Virtual Real Estate

One of the most popular models on the internet is advertising. Effectively companies managed to figure out a way how to create real estate. Virtually all big services have that kind of model. Look at CNN.com for example. Their main business is to have: a) as many readers as possible and b) as many pages as possible on which they can run adds on. That's it. They virtually create new real estate that catches views.

Analogy of the real world is building new building and putting a bilboard on it's side. Marketers quite often figure out how much that bilboard is worth. They look at the numbers of people that passess by each hour, location, correlation with other bilboard .... And it's exactly the same on the internet. We look at the number of unique users, page views and other.

As with classical marketing it's the numbers game. Since it's not worthwhile for you to put up a marketing sign in your living room, it's not worth to base a modestly visited side on ads. Unless you can build a really big site with a valuable real estate.

Why Free Service?

Startup often offer free service as an investment into marketing. With that they hope to get as many users as possible, that will allow them to monetize them later. A classic example is Facebook or Google. It's free for users, however in exchange, the company creates real estate, virtual real estate which they monetize.

Another example is freemium model. A service is free, but for premium features, users pay. An example would be Skype. Skype-Skype calls are free, but when you want to call  a number outside the Skype world, you pay.

The trick is that all mentioned examples have a very clear strategic path from financing adoption (giving the service for free) to monetizing it.


On the other hand there are quite a few startups that want to go out and start giving the service away for free, without actually having a monetization path. In a small number of cases that might make sense, but much safer bet is to understand the mechanics of the service first and than target marketing, promotion and monetization efforts accordingly.