
Ning’s Bubble Bursts: No More Free Networks, Cuts 40% Of Staff - jasonlbaptiste
http://techcrunch.com/2010/04/15/nings-bubble-bursts-no-more-free-networks-cuts-40-of-staff/
======
jemfinch
As one of the 69 people who were laid off from Ning today (after a mere six
weeks with the company in my case), allow me to say the obvious:

Need a Python/C/C++ engineer with an algorithmic bent and a strong knowledge
of scalable data storage and analysis? Email me at jeremy@finchers.us.

~~~
ajju
From my friend, HN'er, and recent ex-Ning'er rjurney (works at LinkedIn) :

<http://twitter.com/rjurney/status/12236580762>

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jemfinch
One of the real challenges for me is that I was a remote employee, and I'm not
based out of an area with a reasonable tech sector. Telecommute positions
(especially with companies of Ning's caliber) are hard to come by, and I'm not
significantly free to relocate for another 14 months. Finding an arrangement
that satisfies both my personal (family) and professional needs is going to be
a real challenge.

~~~
patio11
_I'm not based out of an area with a reasonable tech sector_

I know how you feel -- there were so few decent jobs in tech in the town I
wanted to live in, I had to bloody make one to give it to myself.

~~~
jemfinch
Entrepreneurship just isn't in my blood, unfortunately. Nor is the risk
particularly desirable given its potential effects on my kid's college fund :)

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proee
In a way, the stack exchange product and ning are very similar. Both tried to
create an out-of-the-box product to fill a need. The reason both did not
succeed is probably the same as well - too many half-baked communities with
nobody behind them.

If hindsight is 20/20, what could Stack Exchange and Ning do different to make
it work?

Or on another note, what sites out there have tweaked the model and are doing
well?

~~~
SlyShy
They could take a hint from Hacker News. Creating a successful community is
all about pre-seeding it. Of course, the problem is this can't be scaled.
Making enough friends to found a domain specific website with a good group of
them isn't easy work. Communities aren't easy.

~~~
sriramk
SO did successfully create a community. I think they ran into the problem that
SO itself was successful because of the 'personal brand' of Jeff Atwood and
Joel and this didn't extend easily to other communities.

Or maybe it is because the coders who hang out on SO are a weird bunch :)

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javery
I really wonder what the 500M and 750M valuations are based on, or are those
just the numbers needed to justify additional investment.?

Also, it would make sense that this is slimming up with the hope of being
acquired. Reduce head-count, pour effort into premium services to bump
revenue, then sell.

~~~
froo
I'd suggest the valuations are based on perceived value by the investors.
That's how we get insane valuations of $15 billion for Facebook when they were
hemorrhaging money (not the case now of course).

Either way, I suspect its part voodoo and part negotiations when you're
talking about speculative valuations like this

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netcan
I want to point out something. The majority of these 'swing-for-the-fence'
ideas are _expected_ to fail. It's what is supposed to happen. Doesn't mean
anything is broken with the system.

~~~
marknutter
Tell that to the people who ponied up the cash.

~~~
netcan
You mean the mega angel-investors-slash-repeat-founder or the venture capital
funds?

Presumably, they all know. They probably insisted on it.

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dannyr
from @dhh:

Ning raised spent $120MM of other people's money over 6 years to come to the
conclusion that free doesn't pay.

~~~
staunch
If Ning networks had exploded as they had hoped there wouldn't be any emphasis
on paid today. The plan was to have a billion people participating in 10
million different networks. That didn't pan out. If it had worked DHH would
have simply said that they're one of the lottery winners.

~~~
chaosmachine
Would he be wrong, though?

~~~
borism
I'm stupid, but still not seeing how billion people would have translated into
any $ for them...

~~~
jbooth
Facebook has 300 mil, and they're profitable..

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borism
profitable? last I've heard they are cash flow neutral, and that's considering
how many billions invested?

~~~
lsc
reference? I've heard conflicting reports.

edit: did some looking:
[http://www.businessweek.com/the_thread/techbeat/archives/200...](http://www.businessweek.com/the_thread/techbeat/archives/2009/09/facebook_climbs.html)

" On Tuesday, those concerns were momentarily quieted as Facebook announced
that it’s now free cash flow positive.

This doesn’t mean the social network is a profitable operation yet. Rather,
the cash it generates from advertising and other forms of revenue now exceed
the cost of servers and other capital expenditures required to keep Facebook
running. One-time costs, like the reported $50 million acquisition of
Friendfeed last month, and operational expenses like personnel, are not
included in this equation. Outside investments in the company, like the $200
million it raised from Digital Sky Technologies in May, are not accounted for
either. "

So, it sounds like if they fired everyone and stopped buying stuff, they'd be
profitable, if money kept rolling in as it does now.

I obviously don't know for sure, but I would guess that servers and bandwidth
are cheaper than labour, for a company like facebook.

~~~
sokoloff
In what finance world does "free cash flow" NOT include operational expenses
like [salaries of] personnel?

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mschaecher
Go to ning.com (logged out if you are a member) There is literally no attempt
to sell you on anything unless you create a network. No feature listings, no
pricing, nothing. There homepage is half dedicated to showcasing networks you
might be interested in. To get a light overview of the features you have to go
three clicks deep into the site.

They should be more focused on selling their product not the various networks.
The networks should drive the traffic to themselves based on their own merit
and efforts.

Compare that with a competitor, SocialGo, which is pretty clear in explaining
what you can get from their service at various price points. Whereas Ning
doesn't appear to be trying to sell me anything, let alone compare my options.

~~~
hop
Looks like they spent none of their $120MM on that UI. That is rediculous,
these VC's must be wildly out of touch.

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jbyers
With $120M in funding, this blows my mind. I'm reminded of Ho Nam's Fat
Startup Watch. Today's announcement suggests that despite massive growth and
traffic, Ning did not find sustainable product-market fit.

[http://www.blog.altosventures.com/vc/2010/03/fat-startup-
wat...](http://www.blog.altosventures.com/vc/2010/03/fat-startup-watch.html)

~~~
petervandijck
It's probably partly _because_ of that funding :)

~~~
jbyers
Oh -- I completely agree. What blows my mind is the magnitude of the loss,
both monetary and human.

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colinplamondon
The interesting part is that, if 75% of their traffic are from paid networks,
all that much heralded viral growth must have really just been bizdev deals to
get existing brands and communities onto Ning. If that's the case it's pretty
shocking they didn't do this sooner.

------
Tawheed
Free can work, if you can keep you overhead low. They clearly failed at that.

~~~
MartinCron
Absolutely. I find the notion that there's only one true business model that's
ever successful to be extremely arrogant.

Organizations are like organisms, there are many different workable
strategies. Take a look at nature, there's no one-best-way to be a successful
animal.

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izendejas
This is just the beginning of a reality check for social media.

~~~
Gormo
Once it becomes clear that Twitter has no viable revenue model, that
Facebook's model will be undermined by the same effects that caused the
videogame industry to crash in the early '80s, and that "Web 2.0" has largely
turned into a fad, we'll probably face another Dotcom crash.

Meanwhile, genuinely emergent social media like IRC, Wikipedia, etc. keep
chugging along.

~~~
luu
For those of us that weren't around in the early 80s, what caused the video
industry to crash back then, and what are the parallels to social networks?

~~~
PostOnce
I think it's pretty widely acknowledged that the gaming crash of the '80s was
due to a glut of horrible software, since there was no approval process, crap
flooded the market, and since people had no way to judge what was crap, they
bought random games and hated them, and therefore stopped buying. I'm not sure
this is relevant to Facebook.

Nintendo came along with an approval process (Nintendo Seal of Quality) and
made games popular again. Sort of makes Apple look sensible for all their
iPhone shenanigans.

~~~
Gormo
I think it's relevant to Facebook, given that they're heavily focused on
third-party apps, especially games like Mafia Wars, Farmville, etc.

In the '80s, companies like Atari collapsed because third parties were
publishing large amounts of crap for their platforms, and this ultimately
undermined the platform itself. The increasingly common crap apps and scams on
Facebook seem to parallel this.

In fact it may be worse for Facebook, because the Nintendo solution would be
much more difficult to apply. With video games, the revenue stream for both
the platform developer and the third-party developer comes from end users. But
with social media, the revenue stream comes entirely from the third-party
affiliates - who would pay to use Facebook? If the people pushing the crapware
are also the ones paying your bills, it's a lot harder to dictate quality
standards.

I think the endgame here is sites like Facebook having to decide between
attempting to directly monetize the use of their service, or opening the
floodgates to spam. Either option will drive users away.

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motters
Regrettably, this probably means the end of Ning. It's the classic dot com
business model. Once you engage in "community breaking" activities, like
kicking off your users or trying to force them into paying subscriptions, the
amount of animosity and bad publicity generated by users who have invested a
lot of time and energy into the service usually ends up killing the company.

However, I'm not sure that this has wider repercussions for other social
networking services. I assume that Facebook is making enough out of
advertising to be sustainable (although I could be wrong).

~~~
jfarmer
PayPal did this. HotOrNot went from freemium to free to freemium again.

It's not unheard of, especially if (as the TC article quotes), the majority of
the VALUE is being created by paying users.

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thenbrent
Sounds like the perfect opportunity for Automattic to introduce a
BuddyPress.com using the Wordpress.com model.

------
OldSnakey
Google is looking for people with business and tech skills, come check it out!

April 29 - San Francisco open house
<http://www.google.com/intl/en/jobs/landing/psomixer/>

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mhartl
This sucks. Get Satisfaction tried something similar recently (eliminating
even basic admin tasks from free plans), but realized their error and elected
to grandfather in current members. Ning should do the same thing with their
free networks, perhaps with a total traffic limit. (If even that's not
economically viable, then I don't know what the hell they were _ever_
thinking.)

I sure am glad I never made an investment in building traffic to a Ning social
network. I'd be pretty hot under the collar just about now.

------
MartinCron
A few months ago I got contacted by some overly friendly recruiters working on
behalf of Ning. I'm ignored them because I'm crazy happy at my current job and
can't even really think about relocating.

Curiosity being what it is, I took a closer look and was surprised to find it
such a large/heavily funded/fast growing organization that I had never even
heard of.

I find my "thanks but no thanks" instinct vindicated today.

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va_coder
Ning Free had way too much Ning branding.

~~~
teej
You get what you pay for.

~~~
raganwald
True, although the parent post could be read as follows:

Ning Free had too much branding _to attract the kind of sites that would later
upgrade to pay plans_. It could be that the Ning branding interfered with the
Freemium model.

I'm not speaking for the parent post, of course, just pointing out that there
may be something interesting to consider...

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joshuarr
Jeeze, never saw this coming.

~~~
johnrob
Picking losers is a lot easier than picking winners.

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apphacker
Thing that always bothered me about Ning was there no way to browse networks.
At least I never saw such a thing, just featured networks and search.

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c00p3r
The longer investors pours money, the more money founders and top personal
earns. That is the business model. =) The art is about chatting investors as
long as possible and to leave on time -
<http://en.wikipedia.org/wiki/Marginal_value_theorem>

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suckafree
Free is not a business model. Within 12-18 months expect Facebook and Twitter
to go the same route. Their burn rate is starting to catch up to them and
Twitter's search deals will shrink.

~~~
subwindow
Do you have any idea how much money Facebook is raking in with advertising?
The targeting available on Facebook is unparalleled in human history, and they
are making a mint on it.

~~~
suckafree
Yes, I do have an idea. And it is largely do to their user growth. This growth
is not sustainable and will start to taper in 6-12 months. Facebook clearly is
making money from ads (I'm not discounting this). It's been estimated at
somewhere in the $400-600MM range. Of that Microsoft and their own ads make up
the bulk of that. That is starting to dwindle and they are going to be headed
in the direction of virtual goods a la Tencent. My point is that social media
sites like Ning, Facebook, and Twitter are figuring out that free is not a
business. Ning is just the first to admit it.

~~~
axod
Lets not come up with a crazy assed _WRONG_ meme like "free is not a
business".

Free _IS_ a business, and has been proven time after time over the last few
centuries if not longer.

Companies don't fail because they chose to offer something free, they fail for
other reasons.

From the very little I've read about Ning, it's clear they took way too much
funding for a start.

~~~
mixmax
_"..has been proven time after time over the last few centuries"_

Could you come up with some examples of this? Not trolling here, but I can't
come up with any pre-internet free models off the top of my head.

~~~
algolicious
Broadcast radio and television.

~~~
mixmax
Of course! Stupid me...

