All posts tagged business

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Designing Distractions

While the brain can seem almost boundless in its potential, it has limitations, such as processing speed, attentional limitations, working memory limitations, and sensitivity to interference, which can be both internal and external. You’ve all been there – that annoying, wicked challenge that you just can’t seem to get your mind to process. Frustration brews. It all goes bad.

But occasionally you might have a ‘Eureka Moment’ where the solution seems to miraculously present itself to you.

The eureka effect refers to a common human experience of suddenly understanding a previously incomprehensible problem or concept… Some research describes the eureka effect as a memory advantage, but conflicting results exist as to where exactly it occurs in the brain, and it is difficult to predict under what circumstances one can predict a eureka effect.

Eureka can be conceptualized as a two phase process;

  • The first phase requires the problem solver to come upon an impasse, where they become stuck and even though they may seemingly have explored all the possibilities, are still unable to retrieve or generate a solution.
  • The second phase occurs suddenly and unexpectedly. After a break in mental fixation or re-evaluating the problem, the answer is usually retrieved.

The Eureka Theories

There are also currently two theories for how people arrive at the solution during a eureka moment.

  • The first is the Progress Monitoring Theory (when you hear me referring to PMT in the office, please be aware that I have a slightly different definition than most people!). A person will analyze the distance from their current state to the goal state. Once a person realizes that they cannot solve the problem while on their current path, they will seek alternative solutions. In complex problems this usually occurs late in the challenge.
  • The second way that people attempt to solve these puzzles is the Representational Change Theory. The problem solver initially has a low probability for success because they use inappropriate knowledge as they set unnecessary constraints on the problem. Once the person relaxes his or her constraints, they can bring previously unavailable knowledge into working memory to solve the problem.

Currently both theories have support, with the progress monitoring theory being more suited to multiple step problems, and the representational change theory more suited to single step problems.

FMRi (Functional magnetic resonance imaging) and EEG (Electro Encephalogram) studies have found that problem solving requiring insight (non-linear problems) involves increased activity in the right cerebral hemisphere as compared with problem solving not requiring insight (linear problems). In particular, increased activity was found in the right hemisphere anterior superior temporal gyrus.

I’ve been interested in moments of ‘eureka’ for a while now because along with the moment itself is a real sense of achievement, euphoria and self-worth. We know that a quiet mind allows the weak connections of non-conscious processing to rise to awareness.

Basically that the act of coming back fresh to a problem is valuable in itself.

New research by Neuroscientist David Creswell from Carnegie Mellon sheds some more light on this phenomenon.

Creswell wanted to explore what happens in the brain when people tackle problems that are too big for their conscious mind to solve. He had people think about purchasing an imaginary car, based on multiple wants and needs. One group had to choose immediately. These people didn’t do great at optimizing their decision. A second group had time to try to consciously solve the problem. Their choices weren’t much better. A third group were given the problem, then given a distracter task – something that lightly held their conscious attention but allowed their non-conscious to keep working. This group did significantly better than the other groups at selecting the optimum car for their overall needs.

FMRI scans showed something interesting happening with the third group. The brain regions that were active during the initial learning of the decision information continued to be active (we call this unconscious neural reactivation) even while the brain was distracted with another task. This reactivation was predictive of how good participants were at making a better decision — more reactivation was associated with better decisions.

To put it plainly – people who were distracted did better on a complex problem-solving task than people who put in conscious effort. This isn’t so surprising – the problem-solving resources of the non-conscious are millions if not billions of times larger than that of the conscious. What’s surprising is how fast this effect kicked in – the third group were distracted for only a few minutes. This wasn’t the ‘sleep on it’ effect, or about quieting the mind. It was something more accessible to all of us every day, in many small ways.

Deliberate Distractions

So now to the bit that I’m driving towards – Designing complex flows, patterns, challenges, data-capture and encouraged behaviours.

What we’ve been doing for decades now is try to simplify complex tasks – I agree this should be encouraged. Of course we want to make complex things simpler. But what if we’re missing the trick of building in other mechanisms for helping audiences solve complex challenges… like telling them to “Stop”.

Some classic examples;

  • Filling out application forms online – Big pain drain.
  • Managing an investment portfolio – Oh boy that one hurts the novice investor.
  • Writing an article (like this one!) to submit to the masses of people who demand something punchy – The pressure!

We have a lot of analytics running within our digital experiences that track everything an audience does now. From where they click, to how long they dwell… we even know where they came from to arrive at the challenge. So we can pretty much derive if they’re slick or if they’re thick. It’s how we learn about their behaviour and make our systems smarter, our messages more potent and our support programmes better.

So why wouldn’t we turn that same machine learning back on the audience? Literally tell them when they’re in a bad spot. Let’s say we spot erratic, confused or behaviour that implies someone is over-thinking or struggling to solve a problem, why not just prompt the user to take a break?

Pete, go play Angry Birds for 5 minutes buddy, come back when you’ve cleared your mind.

We’re letting people go about a cognitive challenge the wrong way – by allowing them to continue pushing at a problem consciously when we should be allowing them to go off and ignore the problem.

If we do this you’ll genuinely find that you’re audiences gets better outcomes and faster, with less effort.

There are so many things we’ve got wrong with design because we haven’t stopped to look at the brain. As we begin to develop the tools to understand the brains quirks better, I suspect that many more surprising discoveries will emerge.

Celebrate the mavericks

maverick;

  • Someone who exhibits great independence in thought and action.
  • A rebel, recusant, nonconformist – someone who refuses to conform to established standards of conduct
  • Independent in behavior or thought; “she led a somewhat irregular private life”; “maverick politicians”
  • unorthodox, irregular
    unconventional – not conforming to accepted rules or standards; “her unconventional dress and hair style”

People labeled maverick are people who dare to say ‘no‘ not people who tow the line and say ‘yes‘.

Design is the belief in the ignorance of experts

You can’t squeeze innovation out of a sausage factory controlled by people who believe in ‘doing things properly‘, that’s just not how it works. The truth is very different and by accepting the truth you can go and change the status quo.

I’ve always compared good design to charging headfirst into the unknown – the shock of becoming a parent for the very first time or riding a knuckle-biting rollercoaster without being strapped in. It’s about enjoying the ongoing struggles, the risks and challenges and the ‘what the f*** am I doing?’ moments rather than fearing them.

You’ll find most maverick people love to buck a trend, so maybe it really is time to celebrate the mavericks and back the risk takers rather than try to confine them, in order for businesses to successfully move forward.

The large agencies and companies that have a very rigid definition of the route to success are in big big trouble. That approach tends to emulate the way we’re brought up;

  • When we first enter into education at the age of five, we’re taught to obey the rules and fit into a system.
  • We’re forced to specialise early in our schooling (who knows what on earth they want to do at the age of 14?) and learn how to succeed in every exam by following a precise and prescriptive formula.
  • We’re deemed successful if we achieve good GCSEs, A-Levels and degrees. Then hip hip hooray, chin chin, three cheers all around if we’re chosen for a graduate scheme with a reputable and established company.
  • At home, we’re brought up to believe security and stability are the keys to success. Do what others do, fit into the mould and for God’s sake don’t rock the boat

But these norms are diametrically opposed to what makes change and innovation happen. The big companies despise rule breakers because they often fail more often. In these companies failure seems to be something to be ashamed of, hidden or forgotten and the stigma and embarrassment can often force you out of the door.

Sure, work needs to be won and delivered to high standard – first and foremost we’re a service industry. But there can be different ways of thinking that can produce results quicker, change perspective, get to market more efficiently and break the norms. Ironically clients seem to prefer working with the mavericks. It’s the odd few who get called upon the most. That should tell you something.

Designers have to be willing to take risks and embrace the unknown. They need to get things done without any structure and thrive in an environment where there are no rules. They need courage to innovate and the nerve to forge their own path – and agencies need to support that spirit even armed with the knowledge that occasionally there’s a chance they might be pouring their own and sometimes clients money down a plughole.

Across the sea

In developing countries, leaps forward are extremely high because risk taking and high levels of innovation are greatly encouraged and not frowned upon.

In these countries failure is often worn as a badge of honour and seen almost as a form of success. I would consider failing an experience, rather than a shameful indicator of incompetence.

Alternative thinking should be valued, a self-starting attitude encouraged and where the ethos that hard work pays off no matter where you’re from and what you do is ingrained in the mindset of every person in an organisation.

It’s incredibly important in modern businesses to try and minimise barriers to multi-disciplinary working and to provide a creative and innovative learning process. Encourage staff to take courses outside of their domain and engage in projects with those from other disciplines so they can draw upon expertise from across disciplines.

Throw out the rule book

So how do big companies get their acts together for the greater good of the staff, the clients and the end customers?

Firstly, get rid of this preconception of how we should behave; this notion of sticking to the rules, specialising and one size fits all is inherently bad for business.

Companies need to emphasise the importance of critical thinking, problem solving and ingenuity. Give designers the freedom and flexibility to treat each other as individuals and do what they think is right and not what they think is expected. We should encourage talent to be resourceful and creative and give them the courage to throw off the herd mentality. We have to foster an attitude that anything is possible and that failure and screw ups are all part of a learning curve. If we get this right at the core of a business (the management) – it’ll carry through into the culture of a company and furthermore into the work. Tricky decisions need to be made about those members of management who criticise people for not conforming and being maverick. What they showing is a fear of change.

Empower staff to make decisions, champion ideas and create a culture of questioning the norm. It’s not just about listening to them either. It’s also about letting them do it.

We need to inspire others to get on that terrifying, exhilarating rollercoaster ride. The design world needs people willing to take risks and face their fears.

To the naysayers who force us mavericks out of the door: stuff your rules and rigidity and let the mavericks do their bit for the world. You’re holding the company back and limiting innovation. To label someone maverick and not celebrate that is an act of pure fear. So be careful if you do use that term to describe someone in a negative context, you might just be putting yourself into the 10% that is wrong and out of touch.

Why a #TAG made me switch banks

There’s been a fair bit of buzz around the agency (and agency-land) about #unexpectedtweet …that totally irreverent campaign from First Direct that instantly struck a note with a lot of people. It really did and here’s the proof – It made me switch my bank account to First Direct after being with my current bank for 18 years.

I saw the abstract advert that didn’t even tell the viewer it was First Direct (The one above with the Beatboxing Bird – I didn’t even catch the Platypus one till almost a week later!) and hit rewind on the TiVo about 4 times trying to work out what the hell it was and who the hell it was for (The wife was going spare – “what the hell are you doing, I want to finish watching Kirsty & Phil you moron!“). Nada. Nothing. I went on Twitter and got stuck into the conversation… I shared the advert on Facebook with my friends; “check it out, it’s brilliant… no idea who it’s for”. When I finally found out it was for First Direct I literally went straight to the website and applied for a new bank account. No bribe, no bung, no special offer and promise of a killer app. They bought me with entertainment.

firstdirect

The debate raged at work for a while too; “Oh, it’s because it’s showing that First Direct is a better bank, more in tune with the populous because they do this kind of advertising!” and rhetoric along those lines in various flavors.

Well in reality it’s nothing of the sort – It’s a lot more basic than that… and here’s my thinking;

Banks all do the exact same thing. They always have and they always will; You give them your money, they put it into a big virtual, intangible vault (where they profit from you) and they keep it safe for you. It’s always been that way;

“BANK”: An institution for receiving, lending, exchanging, and safeguarding money and, in some cases, issuing notes and transacting other financial business.

Money goes in. Money goes out. Your money.

The toughest decision you have to make when you start earning money is where to dump your hard earned wages & that’s usually somewhat dictated somewhat by who your parents bank with. Most banks are all reasonably competitive on product & benefits package (excluding credit & investments products, I’m just talking EVERYDAY BANKING here) and they all have a very similar channel strategy (bank with us and you’ll get access to Mobile, Online and Branch etc). Some are ahead in some areas and behind in others, but they’re all heading in the same sort direction. Virtual wallet. Banking on the move. New ways of moving your hard-earned virtual currency from one person or company to the next blah blah blah. It’s just banking & long may it continue to be that basic!

Lets have a look at a really simple experience model called Prochaska;

prochaska

At the moment most financial institutions (and in fact most companies) have 2, 3, 4 & 5 in the prochaska model reasonably sown up. They advertise to make you contemplate at point 2 or you might have had a bad experience and you’re hunting for something new and the bank gives you offers on aggregators; it pulls you into 3 which then converts you & locks you into the cycle 4, 5 & 6. That’s the easy bit (in theory). It’s banking (and marketing) 101.

So here’s the kicker. Most institutions have totally forgotten about steps 1 & 6 (or in reality 6 and 1 in that order). Most people are apathetically floating around in 5 doing all they’ve ever known. They get reasonable service & utility, it does what it says on the tin, when you were robbed it took a couple of days and you got reimbursed yada yada. It’s all very banky. You’ve no real need to switch banks and it’s the devil you don’t know that alludes most people.

That’s where First Direct (well JWT the advertising agency) got it bang-on. They never really talk about ‘Banking’ in the adverts and they don’t really need to talk about it, because nobody cares. To get into peoples Pre-Contemplation at point 1 you need something really disruptive that makes you think “oh that’s different, who the hell would do something like that?” (Think Different – Apple anybody?). It’s as crude as that. I’d never even contemplated First Direct before because I figured they were just like the norm & I know the norm. They’re not the norm… they’ve got my attention. I’ve switched to them because MAYBE, just MAYBE they have the chops to do things a bit differently and I’ll be on the edge of innovation the whole time (where-as in reality it’ll be the same stuff – Look after my money in the same way!).

They got into point 6 (relapse) by making me think the bank I was currently with hasn’t done anything to make me notice them for 18 years, then they made me notice them by showing me something that I’d never seen before. That was it. No extra utility value and no app that sends money using blinking or toe-wriggles… just straight forward, old school disruptive marketing. I didn’t even get the £100 for switching offer. The rest as they say is history… in I go and there I’ll stay until the next wave of marketing from an equally disruptive bank comes along (or maybe it won’t even be a bank who get to keep my money safe next!). But be warned… I’m fickle enough to have a love affair with good advertising… My old account stays open & I can turn on a penny & switch back in a heartbeat!

Let me end with the out-takes… #LOVETHISCAMPAIGN

Business Benefits of Responsive Web

As we all know by now, mobile is the new black, pink and whatever other color you can think of. Mobile is not going away anytime soon and it is increasingly becoming integrated into our lives. In fact, studies show that mobile web browsing will outpace traditional desktop browsing within 2-3 years.

For business owners and marketers, this shift can seem daunting as it ads in a huge layer of complexity and perceived cost. What approach do you take? Where do you start, and when?

The when part is really up to you, but for the how piece of the puzzle, I would look no further than Responsive Design.

Here are some reasons why you should consider updating your company site to utilize Responsive Design.

1. You Will Save Money

Before the practice of Responsive Design was widely adopted (it still isn’t, really), if companies wanted to have an optimal mobile experience of their website a separate set of templates or a device-specific app had to be designed and developed.

As you might guess, this can get quite costly. One site for iPhone, one site for iPad, another for Android etc. Then, what happens when a new device comes out? Make another website or app specific to that device? I’m guessing most business owners don’t want to spend that kind of cash just to keep up.

The beauty of Responsive Design is in the fact that it enables your site to fit perfectly in any screen size. One website, all devices. That means that your website only has to be developed once, significantly reducing the cost.

2. You Will Save Time

The fact that you can have the ability to design and build your site in one project will also free up your time. Less meetings, less approvals and less wondering if you’re just going to have to do this process all over again once a new device comes on the market.

3. You Can Beat Your Competition

Since Responsive Design is still in its infancy, there is a strong chance that your competition is not implementing it. Redesigning your website to fit optimally in all devices would take your competition by surprise. Visitors will get a much better experience on your site than on your competitors, and will likely take more action.

4. Your Site Will Be Relevant Longer

When adopting Responsive Design, your site will stand the test of time for longer. You wont be playing ‘catch up’ all the time. Your website will be future friendly, as they say.

5. Your Conversions Will Increase

When people visit your site, they are typically more likely to take action if they have a good experience. This means, giving them what they want with the least amount of ‘friction’. Using Responsive Design, you can greatly reduce the amount of friction involved and give your users a great experience—thus, increasing conversions.

6. You’ll Stress Less

All of the above reasons will help you sleep better at night knowing that your site is actually working at it’s optimal level on all devices. This will give you peace of mind when it comes to your online presence.

6.5 You Can Tell Those iPhone App Sales Guys To Take A Hike With Confidence

We had a client who told me that a salesman approached him and pitched a proprietary iPhone app for his Pizzeria at an astonishing price. The client was smart and didn’t purchase the service and asked if he thought that he should do it. The answer is NO for most businesses. With responsive design, you don’t need to spend tens of thousands on apps for all devices. Just one site for everything.

Now it’s your Turn. What do you think about the topic of Responsive Design and the Mobile landscape in general. How should businesses address this change in the marketplace?

Agency Thought Shifting

Agencies have always done ‘campaigns’. It’s what we do… be that a massive one that lasts for years or a couple of tiny ones to support some above the line marketing hullabaloo. But paradigms change when we look at things from a different perspective. We often sincerely believe something from one perspective, but when we view it from another angle, our beliefs can change. It changes how we think, and how we react to something. What some people call “magic” is based on this same principle. Once you understand an illusionist’s “trick”, your paradigm shifts, and you will likely never see that trick the same way again.

So with that idea of ‘thought shift’ in mind what if a digital agency did things differently too. I had a fascinating debate with a planner at an agency I was working at who was suggesting the agency might sell 100 little experiences to a client instead of 1 big one. A brilliant idea. It fitted neatly into my distributed experience idea I was trying to sell the same client too… The client agrees to pay a wedge of money and the agency agrees to concept, design, develop, and launch 100 individual digital experiences (sites, apps, whatever) in 52 weeks rather than one huge one.

It makes sense when you consider that an agency for ‘now’ needs to increase their odds of creating a big hit when it’s impossible to predict what’s going to catch on?

Most digital agencies rely on selling the execution of a big beautiful campaign or website. The more complex the site is, the more expensive it is, and the better it is for the agency’s business. But, the market for that business is disappearing.

When an agency pitches to clients, they don’t just come up with one big idea, they usually come up with lots of ideas and then choose the best ones to sell-in hoping that one will make the cut. The ideas that got the chop originally might have the winning formula in there, so why not just do those as well?

No one can predict which idea is going to become and internet sensation. And not every potential hit will get approved by the client’s legal or PR department. These concerns don’t matter because you’re going to launch every good idea you come up with. Work for the client initially launches without the client’s name attached. If it takes off and becomes a hit, they get to claim it. If they don’t want it, the agency can either take it for themselves or kill it.

Everything is iterative – A tiny fraction of what you launch will be worth additional time and investment. Create strict qualifications for what makes the cut. Work on all of these select projects using an agile process, making small changes as you go. There’s no finish line, there’s just one improvement after another.

What do you think?

The Future of Design and Design Thinking

This is a most extraordinary and a very exciting talk. It hits all the right notes and asks all the right questions, too many to summarize: design thinking and creativity; science + design; the need to think about impact of one’s design; the value/importance of the entrepreneurial instinct; business and creativity; “hard” product based skills vs conceptual abilities etc., etc., and most interestingly, the rationale for “design thinking” — a response to economic realities. Listen to it all.

Location-based services are becoming big business

Facebook’s recent launch of location-based services in the UK highlights the potential growth of consumers using GPS-enabled mobile devices to ‘check-in’ in everyday life in return for rewards and discounts.

  • Foursquare, a pioneer in location-based social networking, has seen tremendous growth in recent times, signing an additional 1 million users in less than 20 days in early 2011.
  • Facebook leverages existing user base and enters location-based services in the UK earlier this year.
  • Increased use of location-based services by consumers expected as more people use smartphones.

Tremendous growth of Foursquare

Foursquare was one of the first location-based services that has attracted success globally. Using GPS-enabled mobile devices, users can ‘check-in’ at a variety of locations, such as hotels, pubs, and restaurants. In return for ‘check-ins,’ users accumulate points and badges as rewards, as well as discovering new places, local tips, recommendations from friends, and discounts for local venues.

Foursquare launched in March 2009, and it took just over one year to reach 1 million users. Growth continues to accelerate, and the company has recently registered its 7 millionth user in February 2011.

Figure 1: Reported number of registered users on Foursquare since launch, March 2009 – February 2011

Source: Press reports/Mintel

Facebook enters ‘Location War’ in UK

At the end of January this year, Facebook launched Facebook Places in the UK to compete in the location-based social networking business. Facebook enticed its existing users to ‘check-in’ in exchange for promotional offers from companies such as Starbucks, Debenhams and Mazda. While the service offering by Facebook is basic compared with more established players such as Foursquare and Gowalla, Facebook is leveraging its existing user base, estimated at 30 million active users in the UK alone (as at March 2011), to encourage the adoption of location-based services.

Device and service integration

In February 2011, Facebook announced partnerships with handset makers INQ and HTC to produce mobile phones with built-in Facebook functions, such as a dedicated Facebook button on the handset. Meanwhile, Nokia has added Foursquare Check-Ins on Ovi Maps, the free mapping and navigation product available to all Nokia smartphone users.

These examples illustrate how partnerships and integration will allow consumers to quickly access location-based services through devices and platforms they are already familiar with.

Growing opportunity

Mintel’s recent report Mobile Phones and Network Providers – January 2011 found that less than 5% of consumers access GPS functionality on their mobile phone every day, suggesting a low adoption level in location-based services currently. However, the emergence of multi-functional smartphones at affordable prices through monthly contracts or bundled packages will give wider access to devices capable of location-based services to more consumers, especially younger users who are more likely to adopt this technology.

Figure 2: Ownership and usage of mobile phone GPS, 2008-2010

Source: GB TGI, Kantar Media UK Ltd Q1 2009-11 (Oct-Sep)/Mintel

Ownership of mobile phones with GPS capability has more than doubled since 2008, and we expect this trend to continue. Usage of GPS functionality on a mobile phone has also grown at a marginally faster rate, indicating consumers are becoming more aware of and taking advantage of this feature on their devices. There is, however, a widening gap between mobile phone users who own a GPS-enabled device and those who actually utilise this capability, which points to an opportunity by location-based service providers to educate and incentivise users in adopting this new technology. With further integration of location-based social networking into existing products and devices that consumers are already familiar with, we anticipate location-based services in the UK to thrive.

What it means

  • Use of location-based social networking will grow as more consumers have access to GPS-enabled mobile devices and appreciate the benefits of ‘check-ins.’
  • Established players in location-based services like Foursquare have seen tremendous growth recently but will face challenges from established social media companies in the ‘Location War’.
  • Consumers can be incentivised to learn about and adopt location-based services with enticements such as targeted promotional offers based on demographics and recent search activities in addition to offering location-sensitive deals.

Source – Mintel, April 2011

We’re not saving babies, remember?

First rule of business – Follow that smart bit in your brain that got you to where you are called ‘Instinct’.

Second rule of business – Listen to the symptoms of rule #1 and if it’s telling you something isn’t right or things don’t fit, or it’s a no-win situation you formulate an exit strategy that is the least damaging for everyone involved.

Third rule of business – Honesty isn’t a bad policy but use it sparingly. There’s nothing worse than someone with an exit strategy suddenly getting tourettes and telling you the sky is falling. There’s only one person that learns anything in that situation & that’s Mr Tourettes learning the harsh lesson in life about why not to “burn bridges”.

Fourth rule of business – Taking a calculated risk is alright, just remember to pay attention to rule #2. The truth is, if you don’t try you’ll never know and never knowing just breeds “what if” syndrome.

Fifth rule of business – Put it all into perspective as much as possible. A guy I used to work with at marksandspencer.com once said to me during a particularly pressured deadline; “Relax Pete, we’re not saving babies” and you know what, it’s been my mantra ever since. Passion is passion, but reality is also reality & without perspective you can’t have the detachment to execute rule #2.

Sixth rule of business – Your first gut feeling is probably the right one. Seriously, you’re good remember, go with the flow. Use UX principals to validate, make tweaks & refine, but roll with it cowboy. Rule #4 makes it alright to take a little gamble.

Freemium, what does it mean?

So what is freemium?

Oh yes, it's FREEFreemium is a business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features. The word “freemium” is created by combining the two aspects of the business model: “free” and “premium”. The business model has gained momentum in the last few years and is becoming the most popular business model among Web start-ups. Some of the most popular services, such as Pandora, Flickr, LinkedIn, Spotify and Skype use the freemium model. It’s a very simple economy to create:

Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base. As the theory goes, if you convince enough of your lower tier users to move into the premium tier you’ll cover your losses in the lower tier.

The freemium model is simple to employ and as your free customer base grows, so will your paying customer base. Even if a small percentage of your free customers upgrade to your paying plan (say, 1%), you’ll begin generating much needed revenue to pay your bills and do very well. In theory.

Finding the balance between what to offer for free and what to charge for is not easy. The trick is to put enough in the free version to get traffic and usage, but not so much that there is no incentive to upgrade. Companies who use the freemium model need to integrate their free service or product into someone’s routine so fully (either by making sure it’s accessible on their computer and on their mobile phone, for example) that users reach the point where they feel they simply must pay.

As utopian as very smart people like to make out the freemium model to be there are equally as smart people who warn that this is a dangerous road to travel down and one that could come back to bite you on the ass.

In April 2010 popular Social Network ‘Ning’ sent out a press release, noting that 75% of its users do pay for some sort of premium service. It may well be then that Ning’s announcements are less a reflection on the freemium model than on the company itself. Despite over $120 million in VC funding, Ning has been unable to develop a sustainable business. The announcement about the end to free Nings was accompanied with news that 40% of their staff would lose their jobs – an indication perhaps that the company’s overhead was simply too high. It’s a cautionary tale about how people are over-estimating users willingness to pay once they had the service in some shape or form for free. Actually the user tendency, especially in today’s economic climate is to use a service for as long as it’s free and then when they need or are asked to pay for something they simply move on to another new, free service. It’s like following the 0% balance transfer around on credit cards. If you’re smart and you put in the effort you’ll never need to pay. More to the point, why would you?

Andrew Parker on his blog The Gong Show also points out how this freemium model could end up alienating the very advertisers that are keeping you alive in those beginning times:

This revenue model seems silly to me. Advertisers pay a premium in order to reach people in their specific demographic with disposable income. This idea of people paying to remove ads ensures that the audience for your ads are actually CHEAPER than the average internet audience. Why? Because the people in your audience with disposable income who are willing to pay for web services are the ones that will self-select out of your audience for your ads because they are willing to pay for your product. So, all that remains in the audience for your ads are people that are too cheap to pay for your service. That doesn’t sound like the audience that Disney, Coca Cola, or even your average direct response advertiser wants to reach.

What about the other effect of Freemium on actual market-places like the music industry? As early Napster and BitTorrent and other illegal file-sharing websites have demonstrated, many people are no longer willing to pay for music in an age where everything can be cracked and obtained for free online. So why not offer them free music legally? The ad-based model works on the assumption that, every few songs, the service inserts an advert, the revenue from which is, in turn, distributed among the record companies whose songs are being played.

SpotifyEarlier this year, a claim emerged from songwriters in Sweden that Lady Gaga was only paid $167 (£108) for a million plays of her smash-hit ‘Poker Face’ on Spotify. This figure was later proven false – the figure didn’t represent the entire sum, only a part of the share given to the song’s Swedish co-writer. However, despite whatever discrepancies there may have been, the figure remains shockingly low. This is one parachute starting to show a few holes.

In the subsequent weeks, reports started to fly around on the internet (as it does) surrounding these figures and how close they are to the real numbers. A Billboard analysis of revenue from recording royalties from non-interactive streaming services (such as internet radio services, as offered by Last.fm), revealed that in the US in 2009, only ten artists made more than $2,000. For on-demand services like Spotify and We7, only 25 artists made more than $1,000 – Michael Jackson posthumously taking the top spot with $10,000.

So, while the popularity of internet streaming sites soars, and superlatives are thrown around on press releases and in internet forums, a bitter taste remains. Utterly limitless, free music, with only a few adverts here and there? Some things are just too good to be true.

There’s a mental state that Freemium is creating too which is that in life things can be obtained legally, for free now. We don’t HAVE to be pirates to get our fix of music or movies and there is such a thing as a free lunch afterall – Hallelujah. In reality though it devalues the act of owning if you never really bought it. Users aren’t stupid, far from it, they’re very smart and they deserve to create their own capitalism. We’re all prosumers now remember? But if you’re not paying how are the people distributing earning anything? It doesn’t work, right? Ad-supported networks don’t work, people have ignored adverts for years now. So give it some thought, how do creators of content get a wage from nothing??

“Freemium streaming services are clearly not net positive for the industry and will not be licensed” according to Warner Music Group Chairman Edgar Bronfman Jr. who stated bluntly in February that he was adamant Spotify’s ‘freemium’ business model “is not the kind of approach to business that we will be supporting in the future.

Tough words.

Here’s another very interesting thought: The original illegal sharing networks all ran on the system of P2P – Peer To Peer – but within the industry of file sharing the term P2P was actually credited with the meaning “Power to People“. It was truly believed a revolt against ‘the man’ was taking place. It was a big f’off to the capitalists that had drained our wallets dry for so long. If enough people were doing it then how could it be stopped. It’s a digital coup de force. A revolution. A rebellion. We stand united and we cannot be stopped. Now take that mentality and apply it a service such as Spotify who has a reported 7 million users now. That’s 7 million really pissed off people if the service is stopped by the industry it’s crushing. It holds the cards in the form of mass market. Shut it down and they’ll simply go somewhere else. They’re legally doing what they used to illegally do. People power will dictate Freemium, not industry.

The model, although technically unsustainable does have it’s heroes though. The people who on the whole have got it right. Flickr for example. You probably never even realised it was Freemium or made the connection. There’s a free service there and it works really well for the normal man on the street. But it also has a premium subscription service that the pros out there love, relish and are more than happy to pay for. But more importantly it’s a Freemium service that doesn’t run off the back of someone else hard work. It runs off the back of the users hard work. It’s the kindest form of UCG. We pay to populate it, not pay to drain it dry. So I say long live the Freemium economy for some things, and curse it in others. It’s the proverbial double edged digital sword.

Thanks goes to all the people who I got source material from for this article: Gair Rhydd, Read Write Web and of course that fountain of knowledge Wikipedia.

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