Recently there was a thoughtful post by marketing guru Seth Godin on using free as part of your business model. In particular, I was drawn to the line:

…you need to make something else abundant in order to gain attention. Then, and only then, will you be able to sell something that’s naturally scarce.

I have been thinking about some of the ideas pitched at TeamCamp: while it’s challenging enough to come up with an abundant service offering that would grow your user base, it’s the scarce component of the service that’s really the hard part. What aspect of your service would be so scarce (i.e. insufficient to meet a demand or requirement) that customers are willing to pay for it? In other words, what aspect of your service solves a problem so well that customers are willing to pay for it because they can’t get it anywhere else?

I think the particular challenge with offering a service that is fundamentally free is that it makes it even harder to find the scarce aspect of your service that you could charge for. In an advertising-based business model the abundant (i.e. free) aspect of the service has to bring enough relevant (and scarce) eyeballs to your website that would earn you enough advertising revenue to make it worthwhile. The problem of course is that there is no scarcity of options for advertising these days, and your service is likely competing for limited advertising budgets.

Of course advertising is only one way to make money from a web application: you could earn revenue from premium users (i.e. the “freemium” model), through affiliate sales of goods and services, or by selling analytic data are a few other ways.

But I think it’s a great way to look at it: don’t stop at identifying the abundant aspect of your service; make sure you can sell something that is scarce as well. For example, think about one or more aspects of your service that would solve a problem: is what you plan to offer scarce enough that someone would be willing to pay for it?

It’s not hard to find out: ask someone within what is your target market whether they would pay for what you plan to offer.

The next TeamCamp meeting is this Thursday at 5:45PM The Code Factory, 246 Queen St., Ottawa. It’s a great place to pitch your ideas and work with a team of like-minded individuals to help you develop your business idea.

Hope to see you there!

- Chris