Archive for the ‘Cloud Computing’ Category
Timing Matters
Mark Heinrich and I started Phanfare sometime in 2003. We incorporated in 2004 and eventually sold the company in 2011. Along the way, I learned a few things, but one of the most memorable to me is that timing matters. Not only can you be too late, but you can also be too early.
When we started Phanfare, storage was too expensive to consider storing fullsize originals for free, ad-supported. Collections averaged more than 30GB and our fully burdened cost of storage was at least $1/GB/year. Even Google today has only about $20 of revenue per user per year ($60B/3B people), and they have one of the most lucrative advertising businesses in the world.
Ask most married people what they would take with them if their house was on fire and they would say their wedding album. Ask them the last time they looked at that wedding album, and they often can’t remember.
Excepting the immediate gratification one gets by sharing a photo or video, the amount of time that folks spend looking at the older media in their own collection, on average, is very small, probably under one hour per month.
Netflix costs maybe $9/month and many families use it over 100 hours. It’s rational that a consumer simply won’t pay more than a few cents, at most a dollar/month, to have convenient and permanent access to their photo and video collection. Obviously, some will, but that makes for a niche market.
So consumers won’t pay much, if anything for a permanent online archive. If you want to make the service mainstream, you will need to make it free. But since total page views and audience attention is low, advertising is not going to cover the bills easily. And if you are storing fullsize originals, then we are not, even today, at the point where delivering a phanfare-like service is economical based on advertising.
Today, the two leading mainstream services for taking your whole collection for free are Apple Photos and Google Photos. Google down-samples by default, unless you are willing to pay. Apple offers only a paltry 5GB for free (if you consider buying a $700 phone free).
So if you want to store fullsize originals for consumers and encourage them to store their entire collection, you need to charge them. And since we established that they will only rationally pay maybe a few dollars per year at most, back in 2008, you were not delivering the service. Phanfare was $99/year. At that price, the service had contribution margin at scale, but getting enough subscribers proved difficult.
So what should we have done? Well, to start, we should not have worried about fullsize originals. We clung to that because we were not sure we had not enough differentiation in the down-sampled photo world. But the reality is, if you show a friend a 25 megapixel image of your children versus a 2 megapixel compressed JPEG of the same kids, the friend leaves with the same impression. The emotional impact is the same.
This lesson on the importance of timing, and secondarily on the importance of doing some price-based-costing (deliver a product at the price point the customer will pay) is one that I won’t soon forget. Technology marches on, becoming cheaper and more capable. When Apple decided in 2001 that your computer would be your digital hub and you would sync by-wire your songs from your desktop to your devices, it was not the best solution imaginable, it was the best solution possible at the time.
The Road to Phanfare
Carbonite acquired Phanfare in 2011 and at the time, I could not talk too much about the acquisition. But some time has passed now and the details are not nearly as sensitive. In this post, I don’t want to focus so much on what has happened since the acquisition (not much) but instead, what led me to start the company with my friend Mark Heinrich.
My love for photography started at Stuyvesant High School in the early 1980s. Back then, a friend who had a Canon AE1 taught me the basics of SLR photography. I bought a Pentax K1000 and eventually a Nikon FG. I still remember trading my K1000 for the FG, taking the modest credit that Willoughby’s offered me. I wish I had kept that first camera.
I became photo editor of the Stuyvesant Spectator newspaper during my senior year, 1985. By that point I had a darkroom in our laundry room at my childhood home on Staten Island. I developed all the Tri-X pan for the staff photographers, creating proof sheets. I had modest equipment and a lot of patience.
I never considered photography to be art. Maybe some photos are art, but most simply document life, communicate a moment. For me, photography satisfied my desire to leave something behind, to be more than dust in the wind. I also loved the technical aspects of photography and the gear. The Japanese cameras are beautifully made, finely engineered instruments. They are almost like jewelry.
I took a lot of photos – as many as I could afford to develop. I always had basic equipment. In college at Dartmouth I had only a 50mm lens and one terrible Vivitar zoom that was so poor I could never get myself to mount it. I joined a company at college, Picture This, that took photos at sorority and fraternity formals. I learned how to shoot portraits and groups, use a flash properly and avoid red eye. I learned that at sorority formals, photos without men sell better than those with the men. The men were transitory.
When digital photography started to first take off in grad school at Stanford, I played with a Apple QuickTake 100 we had in our research group. In the late 90s I watched the founding of Ofoto and Shutterfly with great interest. These were ultimately transitional digital photo services – they focused on creating physical prints and objects from digital images, something with little long term appeal.
Many of us in grad school had simple web sites that we maintained on our workstations with our personal digital photos. These websites were the equivalent of the personal photo album of our childhood, the album that was in the living room cabinet. Most of the images that we published to these sites we got from CDs that Kodak gave us when they developed our film. digital cameras were poor quality in the mid 90s and expensive, way outside the budget of a graduate student. Our websites were often static HTML pages generated by Perl scripts. They were protected from prying eyes via an .htaccess file that popped up a password prompt.
After Stanford, in 1999, I founded my first company with my friend Mark Heinrich: Flashbase. I will talk about Flashbase another time, but it had little to do with photography. DoubleClick acquired Flashbase in 2000 and Mark and I finally had some financial security for the first time in our lives. We started buying a lot more digital cameras. I owned one of the first Nikon CoolPix cameras and the Canon D30, D60, and so on. Our digital images were piling up and we were not sure what to do with them.
Keep in mind, this was before facebook, before YouTube. By 2004, Mark and I were interested in doing something in digital photography. We both loved it, and we both had no idea where we should be keeping the long tail of our digital photos. We were certain that keeping them on our local hard drive was the wrong answer, that your hard drive was where photos go to die. Unseen by anybody, the disk would eventually fail. We hypothesized that folks would pay for a high quality archive of their digital photos. And we thought that the internet should be your master copy of your digital photos, not your computer.
The idea of the cloud being the master copy of your digital photos was not popular yet in 2004. Networks were not fast enough and disk was way too expensive. Steve Jobs was pushing the idea of your Mac being your digital hub, centered around iTunes. To make the whole thing workable, we designed a fat network client that would run on your PC and sync your photos to internet, moving small versions fast and fullsize versions in the background. The idea was that you could work with your photos on the local app while the app moved the photos to and from the net in the background.
We were fixated, perhaps wrongly, on preserving fullsize originals. And at that time, there was simply no way to store fullsize originals and have the service be ad-supported and free. Plus, we did not want ads on our personal photo albums. And so we decided that Phanfare needed to be a subscription service.
I will tell the Phanfare story in another post, but in retrospect, we were not wrong about where photography was going but we were way too early. It would take another ten years before Apple would release their Photos app that synchronizes your iPhone roll with the cloud and shows it across your devices. Google Photos is the same idea (but better). These ideas are right in my opinion. You should be able to shoot and the photos should magically get mirrored to all your devices and stored reliably in the cloud. There should be no upload step.
What we were wrong about is that websites of photos at unique URLs would be the way people share photos. People share photos through social media when they want to share with more than a few people and by direct message (email, SMS, google hangouts, etc) when they want to share with a single person.
I learned a lot from the Phanfare experience and I will share some of those things in coming posts.
The End of Unlimited Data at ATT is Mostly a Good Thing
ATT today announced the end of unlimited data plans for wireless customers. Why did they do it? It was not about revenue. They sat around the table at ATT and asked: What’s the number one issue with customer satisfaction today? And the universal answer is network performance. How do they fix it?
Well, they could add more capacity but that takes a long time and is very expensive. Instead, they decided to ration the scarce resource of the data network by offering tiered plans. When people pay for what they eat, they eat less and more efficiently. I remember my freshman year at Dartmouth we used to have all-you-can-eat-dining at “Full Fare.” In that dining hall, the trays would go to the dish room with food sculptures and uneaten desserts. Meanwhile, in the “A la Carte” dining room next door, where students paid for each item, trays would show up at the dish room with an empty plate and a fork. Really. It’s just human nature.
With tiered pricing, ATT’s network performance is going to improve in high congestion areas. 98% of their customers will see reduced costs and the top 2%, if they want to pay for extra data above 2GB, will get good download speeds on their additional usage. Plus, top 2% customers are no longer the enemy of ATT. They pay a fair rate and can do whatever they want.
It’s also good for consumers because you can now get a cheaper entry level data plan for $15/month, great for kids.
Alas, ATT could not help but throw in a few items that are not customer friendly or rational. I hope they rethink them:
- If you go over the 200MB in the entry level plan, they charge you an additional $15 for the next 200MB, effectively charging you $30 for 400MB when you could have purchased 2GB for $25 if you had planned better. This harkens back to the very consumer unfriendly practice of making consumers guess at their voice usage minutes per month and hitting them with unreasonable overage charges when they guess wrong.
- Tethering will cost $20 per month extra. This is a mistake. If I buy a 2GB package, they should be comfortable with my using that any way I see fit for personal use. After all, I am not likely going to be using my laptop simultaneously with my iPhone. This is ATT being greedy. They just want a per device charge, but a per-person charge is actually more rational and customer friendly. Tethering has enough shortcomings in battery life and convenience to be its own punishment relative to buying a separate data connection for a device.
Even with this nasty fine print, the move to tiered pricing is good for ATT customers. Sure, in a perfect world there would be enough capacity that everyone could just use as much as they want, but the reality is that wireless data is a scarce resource today for ATT, and by charging people for what they consume, they will better allocate their resources among their customers.
How does this affect photography? Cameras are used sporadically. Allowing consumers to pay for the data they use will allow cameras to get cellular data connections that don’t need to cost anything when you don’t use the camera. Today, some devices are already sold this way, like the Kindle. Of course, ATT is not selling iPhone data like that today. It’s use it or lose it, but maybe someday they will. This is what is needed to put cellular connections on every device on earth.
Amazon Announces Reduced Redundancy Storage (Hint: We don't use it)
Amazon just announced Reduced Redundancy Storage, designed to provide 99.99% durability. We don’t use that version of Amazon S3. We use the version of Amazon S3 that provides 99.999999999% durability and can sustain the concurrent loss of data in two facilities.
The exciting part of the news for us is not the reduced redundancy storage; it’s that Amazon has finally disclosed that the durability goal for the version of Amazon S3 we use is 99.999999999%.
What does that mean in human terms? Well, Amazon says that even their Reduced Redundancy Storage (RRS) is 400x more reliable than a disk drive. But if you store 10,000 files using RRS, you would expect to lose one each year. Or put another way, the expected lifetime of a file is 10,000 years. But with regular Amazon S3, you would have to store about 100B files to expect to lose one each year.
Phanfare is built using the most reliable online storage available and is designed to be the primary copy of your data, far more reliable than anything you can do yourself. And it’s that durability that drives a significant part of the underlying cost of delivering the service and one of the reasons we recently raised our prices.
Even online backup services, which sell based on the fear of you losing your data, don’t typically use online storage with the durability of Amazon S3. That is how they get their price down. But they figure if they lose a little data, you have the primary copy anyway and they can just back it up again. Not so with Phanfare. We assume that you are using us as primary storage for your photos and videos.
Announcing Phanfare's New Web Organizer
We are pleased to announce Phanfare’s new web organizer, available immediately. Phanfare’s new web organizer (internally known as Phanfare 4.0) brings some of the best features of our desktop clients to the web browser and introduces new organizational features to the Phanfare community.
- Background uploading on the web. Upload photos and videos to multiple albums while continuing to organize, caption and edit photos.
- A whole new look. The Phanfare organizer has been redesigned from the ground up and leverages the very latest in web browser technology (most-recent version of Safari, Chrome, Firefox or Internet Explorer recommended).
- A new logical way of manipulating album and image properties. You can now change album options, styles, across multiple albums at a time. Images can be manipulated in groups as well.
- Efficient use of screen real-estate. You can collapse most elements to maximize the space for viewing images.
- Phanfare Subsites for all along with new tools to manipulate and manage your subsites.
The new web organizer is available immediately at www.phanfare.com. Just login and start enjoying it. Here’s a detailed overview of how to use it if you prefer to start with the manual.
Phanfare’s new web organizer blurs the line between desktop and web software like never before for photo organizing. This new release takes us just one stop closer to our vision of cloud-based photography.
Phanfare Price Increases
We raised our subscription prices today for new customers and renewals. The new prices reflect the value we deliver to customers and will increase our margins to the point where we can continue to invest in the business.
Phanfare stores all customer photos and videos at Amazon S3 and we encourage customers to store all their media with us. We store the photos in their original quality and the video in HD quality. The average customer has 10GB of data. Amazon’s S3 pricing is well advertised.
Amazon provides the quality of storage that our customers expect. Data is kept in multiple data centers and the likelihood of their losing a single piece of data is so negligible as to not be worth discussing. The data will be there. And it’s all near-storage, not tape backup.
What does storing your photos in “original quality” mean? Well, if we got rid of photo renditions larger than what we use in our slideshow, we could remove 90% of our data costs. But if you are a customer of Phanfare, you don’t take photos to have us lose 90% of the data. Phanfare is the service that won’t have to upscale your image to show it on screens that are 600 DPI in ten years.
Unlike many services, Phanfare treats the data as if we have the only copy. We are not secondary; we are primary. Even backup services, that sell based on the fear of losing all your data, typically don’t keep the data in storage built to endure data center fires. Backup services expect you to keep a copy as well. Not true for us. Our vision is to be your cloud-based photo and video asset management system. Computers, mobile phones and tablets become cache-coherent terminals. Cameras become connected acquisition devices.
The decision to keep archival originals, which is one of our primary differentiating characteristics, drives our cost position. But Phanfare, as I blogged in 2006, was never designed to be the low cost leader. In a world of free, low-fidelity photo services with no customer support and me-too features, we try to produce a service that is better, not cheaper.
Phanfare enjoyed some margin at our old prices, but it was very thin. At enormous scale, the model was fine, but at the size we are today, and the size we will likely be in the near future, we require much healthier margins to invest in the business. If you are our customer, you want us to have that margin. Really, you do. Because the alternative is not pretty.
Today’s price increases merely represents our acceptance of the reality that we are willing to trade growth for the profitability and sustainability of the business. Our first obligation is to run Phanfare in a way that is responsible and enables our long term success. We are the steward of our customers’ memories.
I truly believe that there is a huge opportunity to build a trusted brand in photo and video management to last the next fifty years. Kodak had a strong enough brand to do it, but they squandered the opportunity. I am talking about a brand strong enough that you know that if you pay the company, your photos and videos will outlive you. We are not there today, but I want to try to get there. And the way to do it is to charge prices that give the company a healthy margin so it can control its own destiny.
Phanfare Subsites Explained
This Thursday we plan to remove the Phanfare Social Network, the ability to add friends, family and create groups within Phanfare (read just the bold parts of this post for the Executive Summary). We are doing this because the social network never really caught on, is a bit confusing, and requires viewers to maintain registration with Phanfare that offers them nothing more than the ability to see your photos and videos.
As part of this release, we are offering Phanfare Subsites to all Phanfare customers. Today, Phanfare Subsites are available only to Pro customers.
With each Phanfare account comes your own Phanfare site, located at you.phanfare.com, where you is whatever you want it to be. You can designate any subset of your albums to appear on your site. All well and good.
But what about when you want to share albums with a different interest group? For example, let’s say you take photos at your kid’s soccer games. You want to show those albums to other parents, but you don’t want to expose them to all your personal photos. Enter subsites. You can can create a subsite called you.phanfare.com/soccer. Within Phanfare, you can designate which albums are published to the soccer subsite.
An album can be in multiple subsites and/or in your main site. You can publish the soccer-related albums to your main site and the soccer subsite, and you probably would if the soccer photos are of your own kid.
Each Phanfare site or subsite can optionally be protected by a password. Hence, you can lockdown your main site but decide to keep the soccer photos open for the convenience of the parents. You might decide to also suppress google indexing of the subsite so that random people are not likely to find it.
But wait, you say, one of the things you loved about our Social Networking was the automatic notifications out to your network when you created new albums (we know, we just did a survey and of the 8% of our customers who will miss social networking, 80% say what they will miss most is automatic notifications).
We are going to solve that for the release this Thursday. We are adding back in automatic notifications for those who want them. The Phanfare contact manager enables you to create groups within it. You will be able to specify that any particular group of people be automatically notified when you publish content to particular sites or subsites. For example, you can create a contact list called “family” and have them get an update whenever you publish an album to your main site.
Because nearly all viewers come through email messages that are generated by Phanfare, either automatically or on-demand, viewer reports will mostly work as before. We click-track when viewers click through and report on who clicked and what they viewed.
So what’s the difference between using subsites versus our old social networking features?
- With social networking you had to get the person to accept the invitation, create an account and remember his password in certain scenarios.
- With social networking, you could disconnect from a single person without any disruption to the rest of your viewers.
- With social networking, to move a person from one group to another, you had to remove them, add them to the new one and wait for them to accept the new invitation to join. (And since mom does not even realize she is registered for Phanfare, good luck with that!)
- With Phanfare groups, you could create a collaborative group where everyone could contribute content (although only 5% of groups were used this way).
- With subsites, to turn off a single viewer, you need to change the subsite password. But for many situations, simply removing them from the list of people who get notifications might be enough. For example, you don’t want to notify someone you have fallen out of touch with when you add new albums but don’t care if they proactively seek to look at your photos. And since our notifications just work on clickthrough, most viewers might not notice a change of subsite or site password.
- The site hosting model in general works better for offline to online. For example, you can create a subsite called you.phanfare.com/holiday and have it be some highlights from the last year. Print that on a holiday card with a subsite password and recipients can find the online content. This is simply not possible with social networking since recipients need unique registrations.
Subsites are also useful for project work. If I want to host an album of photos showing storm damage for my insurance adjuster, I can do it using a quick subsite. I create the url: me.phanfare.com/storm, publish the storm album into it and send a link via email.
On thursday, customers who regularly use the Phanfare social network will receive a note pointing them to a wizard to migrate over to the use of subsites. For friends, family and each group they maintain, we will suggest a subsite, and automatically publish the appropriate albums into the subsite. We will also create a contact manager group and give you the opportunity to specify that recipients should receive automatic notifications when you add albums to the subsites.
For your viewers, not much will change. Instead of receiving an notice from Phanfare daily with all the new albums created by their connections, the viewer will receive one email per album published, with the From address of the email being from you. One nice benefit: the recipient can reply back to the email to reach you. The recipient won’t need to know any passwords (we encode them on the clickthrough) and the recipient will see only your albums when they click.
These changes don’t affect your ability to send isolated links to single albums that live outside your site structure, or transfer albums to facebook.
With the removal of the Phanfare social network, we complete the migration back to our roots of being an asset manager and publishing service for photo enthusiasts and pros. We have no plans to offer a free version of Phanfare, and we don’t need or want the viewers of our customers to register with us.
We hope the product is just that much easier to use and reason about for our customers and that we will have more resources to bring to bear against the problems that all of you have told us are your higher priorities for Phanfare, including but not limited to: keyword tagging, faster search and wider mobile integration.
Danger data loss give hosted services a bad name
Last week we learned that Danger, a subsidiary of Microsoft, has lost huge amounts of customer data. Danger makes the sidekick smartphone, and they offer a service to synchronize the phone (contacts, photos, etc) to hosted servers, aka, the Cloud. The critics wanted to know “why was there no backup?” And of course then there was the inevitable refrain that if you want to keep your data, you should be backing it up yourself and not relying on cloud services.
I think this is entirely wrong. Using a cloud service should free the consumer from having to do backup. Most times when you use a cloud service, backup is not even possible. How do you backup your gmail account? How about your facebook account?
The whole reason to use a hosted service is to free you of having to deal with the muck of running your own servers and doing backup. It makes sense precisely because building a reliable service is so difficult.
I am not on the inside at Danger, but I think I know how this happened. While people think that Danger lost a lot of data, the truth is, they lost very little. The type of data they hosted (contacts, text emails) is small compared to photo and video data, of which they had relatively little. My guess is that they lost under 10 terabytes of data. It might have been under a terabyte. And when you don’t host huge amounts of data, you might be tempted to just put it on RAID’ed servers and try to do nightly backups. Turns out, its very hard not to lose all your data when you use RAID.
RAID pretty much requires you to run nightly backups or rely on a proprietary replication scheme. RAID is sold as being completely reliable but anyone who has used RAID knows this is far from true. Double disk failures are more common than expected, especially when drives are from the same lot. Sometimes you lose the whole RAID chain. Replacement of disks is a manual process and sometimes people replace the wrong disk. Corruption of a RAID volume is not unheard of.
Then there is the backup window, which becomes longer each day until you finally start spending more hours backing up the data than there are hours in the day (been there, done that). And when backups are occurring, the performance of the RAID is significantly degraded. In sum, RAID does not scale. And any service that gets large enough eventually abandons RAID for some distributed solution that scales better, and coincidentally, is a lot more resistant to losing all the data at once.
Phanfare uses Amazon S3 for storage of photos and videos. Amazon is fairly vague on how it works, and we are under NDA, but the basic story is that it works much like other modern distributed file systems. It keeps multiple copies on multiple servers, geographically distributed, and has a scheme for replicating data when it programatically detects that a copy of an object has been lost.
As such, there are no backups of Phanfare. Yup, that’s right. We don’t backup the image and video data. It’s on Amazon S3 and that system uses an approach to persistence that is fundamentally different than the approach that bit Danger in the you know what.
Truth is, backups serve two purposes in am modern system. They do help assure that you don’t lose data to a system problem. And they serve as checkpoint against human error of deliberately deleting data.
The problem with S3 is, when you give it to the command to delete a file, it gets deleted, reliably. There is no going back to last night’s checkpoint. To combat this issue, we don’t really run deletes when end users delete their images. We wait a while. And we have a trash can system to make absolutely sure you want to delete data. Waiting on the deletes is really to protect against a systemic failure on our part (rogue code that deletes files).
We still use some RAID storage at Phanfare for some relational database systems holding meta data. The web service caches this data using memcache. (Another rule of large scale systems is that relational databases don’t scale either). At some point, we will scale past being able to use RAID and caching for that. Until that point, we do have to perform old school backups of the relational database to a secondary data center. And I worry a lot more about those than I do about the image and video data at Amazon S3.
The whole Danger incident sends the wrong message. Companies are much better at keeping data reliably compared to consumers. That Danger dropped the ball should not indict the whole industry. Instead, consumers should demand that companies be more transparent about their approaches to keeping data reliably.
In recognition that the ultimate risk is always that you do not know all the risks, we also offer a DVD subscription service that returns your data to you incrementally over time, automatically, so both we have and you have it.
Open Questions with the Apple Tablet
I believe Apple will do a tablet computer that has a virtual keyboard. The product will have approximately a 9 inch screen, be designed to sit on a kitchen counter, have a fold out back foot that will allow it stand up like a picture frame, and also be comfortable to use on a couch.
The computer will run a variant of the iPhone OS. It will include WiFi, bluetooth and 2 USB ports. It won’t contain a 3G radio. Good chance it includes an ethernet port. For most consumers, that tablet will be the only computing device they need. Like an iPhone or touch, it will not expose the user to the memory hierarchy or the file system because well designed consumer devices never do. Nevertheless, there are challenges and open questions.
- Will the device come with a bluetooth keyboard or will that be optional? I think it will be a lot more versatile for counter use if it has a keyboard. Will it take a mouse? new pointing device? or will you just tap on it? I think it will optionally take a mouse.
- Will they extend the iPhone OS to support multiple logins? Is the device designed to be a single user device, like an iPhone, or a multi-user device, like a personal computer? I suspect that many home users share a single login, so the answer of how to best address allowing two different people to read email and have their own bookmarks is not obvious. And remember that on the tablet, people will likely use the Apple mail app, not a web browser, to read email.
- For Photography is it client or host? Will they do a version of iPhoto for the tablet? Will they put in all the USB code and acquisition stuff to allow acquiring photos from a digital camera to the tablet? Will an iPhone be able to sync with the tablet, or do they view the tablet as a client that is either left unsynched or syncs with a personsal computer? I think the iPhoto model is entirely broken so you really need to pick your poison on this one. More on this below.
- What about iTunes? can you sync your iPod to the tablet or is the tablet a client?
- How will they allow all existing apps to run on the larger screen? Two major options here: have each app run in a little gadget window that is the size of an iPhone or redesign apps to run full screen. I think they do both. They run iPhone apps in compatibility mode in a little gadget window but most Apple apps will be redesigned to use the full screen. Given the design philosophy of iPhone apps, they could just encourage apps to build views with multiple long columns across the page, the right hand columns being deeper in to the hiearchy than the left columns (like the column view in finder).
I have long thought that iTunes should be a caching client that you can login to from anywhere and get to all music you purchased plus imported. Ditto with iPhoto (this is the Phanfare solution).
Using that model, both phones and the tablet would be clients to the cloud and the phone would sync wirelessly with the cloud even for music (as Phanfare Photon on the phone does for photos).
As they say, the devil is in the details and it will be interesting to see how Apple executes the product. I imagine a raging debate within Apple about whether people wil be presented with a “login” screen on the tablet and encouraged to “add users.”
If Apple really comes out with the tablet in October, as rumored, then I think they will do the expedient thing. That means that the tablet will be just like a phone and will need to sync with iTunes on a PC or Mac to get to its music. The one feature I expect they will add is network sync over wifi. They already have this feature in the Apple TV product, so no big deal porting it to the tablet.
Freemium did not work for Phanfare
Fred Wilson of Union Square Venture is a big proponent of the freemium business model on the internet. He recently reiterated that when it comes to delivering media on the net, freemium is a great way to go. Fred originally endorsed Freemium back in March of 2006.
I have a tremendous amount of respect for Fred. I don’t know him well, although we have met a few times. And I read his blog pretty regularly so feel like I know his views. I can’t say that I was not enticed by Fred’s arguments. At the time, Phanfare was growing nicely but marketing costs were high. It seemed that if we created a freemium business model and allow everyone to use Phanfare in some basic form that it would help us prospect for customers willing to go for paid upsells.
But I also had my concerns which I wrote about in May of 2006 in a post entitled Why is there no free version of Phanfare. At the time, I was concerned that there were few network effects to Phanfare and hence the value of having a large community of free users was not that high. I was also concerned that as a differentiated provider, we would be hard pressed to make money with the load of the free users.
But in 2007, we embarked on changing Phanfare to incorporate a free version. The thinking at the time was that our calculus had not considered the cost of marketing, which is lower if you can prospect by attracting people with a free version. We thought having some network effects to Phanfare were important, so we also added social networking. We thought that people would connect to their friends on Phanfare and expose them to the system.
We offered 1GB of storage to free users and unlimited storage to paid users. Classic freemium.
Here is what happened.
- We saw a surge in registered users.
- We saw drastically reduced margins. Customers with less than 1GB but paying our full subscription fee were our most profitable customers. With those people at the free level, our margins were down significantly.
- We lost the ability to effectively use CPC search marketing (google). When we had a free trial, it was easy to see which clicks were worth paying for. But with freemium, the conversion funnel was so long (average of nearly a year before the person needed more storage) that any attempt to optimize price per conversion was hopeless. (Try adjusting the shower temperature with a 12 month delay between knob and temperature change and see how it goes for you. In control theory parlance, this is known as introducing a delay in the feedback loop)
- We lost our position as a premium provider. People perceived Phanfare as “free” and it was hard to describe ourselves as a paid service for those who care about preserving their full size originals and displaying them in a better way.
- There were few network effects to Phanfare. People who were our customers did get their friends to register for free accounts, but the rate at which those people became Phanfare participants was very low. We did not have a social network; we registered the audience.
Another issue is that storage is the driving cost factor for Phanfare. The page views per bytes/stored is so low for us (we are an archival service storing full size originals) that advertising, even if it was welcomed by our user base, would not pay the bills.
Fred Wilson estimated that Facebook might have $.25 revenue per user per month. Phanfare could never survive on that.
In the end, freemium is not a good model when the cost of delivering service to free users is high. But more fundamentally, I reiterate my position that freemium is a bad marketing plan for any premium business that hopes to be the differentiated provider.
Freemium makes sense when at least one of the following conditions are true
- Free users have zero marginal cost to the company. True for Skype and other P2P services that get participants to volunteer infrastructure.
- The value of the product to a prospective customer depends on their being a large network. True in dating, Skype, Facebook, Ebay and Twitter.
- The business can be run ad supported. That means that the business has reach and attention that scale along with costs and costs are low enough that ads pay the way. (At Phanfare our page views per byte stored are so low that advertising does not work well). Any ad-supported business can consider paid upsells. At some level they are running freemium. Or put another way, they are using their reach to pitch their own products.
Not a single one of these conditions is true for Phanfare. Moral of the story: trust your instincts.
An Engineer 