Andreessen's Social Site Ning Gets Users to Pay for Service
Ning Chairman Marc Andreesen
Jonathan Alcorn/Bloomberg
Ning Chairman Marc Andreessen.
Ning Chairman Marc Andreessen. Photographer: Jonathan Alcorn/Bloomberg
Ning CEO Jason Rosenthal
Lea Suzuki/San Francisco Chronicle via Bloomberg
Jason Rosenthal, chief executive officer of Ning, at Ning's offices in Palo Alto, California.
Jason Rosenthal, chief executive officer of Ning, at Ning's offices in Palo Alto, California. Photographer: Lea Suzuki/San Francisco Chronicle via Bloomberg
Ning Inc., the social-networking site co-founded by venture capitalist Marc Andreessen, did what many young Web companies only dream of: It got customers weaned on free services to start paying.
Since telling users in April it would stop offering the means to build and operate social networks for free, Ning’s paid user base tripled to 45,000, with memberships starting at $2.95 a month. The closely held company is adding paying subscribers at 5,000 a month, three times the rate it had before.
“A very large percentage of economic activity is shifting online and it makes sense that there are more services that are going to charge,” said Andreessen, the co-founder of Netscape Communications Corp., who serves as Palo Alto, California-based Ning’s chairman. “It also means there are going to be more people willing to pay.”
Ning is part of a minority of social-media sites that are charging users, following a path cut by media and entertainment providers, which have experimented with fee-based services. Founded in 2004, the same year as Facebook Inc., Ning failed to turn a profit from its original strategy: offering most services for free and charging a monthly fee for extra features. Co- founder and Chief Executive Officer Gina Bianchini resigned in March, and 42 percent of the staff was fired in April.
Social-networking tools on the Web are widely available to the public for free. Facebook, which has more than 500 million users, is expected to generate at least $1.4 billion this year, mostly from the sale of ads, two people familiar with the matter said last month. Twitter, with more than 100 million users, began running ads on its site this year.
‘Niche’ Business Models
With a large population of Web users relying on Facebook for basic social services, like keeping track of close friends, there’s an opportunity for other sites to charge for more unique services, said Lou Kerner, a social-media analyst at Wedbush Securities Inc. in New York.
“Facebook has won the free social media race,” said Kerner. “What you’re seeing in the marketplace is folks who are trying to find out business models that are more niche- oriented.”
For Jive Software Inc., that niche is business. The startup, also based in Palo Alto, sells social-networking and online collaboration tools to corporations, including Nike Inc., Intel Corp. and Charles Schwab Corp. Jive’s services start at $100 per user per year, and many customers pay for at least 10,000 users upfront.
Business Users
“The use of social software in the consumer world has no doubt fueled the interest level” among business users, said Tony Zingale, Jive’s CEO. The company, which received a $30 million investment last month led by Kleiner, Perkins, Caufield & Byers, expects bookings of as much as $25 million in the last three months of the year, he said.
Paying subscribers are an attractive asset to venture capitalists, who are often asked for money from Internet startups planning to cash in on advertising.
“Ad-driven is a lazy model,” said Dave McClure, a startup adviser and venture capitalist in Silicon Valley. “If there is value then there probably is a paid relationship that works there at some point,” he said.
Business networking site LinkedIn Corp. generates some revenue by selling professional services, like tools for finding and recruiting job candidates. Meetup Inc., a service for coordinating social events, charges organizers a fee.
The “freemium” model of charging a portion of users is nothing new. One of the earliest examples is PayPal Inc., founded in 1998, which made its payment service free to buyers of products and services so that many people would use it.
Exclusive Services
“You need free users to enhance the overall value for the product,” said David Sacks, one of the founders of PayPal, who now runs enterprise social-media startup Yammer.
Ning will be better off without free users, said Jason Rosenthal, who became CEO of the company in March. Ning may lose more than 300,000 nonpaying users when it shuts down free accounts Aug. 20. Since asking users to pay up, individuals and organizations using the site on a regular basis were reminded of the company’s value, he said.
“What we’re seeing in our own business is a desire to get access to something that’s exclusive,” Rosenthal said.
Joseph Porcelli, a resident of the Jamaica Plain area of Boston, helped raise $1,000 so that his nonprofit, Neighbors For Neighbors, can continue to use Ning. The group uses the site to bring local community members together on issues like crime and public safety. Porcelli asked members to donate $50 each and become an honorary “mayor of the block,” to fund the organization’s 20 Ning networks.
While current funds will keep the networks afloat for two months, Porcelli is trying to raise $5,000 to keep them operating for a full year.
“We want to sustain them so they can continue sustaining us,” Porcelli said of Ning. “If you go to Lowe’s and say you’re going to build an addition to your house, you have to pay for the tools.”
To contact the reporter on this story: Douglas MacMillan in New York at Dmacmillan3@bloomberg.net
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