Ning exposes freemium's underbelly

The platform is taking the axe to all free networks. Chris Anderson, author of "Free", responds.

By now you’ve probably read that Ning is ending all free networks, inviting them to pay or move on, and is cutting 40% of its staff. Rough Thursday.

The company’s history makes for an interesting case study in the freemium business model. 

Initially, Ning was to be the network of networks in an ever-expanding universe of networks. It was to grow to infinity thanks to a “viral expansion loop” and eventually pull a Google/ Facebook/ Twitter: monetize once the numbers get ridiculous. It became the unofficial emblem of social networking hype last July when it raised a Series D at a whopping $750 million valuation bringing its total venture funding to $120 million.

Two days after that Series D was announced, Gina Bianchini, then CEO of Ning, joined Wired’s Chris Anderson for a panel discussion about the Free economy. Anderson was touring for his new book “Free: the Future of a Radical Price,” and “freemium” was a concept fresh enough for a panel at the Churchhill Club.

The title of the panel was “The Free Economy: How companies make money from giving things away.” Insert sarcastic comment about Ning's layoffs here.

So I asked Anderson about the implications of Ning’s announcement on Thursday. Though it's easy to read the situation as a failure of freemium, Anderson sees it as a different flavor of the model:

Freemium is no silver bullet, and like all business models there's risk associated with not getting it right. I'm a huge Ning fan (and a paying customer) so I support this move. Freemium worked well to get them to their current size (large and growing) and I don't blame them for focusing on their paying core now. Now that they've reached critical mass, they may not need the free components anymore to get awareness.

It’s not that freemium failed Ning. On the contrary, it worked, served its purpose and can now be discarded. That makes business sense, but it’s a hard lesson for those who invested their time into building communities on the platform. Freemium will remain a part of the Internet economy, but it won't defy the old adage. You still get what you pay for.