Interesting, though, that the previous product fitted into the “too good at free” model that I describe.

Actually, SugarSync is a good example of a product that needs to asymptote towards being *invisible* technology: from personal experience, I loved SugarSync up until the point when I found it slowed down / froze my machine. From that point onwards, my quest for value followed a much steeper curve. It’s another layer of complexity on the business model – here, for example, I’m looking for stability and efficiency rather than features. Having said that, the “play synced mp3′s” feature on SugarSync is genius

Interesting stuff..

Sharpcast Photos, our previous product which synced only photos, did have a free package. This product has been discontinued (it is still live for existing paid customers for a limited time). I’d say your analysis may well be correct for Sharpcast Photos – the free version was so good there was little incentive to upgrade to the paid version.

SugarSync is a quality service built on quality infrastructure by smart people who get paychecks. As the product is not smothered with advertising the cash has to come from satisfied customers continuing to want to use the product. This is a great incentive for us to focus on providing a quality product rather than just spreading it around to as many eyeballs as possible. Rather than limiting addiction, the free trial/full function introductory period allows users enough time to get addicted enough to sacrifice the price of a cup of coffee every month to feed their SugarSync habit.

(disclaimer: I am a Sharpcast employee, but not in Marketing)

@mike you are right that anyone relying on advertising has probably got some tough times ahead. Presumably we’ll see some substantial consolidation – which means that a service like last.fm which has a more established customer base is more likely to survive than newer startups who are building at the moment. Coming back to the point above – you only have the choice to go elsewhere while there are plenty of startups not bothered about making money. If there is last.fm or nothing (or trad radio) – which will you choose?

another way to look at the spotify model is to look at the cost of the service and the annoyance level of the ads, is there not a relationship between the two.?

the balance should be struck between the level of noise created, and how much it costs to ge rid of that noise. @ £120 year, ill keep the ads but at £50 a year, it may be worth it.

but as mentioned above, either way spotify get revenue, what they miss out on IMO is customer (read user) satisfaction. of course i haven’t got an invite yet (cough cough). so cant speak with any authority.

last.fm is an intersting one, i did not eve know they had a subscription model until very recently, i like the free version and see no incentive to pay for it.

or is that just me?

re. ads – you’re right, I ignored the revenue that the service will get from the people placing the ads, instead focussing on the click value. You’re also probably right that greater minds than mine have probably done the maths. The “big 4″ deal that Spotify has done (http://tinyurl.com/6nfzjs) will undoubtedly have been the result of months of negotiation….although I suppose it could just be another last-ditch attempt by a broken industry to rescue at least some revenue from nothing…

Under this of course is the enduring question: who the **** clicks on the ads anyway? Where did we get the notion that (online) advertising has any inherent value – and is this (apart from physical “thing drops through your door”) the only way to make serious money online? Google seem to think so.

Commerical radio stations have an advertising based business model – the value they can put on advertising spots depends on the listener base they can build (size and demographics) – they don’t have a ‘subcriber’ model. Many people listen to commercial radio, and are happy with the adverts. On this basis it seems a reasonable assumption that a service like Spotify has the potential to run on a similar basis, paid for entirely by advertising.

Some people however don’t like to listen to commercial radio, and so will go to the BBC (in the UK at any rate) to avoid the adverts.

This is where Spotify has a huge advantage over traditional radio – it can mix the model. You can subscribe and avoid the adverts, or not subscribe and have the adverts – either way Spotify makes money.

If Spotify has its sums right (and of course, can build the right audience) there seems to be no reason in theory why it can’t make money whether people subscribe or not. I think you assume that the ad model doesn’t work because you don’t mind the ads, and you don’t feel you make purchasing decisions based on them – you could well be right, but it doesn’t matter as long as the advertisers believe they are getting value out of the arrangement.

There are some other web services that work in a similar way – ning.com allows a payment to remove ads from your ning site. However, the Spotify model seems sligthly more viable to me, as it is essentially a linear medium, so avoiding the ads takes more effort on your part, and you probably won’t do it. I find it pretty easy to ignore the adverts on web pages, and I can even remove them completely with a browser plugin. Again, it is easy to make the assumption that the ad model can never work because I ignore them – but presumably Google simply wouldn’t the beast it is today if we all ignored the adverts it is used to serve up on huge numbers of websites?

Thinking about the BBC for a moment, recent discussions about the license fee renewal in 2012 suggest that the current model might not survive. I wonder whether by moving delivery online the BBC could support a dual revenue model – one with adverts for those who choose not to pay a ‘license’ (or subscription) and an ad-free stream for those with a valid license? It certainly raises some interesting possibilities in my mind. It has also been suggested recently that ITV will move to showing more ads more frequently (moving towards the US TV experience) – and again, an online approach like Spotify’s might offer a way of balancing subs against ads – the more sub you pay, the lower the rate of ads?

Of course, there could be some problems with the sub/ad dual revenue model. Presumably the demographics that the advertisers will pay the most to reach are also the most likely to buy the sub (being able to afford it), so your ad model suffers the more people take out subs (at least, up to a point).

But its an interesting dilemna. What do you do? If you and the others (note I haven’t yet received my beta invite. Boo) continue to tolerate tolerable advertising the model folds for want of commercial effectiveness and you have nothing.

I think there is a game theory model right there isn’t there? Do you confess? Should you all confess? By doing so you induce the punishment, ie subscription, but by sucking up that subscription, you ensure that there is an enduring utility for all, after all?

Interesting.