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An observation: wallet friction is a big problem for micro-payments, but it may not be a big problem for subscriptions because the conversion only needs to happen once. On balance, though, this is a tour-de-force, and maybe you should always blog on airplanes at 3am. Your main point is dead on. If the whole economy is moving online, it is just plain delusional to imagine that the ad supported business model is the only business model. The challenge, I think, is that creating services and content that blow through that penny gap will require an entirely different kind of ingenuity than that which the denizens of the start-up community have been cultivating these last fifteen years. A blockbuster subscription business comes up with something people CANNOT LIVE WITHOUT, would kill their grandmother to get, like it was heroin. Inevitably, a really successful such business will provide this fix to maybe 10 million people. The business that can provide the nicotine for 100 million people will be a big deal indeed, but there can't possibly be more than half a dozen such universally undeniable needs in the marketplace, so most subscription businesses will be much smaller, serving specialized niches. Leaving out the handfull of giga-successes, the most badass subscription businesses will do maybe a billion a year in revenue. So THAT's the challenge. Provide something that ten million people would spend a billion dollars a year to have. If you can do that, you're not going to be losing many conversions to forgotten passwords.
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Feb 1, 2010