Ning Kills Free Service, Would Like to Get Paid Now, Please

Ning, in a dramatic about-face, is shuttering its free social networking platform to concentrate solely on fee-paying networks¬†and cutting 40 percent of its staff. Jason Rosenthal, who became CEO in mid-March¬†after Gina Bianchini left, said in an email to employees that he’s “taken a hard look at our business in the 30 days since I became CEO, and I’ve decided to focus the company 100 percent on our paid networks business.” Rosenthal said that the free part of Ning would be phased out “soon,” and that existing networks would either have to convert to paying for the premium service or “transition off Ning.”

The shift from mostly free to 100-percent paid is a major strategic shift for Ning, which gained a lot of media attention not just because of co-founder and ex-CEO Marc Andreessen, whose former company Netscape Communications helped usher in the modern web era, but also because — in contrast to the “walled garden” approach taken by Facebook — Ning’s free platform provided a place where anyone could build their own social network. But Ning’s recent move is also a sign that the much-hyped “freemium” model might not be the road to riches many seemed to think it was. In a post on the 37signals blog, David Heinemeier Hansson notes that “Eyeballs still don’t pay the bills.”

The obvious implication from both the shutdown of Ning’s free offering and the staff reduction — not to mention the speed with which Rosenthal is making the change, and without communicating it to the company’s networking users beforehand — is that Ning couldn’t sustain its business at that level. Is that a sign that the “social networking for all” phenomenon was simply not workable? If nothing else, it suggests that providing free services (in the hope that some users will pay) doesn’t scale at the rate Ning and its investors were hoping it would. And there’s no question that some big bets have been placed on the company: last year, it raised another round of financing that gave it valuation of $750 million.

Rosenthal said that Andreessen and his venture fund Andreessen Horowitz would “work diligently with everyone affected by this to help them find great opportunities at other companies.” The Ning CEO alsosaid that within the next three months, the company would launch “the next generation of Ning, which will include a range of new premium features and services for our Network Creators, a new mobile experience, and a new set of APIs.”

The response from network creators has not been pretty, to say the least. The first comment on the Ning Networks blog post about the changes says:

What the hex!? This better be a late April Fools joke! I thought I found something great and now I have to cancel all my networks because Ning wants MONEY! I’m not made of it and Ning’s the only platform that actually gives you your own social network. In plain English, this idea sucks, and I hope it’s just a bad joke!

Below is the full text of Rosenthal’s letter to employees:

Team,

When I became CEO 30 days ago, I told you I would take a hard look at our business. This process has brought real clarity to what’s working, what’s not, and what we need to do now to make Ning a big success.

My main conclusion is that we need to double down on our premium services business. Our Premium Ning Networks like Friends or Enemies, Linkin Park, Shred or Die, Pickens Plan, and tens of thousands of others both drive 75% of our monthly US traffic, and those Network Creators need and will pay for many more services and features from us.

So, we are going to change our strategy to devote 100% of our resources to building the winning product to capture this big opportunity. We will phase
out our free service. Existing free networks will have the opportunity to either convert to paying for premium services, or transition off of Ning. We will judge ourselves by our ability to enable and power Premium Ning Networks at huge scale. And all of our product development capability will be devoted to making paying Network Creators extremely happy.

As a consequence of this change, I have also made the very tough decision to reduce the size of our team from 167 people to 98 people. As hard as this is to do, I am confident that this is the right decision for our company, our business, and our customers. Marc and I will work diligently with everyone affected by this to help them find great opportunities at other companies.

I’ve never seen a more talented and devoted team, and it has been my privilege to get to know and work with each and every one of you over the last 18 months.

We’ll use today to say goodbye to our friends and teammates who will be leaving the company. Tomorrow, I will take you through, in detail, our plans for the next three months and our new focus.

Post and thumbnail photos courtesy of Flick user Darren Hester

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