Union Square Ventures VC Says ‘Free is the Business Model of Choice’ for Online Services

Should companies like Facebook, Twitter, and Tumblr stop bombarding consumers with ads and adopt a paid subscription model instead? According to Fred Wilson, managing partner of Union Square Ventures, the answer is no.

Should companies like Facebook, Twitter, and Tumblr stop bombarding consumers with ads and adopt a paid subscription model instead? According to Fred Wilson, managing partner of Union Square Ventures, the answer is no.

In a blog post entitled “In Defense of Free,” Wilson explains:

Let’s start with advertising. I do not believe it is evil. In fact, I believe it is a fantastic way to support services that want the broadest adoption and want to be free. Think about the Super Bowl, the World Cup, the Olympics, the Oscars, the Presidential Debates, the news coverage of important events. These things are ad supported and free for anyone to watch who has a TV and an antenna. It is good for society for these things to be available to the broadest audience.

Further, social media sites like Facebook, Twitter, Tumblr, and YouTube would not exist if regular people weren’t willing to write posts or upload photos and videos.  Writes Wilson, “I do not believe it makes sense to charge users to create the value.”

Twitter, for example, has reported making a “truckload of money” from its advertising business.  The company currently has thousands of advertisers buying Promoted Tweets and other ads, and expects tens of thousands by the end of the year.

The micro-blogging site draws everyone from Facebook users looking to post more succinct versions of their status updates to journalists who report short bursts of news in real time. From the user perspective, Twitter has distinguished itself as an open communication tool for connecting people with others outside their personal networks, and has played its part in moments of cultural significance. What would have happened to protesters in Egypt if Twitter (as well as Facebook and YouTube) had been a paid service?

Even with niche sites, most people prefer free over paid, writes Wilson. In April 2012, the New York Post reported that less than 20 percent of Spotify’s user base in the U.S. consisted of paid subscribers, who shell out a few dollars a month to listen to the music without the ads and to get a few other perks as well. Since then, Spotify has started to look more like a social version of Pandora, adding a radio button to the digital jukebox and forming partnerships with advertisers like Coca-Cola.

Would you prefer to pay for a social network to keep the advertisers away from your personal data or is it worth it to keep the Internet free and open? Wilson shares his thoughts in the podcast below.

Image by Gunnar Pippel via Shutterstock.