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Kodak Gallery Joins Parade of Free-with-Payment Services

My wife’s United Airlines frequent flyer miles disappeared one day without us noticing. The equivalent of several hundred dollars of miles went poof because she hadn’t flown on the airline or its partners for a while, used her United Visa credit card, or engaged in any commerce in which miles were transferred to or from her account.

Frequent-flyer programs have generally switched to an expiration-without-activity policy, like United’s, a change that’s sweeping across not just loyalty rewards but all services in which something free is offered as an incentive. Companies realize that some people simply aren’t worth the disk space needed for their accounts and information.

It turns out that it may be more valuable to shed less-profitable or no-revenue customers than to keep them on the books, instead focusing on those who pay recurring fees. Free is for loyal customers (who generate income in other ways), not for the casual user.

Chris Anderson, Wired’s editor-in-chief and the author of the upcoming “Free!”, wrote eloquently more than a year ago about why free makes sense for businesses – but also when it does not. Free – as a business model – typically makes sense when a company can obtain value from users in other incremental ways, from advertising to premium upgrades to subscription fees.

Kodak Gallery (originally called Ofoto and later Kodak EasyShare Gallery) has become the latest firm to tie strings to a previously free service. The online photo-sharing and print-ordering service sets no limits on the size of photos uploaded (it notes that 10 MB is the highest size beyond which improved print detail won’t be seen), nor on what you store. (Sadly, the service also dropped its film processing service that combined photo finishing and digital scanning.)

In the past, Kodak would store photos indefinitely at no charge. Now, Kodak has imposed the equivalent of a yearly service fee made through a purchase. Storage is free for 90 days after creation of an account. For accounts with less than 2 GB of stored photos, you must spend at least $4.99 over 12 months; for more than 2 GB, spend $19.99.

In regard to this policy, Kodak is out in front among well-known photo sites. Shutterfly says it has never deleted a photo, offers unlimited storage, and allows unlimited upload size per photo (though it recommends 10 MB as the biggest file, too). In contrast, Flickr’s free mode is quite limited: 100 MB in uploads per month, with only the most recent 200 shown, and resolution restrictions. But Flickr (owned by Yahoo) doesn’t delete photos; a Pro upgrade makes an entire library available again. Kodak and Shutterfly have no paid option for consumers; Flickr charges $24.95 per year for
unlimited uploads and storage (up to 20 MB per photo).

This is another good reason to keep a set of all images and documents you create on your own hard drive and to back them up regularly. If you have photos stored only on a photo-sharing service or a document stored only on Google Docs, you’re tempting fate.

It’s inevitable that we’ll see more of this sort of behavior. Despite storage, processing power, and bandwidth becoming ever less expensive, having a million customers who spend nothing isn’t as valuable as 50,000 who spend regularly. As Web advertising dollars have shrunk from click fatigue and the declining economy, focusing on the most loyal users may help companies shed overhead while increasing the average revenue per user. A million ad impressions sold at $10 per thousand views ($10,000) doesn’t add up as fast or come as easily as 1,000 subscribers at $10 per month.

We’re seeing this trend emerge from many directions, where free services with the assumption of ad revenue aren’t sufficient. Newspapers and magazines, for instance, are increasingly interested in charging for access, especially to a greater array of content and customized services, after more than a decade of mostly giving everything away.

For instance, the Hearst newspaper chain recently stopped the presses on the 136-year-old Seattle Post-Intelligencer’s print edition in favor of an online-only newsgathering and aggregation operation with a fraction of the reporting staff. Hearst is considering a move to a subscription service for the P-I and other newspapers. Hearst is still trying to figure out, however, precisely what it can offer that people will pay for. Likewise, cable operator Cablevision bought New York Newsday last year and is considering forgoing page views in favor of recurring subscriber revenue.

This doesn’t mean that the Internet will suddenly see the doors of professionally produced big media sites slammed shut, nor will every hosting service kick out their least-profitable customers. But it’s a change in the wind that’s worth sniffing.

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