Mark Cuban, owner of the Dallas Mavericks and cofounder of HDNet, offers running commentary on Blog Maverick. This post, which follows an earlier look at Free versus Freely Distributed, is published here with his permission.
The problem with companies who have built their business around free is that it is far from free to remain successful.
The more success you have in delivering free, the more expensive it is to stay at the top. The more success you have, the more important it is to management to remain successful. The more important remaining successful is to management, the more money they will spend, the more chances they will take, the more infrastructure they will build, the more people they will hire. All of the things that will prevent them from staying lean, mean and flexible. All of the things that distract them from innovating within their core competency.
Let’s look at the rule that eventually KILLS all freemium-based content plays:
There will always be a company that replaces you. At some point your BlackSwan competitor will appear and they will kick your ass. Their product will be better or more interesting or just better marketed than yours, and it also will be free. They will be Facebook to your MySpace, or MySpace to your Friendster or Google (NSDQ: GOOG) to your Yahoo (NSDQ: YHOO). You get the point. Someone out there with a better idea will raise a bunch of money, give it away for free, build scale and charge less to reach the audience. Or will be differentiated enough, and important enough to the audience to maybe even charge more. Who knows. But they will kick your ass and you will be in trouble.
For Google, who lives and dies by free, we don’t know who their BlackSwan company will be. But we all know it will happen don