Open Vs. Closed Communities

February 24th, 2007 | Categories: launch, marketing, networks, social media

Most agree that the more users you have, the better. Interestingly enough, this is not always the case. Another misconception arises around pricing. Most would like to offer their services free of charge at all cost (no pun intended). Once again, this is not always the best option. Often times, a smaller, closed, paid community may offer more advantages than a larger open community.

Nowadays, it’s almost unheard of to charge for a service. Google AdSense is a staple. Advertising is considered the main revenue stream for most start-ups. This eliminates the commitment and barriers to entry for new users. By alienating potential users with a fee, the company may be bypassing a high percentage of their target market.

However, there is a quasi-hybrid version. Free trial periods eliminate the financial burden and provide a glimpse into the service. Forcing the ‘blind jump’ upon new visitors is not only dangerous, but unacceptable in this day and age.

Many services offer a free, ad-supported version or a premium, ad-free subscription with additional features. For the most part, users are satisfied with with the former option. But power users and those annoyed by ads may pay the usually small premium. But what do paid, closed networks offer that is often overlooked?


By limiting a network to paying customers, the service is able to elude (for the most part) spammers and illegitimate users, as well as uneducated and inactive users. If a credit card is being billed monthly, you’ll quickly find out who your power users are.

Implementing a paid system should in theory lead to a higher quality network, which in turn should lead to a more respected, credible name. This branding strategy further solidifies the outward facing image in terms of quality.

I’m not saying that all networks should be closed, or multi-level, or even free for that matter. Each individual site or community must determine which path is most appropriate. If a paid option is considered, there must be a significant value proposition for the user. The service must provide differentiation and a strong bond with the user, otherwise they are prone to switch to a competitor or simply drop the service altogether. If a user can’t live without your service or depends upon it very highly, you’re on the right track. It’s quite possible that the user is willing to pay.

New companies must decide which revenue model to adopt. Obviously, a case-by-case analysis must be performed. But the important thing for new companies to understand is that it is okay to charge if you feel the service merits the fee. Not all companies can and should be monetized by Google.


  1. misterdubs Says:

    Your excellent post has my wheels turning and thougts spinning. I’m currently in the planning stages of a city directory. I know city directories have been done before, but I intend to add a degree of “socialness” to the directory, by allowing the local community to add their own content in the form of member submitted articles, pictures, classifieds, and ratings.

    My monetization model will be completely “ad free”. Not even Googel Adsense.

    Income will come from the local merchants that sign up to have their businesses listed in a directory. For a higher fee, merchants will get a 1 or 3 page article that will allow them to provide quality content (not advertising) to the site’s visitors. Online coupons will be encouraged, also.

    In my research, I have not come across anyone doing a site quite like the one I have planned.

    In your opinion, how would a revenue model such as the one I’ve outlined, survive?

  2. Aidan Says:

    Hey misterdubs,

    I think you are on the right track.

    Obviously, charging the user for using a directory service is ridiculous, so an advertising or listing fee model (or a hybrid of both) is necessary.

    I definitely like the idea of charging local businesses and services a fee for a premium listing. Nevertheless, all businesses should be allowed to list for free. This will provide more listings for your site and eliminate a financial barrier to entry for the local company.

    Although advertising does ruin the user experience in many cases, I do believe there is the possibility to incorporate it if done properly and with a certain level of integrity.

    Just my two bits.


  3. misterdubs Says:

    “Nevertheless, all businesses should be allowed to list for free”

    That idea never occurred to me. My knee-jerk reaction is “what if everyone wants a free listing and no one is willing to pay for a premium listing?”

    The way to overcome that is to make the premium listings an awesome value for the customer.

    Thanks, Aidan for giving me some good insight. I’m off to my favorite brainstorming tool (spiral notebook) for another session!

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