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In alll the talk about paid content online, the word freemium comes up a lot. In theory, freemium allows consumers to get a taste of a product for free and then eventually converts them into paid customers once they get hooked and demand more services. But it's not always so easy.

In the case of social networking platform Ning, the freemium model was putting them out of business. Starting in June, Ning went all in on premium. The result? More people are paying to use Ning. But whether that's sustainable is another story.

Ning has raised $120 million in venture funding since its launch in 2004, but has never turned a profit. Ning and advertising don't seem to mix as well as they do on Facebook. Mark Zuckerberg's social network has over 500 million users. And according to eMarketer today, Facebook's ad revenue will top $1.2 billion this year.

Ning, on the other hand, helps people set up their own social networks, and has around 300,000 users. Now the company needs to start making money from them. In March, CEO Gina Bianchini resigned. COO Jason Rosenthal then took over as CEO and took a long look at the company's business model. He fired 42% of its employees in April. And as he said:

"My main conclusion is that we need to double down on our premium services business.”

Starting June 20, Ning gave its users 60 days to try out its new and preexisting premium services. Plans range between $20 a year to $500 a year. Starting next week, they have to start paying or get out.

So far, 45,000 people are paying for Ning services. That number is triple the premium usership before the company decided to ditch its freemium mode. Ning says that it is adding paying subscribers at 5,000 a month, three times the previous rate.

Ning investor Mark Andreesen is a proponent of paid content. He tells Bloomberg:

“A very large percentage of economic activity is shifting online and it makes sense that there are more services that are going to charge. It also means there are going to be more people willing to pay.”

The second half of that statement hasn't been proven yet. Over the next months, we'll see if Ning's users are dependent enough on the service to start paying. Rosenthal tells Bloomberg:

“What we’re seeing in our own business is a desire to get access to something that’s exclusive."

The question is, can businesses that start off free with premium services available transition to a full paid model without turning off users? It's the same problem that many media outlets are trying to tackle online.

Transitioning current free users may not be too difficult, if they are frequent users who don't want to devote the resources to creating their own internal social networks.

The real question will be what this does to Ning's future potential customers. Will they be turned off by having to pay? Going forward, Ning is going to give new users free access for 30 days to try it out. Considering the financial difficulties Ning found itself in this year, charging for access is certainly worth a shot.

And there are those that think people are going to pay for worthwhile services. Dave McClure, a startup adviser and venture capitalist in Silicon Valley, tells Bloomberg:

“Ad-driven is a lazy model."

There should probably be a caveat to that theory. If you don't have mass adoption, the ad-driven model isn't going to get you very far. But McClure continues:

“If there is value then there probably is a paid relationship that works there at some point."

Ning is betting that its social networking services are valuable enough to charge. And soon enough, we'll find out if groups large and small agree.

Meghan Keane

Published 12 August, 2010 by Meghan Keane

Based in New York, Meghan Keane is US Editor of Econsultancy. You can follow her on Twitter: @keanesian.

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