Kodak Wrestles With Freemium Model
“Let’s put the issue right on the table: nobody likes paying for something that they thought was free.” So starts the message from Kodak as the company struggles to create an effective freemium model. 
Yesterday I received an email from Kodak informing me that my use of the Kodak photo gallery would no longer be free. Interesting note because I don’t recall using the Kodak photo gallery! Maybe I was forced to sign up in order to view a friend’s photos.
Since I am not an active Kodak user, I won’t miss it. So I’ll just let it lapse. But what about people who really enjoyed using the service for free? Can Kodak manage this better?
TANSTAAFL
I once had an economics professor who explained TANSTAAFL on the first day of class. “There ain’t no such thing as a free lunch” he said. Kodak has invested money to create a service that people enjoy. Like good business people, they expect a return on their investment. What is the best way to achieve that return?
The Kodak email essentially says “we’ve invested this money, so it’s only fair for you to pay”. This is not the right approach. Customers don’t do things because they’re fair. Customers operate in their own self interest.
Charlie Munger & Human Misjudgment
Many years ago Charlie Munger gave a talk at the Harvard Law School called 24 Causes of Human Misjudgment. Google Munger’s name along with the title of the talk and you’ll find several digital recordings and transcripts. One point raised during Munger’s talk: If you try to take something away from someone after they thought it was theirs, the result will be anger. Humans develop an entitlement mentality over time.
Kodak provided a free service for so long that folks began to think they were entitled to it, even though they never invested a cent. It’s not fair, but it’s human nature. It’s a fact of life and Kodak needs to deal with it. Kodak must take this into account as they develop their freemium model.
A Better Approach for Kodak
Kodak could win loyal customers and achieve ROI by making some adjustments in their approach.
- Realize that customers only act in their own self interest. Begging for money based on what you’ve invested comes across as weak. Weak is not attractive.
- Let the free users continue to use some free version of the service. For example, since storage continues to drop in price, let that be free. Google figured this out a long time ago. These free users become evangelists and a fertile market for premium services
- Develop innovative premium services and charge for them.
It’s not easy. But Kodak has a long history of innovation and they can make this work.
Missing Digital Photography
Kodak might feel residual embarrassment because they missed the first wave of digital photography. Kodak clung to the film business while tiny companies developed the digital “fad” into a serious industry. But Kodak has no reason to feel ashamed. The dominant player in any market is always the last to respond to massive change. Just ask GM, IBM, and (very soon) Microsoft.
That’s all water under the bridge. Kodak is now in a position to do something great if they approach the freemium model from a different angle.
Twitter, Are You Listening?
Let me emphasize that it will not be easy for Kodak to solve the freemium puzzle. I’ll bet that Twitter is wrestling with the same problem. Twitter offers a free service and they’re trying to figure out how to monetize it without driving customers away.
Kodak can work this out.