What Does the Ning Fiasco Mean For the Future of Niche Networks and the Freemium Business Model?

Earlier today, Jason Kincaid at Techcrunch leaked published an internal memo from new Ning CEO Jason Rosenthal in which he announced his decision to phase out Ning’s free “build your own social network” service to focus on premium networks and lay off more than a third of its staff.

The announcement has triggered a number of reactions, around three predominant themes –

1. Et Tu Ning!: By phasing out its free service Ning is betraying its Network Creators who have bought into its promise of “build your own social network for free” and invested time and effort to build their niche communities. Even though some Network Creators could pay for premium accounts, most would move out of Ning, to other free or premium options like Buddypress, Kickapps or even Posterous.

My take: Ning’s about turn does feel like a betrayal and even network creators like myself who are already paying for premium services will like Ning less for it. However, I expect Ning to offer an entry level premium option in the $10 to $20 a month range, and I expect most networks with more than a few hundred members to stay on with Ning, partly because there’s no easy option to transition the networks to another service.

2. Ning is dead already: Ning co-founder Gina Bianchini’s departure last month and its abrupt announcement today are a sign of a serious crisis at the company. Equally worrisome is co-founder and chairman Marc Andreesen’s vote of confidence in Ning as recently as last month. It seems that Ning has realized that it’s competing with Facebook Pages and thrown in the towel. It also seems that Ning is headed for the deadpool, only a year after it was valued at $750 million.

My take: It’s too early to write Ning’s obituary. It may yet reinvent itself as a premium white label social networking platform and compete with the likes of KickApps. Expect Ning to announce a range of premium services soon, including an option to not use the Ning ID at all.

3. Freemium is dead: Ning’s announcement to abandon its free networks is the beginning of the end for not only Ning, but also the freemium model itself, where a small number of paid premium accounts cross-subsidize a large number of free accounts. It’s time to accept that the web 2.0 business model of offering a free service to build a huge user base before trying to monetize it through advertising or upgrades was a myth to begin with. If Facebook and Twitter die along with Ning, we can all go back to business.

My take: Ning may or may not be dead, but the freemium model will continue to be relevant. It’s becoming evident that different types of freemium models — some based on features, others based on the number of users, and still others based on quantity of usage — might work in different contexts. It seems that the trick is to get users used to paying a little early on and provide a clear upgrade path from thereon.

I’m a little surprised that nobody is talking about what will happen to the idea of customized niche networks itself. I believe that customized niche networks are here to stay. While Facebook Pages will become the default first choice for organizations to create an online community, we will see more standalone communities, not fewer.

During my talk at GoaFest 2010, I argued that the big question in marketing in the 21st century isn’t “how do we get the attention of the biggest audience?” but “how do we scale passion?” and suggested that scaling passion is similar to spreading an epidemic.

– First, you create or identify a potent virus (an ideavirus, or a social object, a lifestyle, interest or cause).

– Then, you bring together a small group of susceptible people into a small space and infect them with the virus (similar to building a focused online community).

– Finally, you let these people out into the world so that they can infect others (similar to connecting your community to existing social platforms like Facebook, Twitter and YouTube).

Ning may or may not be dead, but niche communities are far from dead. It’s not a coincidence that the white label community vendor market is as competitive as any other.

Here are some other insightful posts you should look at: David Heinemeier Hansson at 37 Signals, Mathew Ingram at GigaOm, Shel Holtz, Emory Kale, Patricio Robles, Kirsten Winkler, Nick O’ Neill, Andrew Watson.

Cross-posted at 2020 Social: Because Business is Social.

I build and nurture online communities as CEO of 2020 Social. Read my bio, interview me for a media story, invite me to speak at a conference or ask me how we can help you. E-mail me at [email protected], call me at +91-9999856940, or connect with me on Twitter, Facebook, LinkedIn, YouTube, or Slideshare.

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