Ning provides a hosted social networking platform that allows anyone to easily create their own social network, which had been offered as a free service with paid options.
The company also announced it would be laying off 40 per cent of its employees.
It’s a business decision that Simon Chen, special projects manager for Ramius Corporation understands well.
The company went through a similar issue with its own community web site building tool Community Zero.
Launched in 1999, Community Zero provided, initially, free tools to build a collaborative web site with discussion boards and other multi-user features.
At the site’s peak, there were about 1.4 million users. However, all those users were taking up bandwidth and with no ads there was no return.
“We were purely burning up cash,” said Chen.
This was also around the time of the infamous Dot Com bubble burst.
“No one was going to buy a site based on eyeballs,” said Chen.
So, while giving plenty of transition time for users, Community Zero went to a pay model, charging $49.95 per year.
The loss of users was “significant,” said Chen. “A lot of the attraction is that is was a free service.”
While the site lost the vast majority of their users, the ones who remained did pay. Chen suspects it may be a similar situation for Ning.
“There will be some people who’ve done real work who will pay,” he said.
These days Ramius is still working on SixEnt, its own white-box social networking platform.
Taking lessons from the Community Zero experience, the business model for SixEnt has been to sell to paying enterprise customers from the start, while running the free public network that shows off what the platform can do.
All that said, Chen cautioned against building a business around free tools. Users can never be certain when they will go away or switch to a paid model as businesses need a contingency plan in order to stay cash-flow positive.