Is the “free economy” starting to melt down?
Things that are free rarely stay free forever. So it is that less than two months after Jason Rosenthal took over as CEO of Ning, the white label social networking company has announced three new pricing options. Starting July 1, administrators of Ning’s 300,000 social networks will have 30 days to start paying up or find another place to congregate on the web.
Some Ning devotees are unhappy. In what feels like a bit of a bait-and-switch, they complain, the site lured them with the promise of a free experience and then broke trust by introducing the charges. This is, no doubt, a pain.
But here lies the as-of-yet unsolved problem with Web 2.0: somebody has to pay for all the socializing we’re doing online. As Fortune has written, few companies have figured out how.
Ning was one of the most celebrated of the Web 2.0 companies. It has A-list investors, more than $120 million in venture capital, a $750 million valuation, and it counts Netscape inventor Marc Andreessen as one of its founders. A photograph of his cofounder, former CEO Gina Bianchini made the cover of Fast Company in May 2008. According to its original model, anyone could start an instant social network on any topic. Those who wanted extra services could pay a premium. Advertising, mostly in the form of the traditional banners, would cover the cost of supporting the remaining networks.
In the last few years, many of the social sites, like Ning, that once relied primarily on advertising have had to look for other ways to make money off their users. Some were acquired, and are losing eyeballs and ad dollars as their media company owners figure out what to do with them. News Corp.’s (NWS) MySpace has seen traffic decline. AOL (AOL) has said publicly it will sell or shut down Bebo. Others have reinvented themselves. Hi5, for example, is now a gaming company and sells virtual goods.
Often, the smaller Web 2.0 sites disappear without leaving a forwarding address. I still miss my iMeem playlists, which evaporated over night last year when the ad-supported music site ran out of money. After MySpace bought the remaining assets, iMeem’s users were able to resurrect their accounts on MySpace Music, but it wasn’t the same.
Rosenthal’s radical move to eliminate the free networks at Ning is a last ditch effort to fix the company, which has a serious business problem. More than three-quarters of its revenues are coming from 6% of the networks. By charging a little bit—pricing options begin at $2.95 per month—he hopes to start getting users used to paying. If they choose not to pay, Rosenthal says Ning will help them move their data to another home on the web. (The 10,000 networks started by educators will remain free in a deal supported by an education textbook company.)
For paying users, Rosenthal promises an experience that is better integrated with other social sites while allowing customers to build highly tailored brand experiences and keep their data.
But it may already be too late for Ning as a couple companies increasingly power most of the social networking actions on the web. Harry McCracken, who had previously paid for a Ning network for his tech site Technologizer, is winding it down because, as he explained in an email: “There’s more upside in introducing our site to the teeming masses of people whose online social lives revolve around Twitter and Facebook than in trying to compete with them in the form of our own Ning network.” Neither Twitter not Facebook has fully solved Web 2.0’s money problem either, but if they’re aren’t yet pulling in substantial profits, they’re increasingly capturing the users.