Advertising is a type of Micropayment

So, the debate is joined on Freemiums, the viability (or not) of the Free Business model and so on.

(Saw this on GigaOm, had to respond)

Three points.

1. As we have noted before, in the early days of a a market, especially one where the value of the offer is unclear, Free grabs users like nothing else. Ten years ago when we ran business models in this sort of space for Web 1.0, the "give it away free and grab market dominance" really worked. It also has the benefit of dissuading the large, well funded competitor from entering as it forces them to cannibalise their market.

2. At some point you have to make money, either via Advertising / Sponsorship or Subscription or a combination of both. Studies of TV show that in general we want to consume a higher value of content than we are prepared to pay for, ergo advertising, like death and taxes, is here to stay.

In general, Sponsorship tends to be used in the early days of an Ad supported media - think "soaps", podcasts and so on, and is replaced by Ads as the service becomes more accepted.

3. In general, in older media, there are no mass market pure-play subscription services (except where mandated, eg the BBC). Subscription usually brings the promise of premium content / access / notification etc. The Web 1.0 datesites and satellite / cable TV providers are very good at this, mixing free with various grades of membership.

Advertising is effectively a micropayment for content, whether it is valued as a CPM, CPC or CPA. It is a generic promise by the audience overall to pay enough to keep the show on the road (or Web).

So...conclusion - Free is a valid approach, especially in early market formation, but at some point a part of the service has to be premium driven, or ad supported.