Here is an article from SF Gate.
“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 that 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 privately held Palo Alto company is adding paying subscribers at the rate of 5,000 a month, three times what it was 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 Ning’s chairman. “It also means there are going to be more people willing to pay.”
Few are charging
Ning is one of the few social-media sites 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 with 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 laid off in April.
Social-networking tools on the Web are widely available 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.
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 to start.
“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.
“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.”
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