I am surprised, although maybe I shouldn't be, that people are still developing products, at considerable expense, without first identifying a clear market need and, perhaps more importantly, a clear buyer–someone willing to pick up the bill.
Entrepreneurs, VCs and even executives of large public companies are always searching for a new business model–some way to get someone to pay for products that have already been developed, in light of the fact that the primary user of the product doesn’t seem willing to pay .
The idea of "Freemium" is getting a lot of buzz right now–as though giving away product to some people for free, while charging others, is a new idea. It's a clever strategy for many companies, and often a result of creative, out-of-the-box thinking. But I seem to remember several bars in college that, more than 20 years ago, used a freemium model–giving away drinks to women on Ladies Night in order to attract throngs of men. Today we would call the resulting phenomenon "Network Effects"–another hot model getting a lot of play these days.
Giving away cool products to well-connected, highly visible, highly admired people, in hopes that others would catch on, has led to strong ties between consumer products and celebrities, and is a key component in the success of many companies, including Nike. Today, we call that "going viral".
The point I'm trying to make here is that all of these new trends in business models aren't new at all. While the internet does enable viral growth, network effects and the liberal offering of free content and services, these tactics have been used for years. Every smart entrepreneur knows that the most important piece of any business is identifying all the true beneficiaries of any value proposition, and then figuring out who is most willing to pay for the value created. It's Marketing 101, and something many of us seem to have forgotten.
(This article was inspired by a conversation with Joe Hayashi, a very smart entrepreneur and college classmate of mine! Thanks Joe, for the encouragement.)
