Valuing Free - What will you pay for something you always received for free?

Many web based free services, including from market leaders like Google, are shutting down. From Boulder, recently Andrew Hyde called R.I.P magnolia a Boulder based startup. Is there a problem in giving away a service that adds value for free? I believe there is. Most web services focus on building user base with the hope of Ad supported business model. While free is never a good business model, the dependence on Ad is coming under severe threat more now than ever in the past.
Can't these services simply start charging their subscribers for the service? The problem is if your users never paid for it and if alternatives are available their reference price for the service is $0.00 even though they may get great value from the service.

For a related article on increasing reference price from $0.00, see my article in my Unbundled Pricing blog.

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Working for a Starup - One more take

In a previous post I talked about the opportunity costs of quitting what you are doing now and joining startup. If you evaluated the total costs and the possible scenarios and decided that joining the startup gave you the highest expected value over other options including staying in your current job, then consider this.

Would you consider then a new scenario? Here, instead of quitting your current job and joining the startup, you invest an amount equivalent to the total opportunity cost and you continue in your current job. With opportunity costs, it is not an accounting cost and you won't see that as a line item, but now I ask you to take a loan out for that amount and invest that on the startup. This cannot be worse than the one you chose and could be better sine you keep your current job and cash flow.

Pushing this further, if you look at this as an investment decision, what other investment options are available and how does this one compare against the rest? Does the startup still provide the maximum expected value?


Why or why not?

Do you see inconsistency in this argument?

Featured: The Business Catapult

Newest member in Boulder Net, The Business Catapult.

The Business Catapult is dedicated to improving the early stage investment marketplace by bringing standards and efficiencies to what has historically been a time-consuming and expensive process. We are not an investment group; rather, we provide the tools and infrastructure that allow entrepreneurs and investors to find each other.

The Business Catapult will soon release an online service for connecting entrepreneurs and investors. This service is in final testing, and is available to a limited number of test program participants. When testing is complete, near the end of the first quarter of 2008, we'll release this service.

In the meantime, if you are interested in participating in our test program, or in being one of our initial users, you are invited to log on and try out the application process. If you are interested in participating in our test program, please also drop us a note using this form.