Isaac Newton observed some things about motion and encoded them into his three laws of motion. I think we should do the same thing with the Internet. There are some things that just are, and we should acknowledge them. I posit that one of them is this:
many users * low arpu >>>> few users * high arpu
I’ve seen so many people try paid content on the Internet and the result is less users, a lot less. You can extract a higher average revenue per user (arpu) from a paid model, but you get so many less users that is it better to extract a lower arpu with a free model and get many more users.Fred Wilson
I’m pretty sure this is called “price elasticity”, a basic concept in economics. Nevertheless, a valid observation about how the Internet has transformed the relation between supply and demand and is continuing to do so. Digital services, from software and apps to entertainment, are possibly as close as we can get to perfect market and competition. While many people may regard Internet access as a basic human right and rank it highly in their personal need list, the same cannot be said about specific Internet content. For each paid app there is a free one with similar functionality; for each music album a YouTube or torrent version; for each news article behind a pay-wall, a dozens of other sites reporting the same story for free – it’s no wonder the majority of people gravitate towards the cheaper, ‘free’ version.