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The Dilemma of Free vs. Paid Services

The Free vs. Paid Classifieds: Choosing the Right Monetization Model

It is often the case when business decisions that we make very early in the project life cycle affect us for a long time. One of those decisions involves a choice classified websites owners have to make straight away. Even though the underlying idea is to make more money, the roads to success in case of a free listing model and a paid listing service model are very different.

Free Service Model

The free listing model stipulates that you do not intend to charge anything for letting people list their stuff on your website. However, you can (and have to in order to keep the service running) still make some money off your project by placing AdSense code or using the Banner Management Addon Worksforweb designed to run custom ad campaigns. If your website is popular, there will be many companies interested in advertising on your website.

Many startup e-entrepreneurs go with the free model hoping to get a good head start with lots of listings that the public will hopefully post, since posting listings is free. The grounds for choosing the free model are all the success stories around services such as OLX.com or Craigslist.com, which are both hugely popular and free.

There is also a lot of hype about the capitalization of such projects, and classified website owners hope to either attract a certain share of ad revenues or sell their projects to interested investors a couple of years from now.

Others fear competition from the above giants, thinking that people would never pay money for something the big guys offer for free. What if working for free is not something you fancy? Then you should review the following option.

Paid Service Model

Judging from its name, the paid service model is all about customers having to pay for some or all services classified websites offer. The majority of funds are generated from membership fees, listing payments, charges for optional enhancements, promos, etc.

Obviously, this does not mean that website owners cannot use AdSense or BMA banners to secure additional revenues to top up member contributions. However, the number of banners has to be much lower than in case of free listing websites. Why? Because people visiting a paid website expect to see less of the annoying banners and paid ads, which usually form a significant part of a “free” service website.

So, What Do I Choose?

Now, what should you choose for your project? The rule of thumb here is to offer free services in case you expect swarms of visitors (say, you work for a newspaper with 1 million subscribers that plans to set up an online classified section). Another reason for choosing a free option is to attract freebie lovers to make your website appealing to, say, lube oil dealers or local car wash businesses that are lining up to advertise on your website.

The good part about the free service model is that you will get lots and lots of listings from people using your free services (there are a few other ways of getting listings for your website, but we will discuss them in a separate article).

However, the quality of those free listings may not be all that awesome, plus you will need to fight spam, check listing content for scams or adult materials, which means you will have to think about hiring someone to monitor listings, or do it yourself.

You should go for paid listings if you are on a market that does not have hordes of daily casual visitors (heavy equipment or aircraft classified, or boutique hotel booking in the Caribbean). You are almost expected to have paid services in case you are running a b2b website where advertising is the main purpose of the website.

Most B2B websites that feature goods and services, advertisers pay certain amount of money for listing their products/services, as well as for optional features and enhancements. You as the website owner can be quite creative in setting up charges for various basic features and some advanced options such as video upload, slideshows, listings in several languages, etc.

The reader must have already figured out that there is at least one other model that blends benefits of the two above models. We are discussing this option below.

The Third Option

There is obviously a third model, which is a combination of the first two. You may offer free packages offering basic functions for the public, premium package(s) for corporate users, and a number of extra bonus features that customers will have to pay for separately.

Say, in iAuto, these extra bonus features include making a listing featured on the front page, listing highlight in a different color, the ability to add a video from YouTube (or other video content provider if configured), or a slideshow. All of the above can be set up either as basic or as optional features included into premium packages.

Generally, iAuto, iRealty, and iLister offer a number of settings and optional charges to build payment packages that fit nearly any business logic.

The third model is by far the most advantageous of all three as it offers some flexibility for those who like freebies and hate paying money for services, yet allowing website owner to recover website upkeep costs and make some profit.

The beauty is also in the fact that you as the website owner can generate income regardless of the current advertising potential of your website, which may not be too high when you are at the inception stage of your project.

The Bottom Line

Each website has to make money one way or another, either by earning money or by receiving it from investors. The choice of how your website will be generating funds (banner ads, donations, member payments, or a combination thereof) is an important one, and as such, it has to be made at the early project stages.

There are various models of fund generation, and each model is generally based on the markets and audience your website will be addressing. For some audiences and markets, the free model is preferred, for others, the paid model is the only alternative. A combination of both models allows to maximize the benefits from various categories of visitors, and is generally suitable for most online classified projects.

 Author: Sergei K.

Worksforweb Sales Department

 
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