If it weren’t for the customers …

… the job would be easy.

Earlier this week, Ning (a service that creates networking-based private communities) announced that it was rapidly terminating its free services.  Making real the fears of many users of free services, Ning is hoping that keep its revenue stream in tact knowing that 80% of revenues come from 20% of its users that pay for services.

Ning’s mistake is not forcing users from a free model to a paid service.  Ning’s mistake is in how it communicated and is managing the change.  Rather than a migration to paid services, Ning’s free service users heard: “Pay or Leave! And, Ning will help you leave!”

If the 80/20 rule is true, maybe Ning will really be happy shrinking its customer base by 80% in order to keep 80% of its revenue.  How may of the paying customers are also in free communities and will leave because of the treatment?  I wonder.

When Google wanted to boost paid usage of Google Apps among SMBs, they cut off free services at 50 users and rapidly added new features to the paid versions.  For many businesses forced to go from free to paid, the carrot of better features and functions mitigated the pain of the stick.

It will be interesting to see if “We don’t want you” is a good business model for Ning.

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