s own happiness.

Does a firm need to be like the market?

Should a firm act like the market to survive through changes?

Some people seem to think so. I have not read it, but “Creative Destruction”, a book by McKinsey consultants, had such remarks. I cannot argue about the book, as I have not read it. But the sentences that I read certainly made me think a lot about what companies should do to survive.

Do you think a firm should act like a market? How much should you diversify to qualify as acting like a market?

There is another question, which might be even more fundamental. Does a firm need to last long? Or, is built to last a good thing for every firm?

The first English version of Artpoli is up

We at Innomove Lab opened the first English version of Artpoli. You can see it at www.artpoli.com.

Artpoli is an open community and marketplace for arts. We are based in Korea, and it was quite natural that we started with Korean artists. And because established artists have relationships with art galleries, it was also natural that we attracted artists who are not known. So, in principle we are an open space for any artist, but for now we have Korean artists who are mostly young and not famous.

We plan to add features like commerce, commenting, and community that Korean version has, but at the moment we have the only the most basic feature for an art site, that is to display arts. But we wanted to open earlier and build incrementally with feedback, while letting you enjoy the artworks of Korean artists.

Most of the user generated texts, including title, artist nicknames, and descriptions, are translated using Google Translate. It is better than nothing and sometimes does a good job, but we may need to have humans translate the content later.

Anyway, it is a start. Please enjoy and let me know if you have any feedback.