The always clever, almost always insightful, and sometimes good dancer Mark Cuban has a great post today about “Freemium” companies. Cuban suggests:
Its not that they can’t make money offering free. They can , have and will. The problem is that they know that its literally impossible to be the king of the mountain forever. But that won’t stop them from trying. And that is exactly what will kill them.
Their better choice would be to run the company as profitably as possible, focusing only on those things that generate revenue and put cash in the bank. More importantly, when you see your BlackSwan company appear and you know they will kick your ass, rather than ramping up to try to compete, get out. Sell. Or maximize cash and pay your shareholders every penny you have.
Like every company in the free space, your lifecycle has come to its conclusion. Don’t fight it. Admit it. Profit from it.
I think Cuban is right on, though I think he’d also agree that most companies won’t take his advice, especially Google which stands to gain (but also lose) the most from maintaining their massive search revenue and general online dominance.
http://blogmaverick.com/2009/07/05/the-freemium-company-lifecycle-challenge/
Joe Duck 
I’ve long been wary of “free”. Lack of barriers to entry and a horde of “me too” types out there makes ‘free’ a difficult situation.
I really do not know what “twitter” has other than a cutesy name and market share. I know there have been competitors or would-be competitors but I really only hear about twitter so I guess the would-be competitors are not a worry.
I know google has a good name, market dominance and existing link counts, but I fail to see how massive web crawling could not duplicate google.
Yet some things persist despite logic. The querty keyboard is supposedly vastly inferior to the Dvorak keyboard. Anybody see a Dvorak keyboard recently. I think there is a quick shift key sequence to turn a querty keyboard into a Dvorak one but I’ve only seen one person ever use it.
All these Green-type environmentalists embrace earthworms as wonderful creatures but they are infact an alien invasive species brought by the Mayflower. Often reputation prevails over relevant facts. Most of these matchbook schools are a waste of money but students still flock to them.
Not everything in the marketplace is reducible to pure value considerations. Bubbles tend to be very profitable before they burst. Alot of junk mortgages were very profitably collateralized before the bubble burst.
Merely because a company is deemed vulnerable to competition does not mean it will fail. Black Swans can be created in-house as well as in some upstart’s garage or some venture capitalist’s sleek structure. There really is no reason the better product or better marketed product can not be your own creation.