In SpiralFrog’s situation, the company couldn’t overcome “a macro-economic perfect storm” says a source close to the company. The sagging global economy, combined with “the collapse of the capital markets” and rapid compression of the ad markets,” led to the company’s demise, said the source.
Part of me feels vindicated that the freemium model isn’t the holy grail that everyone predicted. After all, if a service offers free music downloads–with the user only having to endure a few ads–and still can’t survive, what comfort does that give to other ad-supported consumer sites?
The other part of me is now concerned for related services, such as YouTube. It’s a well known fact that YouTube is hardly making buckets of money from its user-created videos and the demise of SpiralFrog doesn’t offer much in the way of comfort that the Google owned site can earn its keep from displaying ads alongside videos.
Of course, YouTube has the benefit of displaying ads from the world’s most sophisticated ad network, and SpiralFrog had more issues to contend with than just ad-revenue, but it does make you think about the future of businesses that rely on ad revenue to survive. It seems that we have those that charge for their offering–Amazon downloads, iTunes, etc–and those that are still burning through VC cash because they have yet to decide on a revenue model.
There’s not much in between. It’s hard to find a company that provides music or videos and is actually raking in the cash from their ad revenue. Know of any?