Threat on water!

The situation is clear: More than one third of Earth is currently arid or semi-arid and lacks water. Major climate changes can be feared and the context of global warming and combined economic and demographic explosion leads by itself to an increase of water consumption. By the year 2050, 40% of the population of the world should suffer at different levels from the water scarcity.


I- As water is a basic need , its supply bears serious issues for humanity and involves many stakeholders

o Water accessibility for all has become a stake of the XXIst century


The water scarcity situation appears to be a real obstacle to development with significant impacts on food security, pollution, economic losses or even potential conflicts to keep (retain) the control of resource.

The growth of population and the concentration on cities (conurbation) raise issues that appear to be more and more complex. New water practices related to tourism for example have to be taken into account. The more population increases, the more the need for water increases and the more the water pollution increases which complicate the management of the water scarcity especially for developing countries.

Furthermore, the water consumption per head doubles every 20 years ie more than twice the demographic growth rate. Intensive farming, mass irrigation, building of massive dams, toxic waste, deforestation and urban and industrial pollution have so much damaged surface water that we need now to draw from underground water without nature being able to recycle this resource. Water wasting is a common practice in the developed countries which often take water availability for granted (unsuitability of subsidized farming with local climate, use of drinking water in the sewage system, etc…)

Water scarcity is not for all that inevitable if we bet on realization and evolution mentality of the different parties involved in the subject. Water unlike oil does not disappear even if its cycle is threatened by an unequal sharing and access which mean significant political, environmental and ideological choices.

o Around this challenge, awareness rose and governments began to commit



In view of this situation, public opinion takes over the subject related to water scarcity.


Before the last 10 years, drinking water was a subject of study led by highly specialised groups of experts – hydraulic engineers, geologists, meteorologists, town planners, etc… People were often aware of the tragic situation of water especially in the developing countries but they mainly mentioned poverty and social injustice.

Today, more and more voices sound the alarm – environmentalists, human right associations, think tanks, organizations of research, international agencies, etc… - across the world with the basic principle that the right of access to drinkable water in sufficient quantity is a fundamental requirement for the realisation of human rights.

On the other hand, governments and international institutions declare themselves in favour of privatization of water management within the framework of the Washington consensus by relying on documented studies based on the water crisis.

At this point public and private points of view were almost opposed, raising some issues about water scarcity management from today to the coming years:
- How can we set a price for water ?
- Can we implement a right of possession on water resources?
- Should governments limit the action of private sector to the water supply by managing the supervision and piloting the quality control of resources?
- Is it possible to export the western model of water management in developing countries?
- Is the debate on the allocation of responsibilities between private firms and state-owned institutions relevant while the private sector is today in charge of 5% of the worldwide water management and good results are obtained by both of them ?



o In the 80’s roles and responsibilities between public and private stakeholders began to be clarified with the development of PFI (Private Finance Initiatives)
The water management unquestionably has a cost : storage, transport, purification, etc…That requires big investments and a structured market of facilities. The valuation of needed investments in the 20 coming years is several hundred billions of dollars and just as much for maintenance. In this context, the notions of profitability and financing can not be ignored in the debate on water scarcity management.

Private companies, especially French companies (Suez and Veolia Environnement) already have a leading role in the water management through the development Private Finance Initiatives (PFI).

It is then necessary to pay for those operations by charging consumers according to their consumption and the pollution they generate.
The Private Finance Initiative provides a method, developed initially by the United Kingdom government, to give financial support for "Public-Private Partnerships" (PPPs) between the public and private sectors. This has now been adopted by a large part of developed countries and some developing countries as part of a wider reform program for the delivery of public services which is driven by international institutions (WTO, IMF and World Bank) as a part of their deregulation and privatization drive.
These projects aim to deliver all kinds of works for the public sector, together with the provision of associated operational services. In return, the private sector receives payment, above the price that the Public Sector could have achieved the work, linked to its performance in meeting agreed standards of provision

The first step of water management privatization has been initiated at the beginning of the 80’s by western governments in association with some developing countries’ governments, international financial institutions and international water companies.

This step was based on the basic premise that the public water management traditionally implemented by local authorities was fully ineffective

From this admission of failure, the involved stakeholders declared that the water management should be henceforth entrusted to the private sector which could be able to bring effective solutions in the form of services financed by a full cost recovery from consumers rather than increasing the public intervention.

This new trend was first embodied in the signature of PFI contracts all over the world and more especially on the largest cities of developing countries without having in certain cases the expected effects.

PFI are getting in a second step which aims to correct the previous mistakes and to face criticism made by public opinion.

In a context of growing degradation of the resource, the second step of PFI development is based on the assessment that they have not been sufficient to meet completely the challenge of water scarcity management in spite of frequent commitments of the international community. They also have come up against a lack of governance in some initiatives and an anticapitalist ideological position declared by more and more governments and organisations.

Then the issue for private sector is not only to act as a service provider through PFI on behalf of local authorities in charge of water management but to take the control of the resource to guarantee the most effective use for human, energy, industrial and agricultural requirements.


II- Beyond the debate public/private supply, accessibility to water is globally threatened by the growing scarcity of the resource. Models need new transformation

Today, the lack of an effective solution related to the water scarcity management is obvious in spite of the creation of new management structure. Is it only an ideological debate which condemns the action of private sector on the water scarcity management ? What are the role and the prospects of the private sector in the coming years ?

 Whereas the issue is global, no global solution appears.


Water seems to be an element which does not accept a global solution due to various local specificities. The western policies of water management are often not much pertinent for countries as China or India because their conception was based on higher incomes per person, lower energy prices and population of less than one billion of people.

All the actual solutions are focused on western water technology without taking into consideration the new deal of developing countries or challenging energy, industrial and agricultural practices which are the basis of the accelerated deterioration of this key resource all over the world.

Today, some large areas are in jeopardy by water scarcity particularly due to an obvious lack of facilities and an excessive use of the resource.

 The private sector answer to scarcity trend is mostly embedded in new technologies and rational management
The solution developed by the private sector will be embodied in the implementation of more and more sophisticated technologies. Its know-how allows providing pertinent and sustainable technological answers able to bring a rational and expert approach to water management.

• Desalination of seawater,
• Re-use wastewater for industrial, agricultural and leisure activities,
• Artificial refill of ground water,
• Creation of water reserves,
• Mass water transfers,
• Optimization of network by the implementation of water leak tracking system.

The supply of bottled water can not be a sustainable and viable solution without making itself to the detriment of the water access of underprivileged people.

Facing water scarcity, the rational management and the re-use of wastewater for industrial, agricultural and leisure activities are solutions to explore. Only 2% of collected wastewater all over the world are processed and re-used. After the actual process of purification, water is most of time brought up in nature when it could be re-used as an alternative resource.

The development of leading-edge technology, especially technologies using ultra-filtration allows providing purified water with an appropriate quality for industrial and agricultural purpose by limiting direct consumption of drinking water. Two cities go further by re-using wastewater after purification for human consumption (Singapour and Windhoek – Namibia) but we need to get over real psychological barriers.

Today, the desalination is considered to be a pertinent option by allowing an unlimited access to water for people living by the sea. 40% of the population of the world live less than 100 km from the seaside. Technological improvements lead to reduce the production cost and to develop new sustainable energy sources (use of solar energy for desalination in Africa, association with windmills, etc…).

The advances in technology gives solution to water scarcity but countries and regions have to catch this offer according to their needs through succeeded partnerships with the private sector.


The large development of new processes and technologies protected by standards and patents guarantees an income for the private sector but puts also themselves at risk of criticism expressed by some organisations and sometimes re-laid by public opinion.

The private sector is not only presented any more as a service provider but as a leader of public policy of water management.

However, this function carried by research and development has to be combined with collaboration with governments in order to limit the risk of exposure to criticism related to their financial strategy and their lack of legitimacy to take the place of public organizations


The development of new technology can only be done by the private sector if we secure by return persuasive financing and profitability. In this context, new financial tools based on private investments, the “Private Equity Funds”, appear to be an alternative to PFI. These funds ensure the growth of real technological start-ups which develop highly potential solutions to the water scarcity on the same trend than the Web especially on purification side more than distribution side.

This evolution of the initial model of deregulation and privatization has been clearly introduced during the last Water World Forum in Mexico in March 2006.

o But non-business stakeholders criticize the private model

Some organisations relay the risk that the growing involvement of the private sector not only in operation but also in financing be responsible for more instability and inequalities.

The view of water companies highly involved in humanitarian process with the support of governments and World Bank is considered as lobbying and the financing model is an authoritarian debit on water invoices.

Water as a trade goods is criticize at ethical, social and environmental levels because it favours the birth of a water elite in charge of the international management of the resource in accordance with its own interest. At the end, this economic logic also deprives public authorities of abilities of investment planning and control.

Return on private investments and profitability depend on the growing volume of consumption which lead to develop technologies of desalination and transport rather than technologies of resource conservation.

Some measures have been proposed to guarantee drinking water availability in the coming years:
• National measures to protect distribution networks
• Registration of water exemption measures in international trade agreements
• Creation of global convention on water to establish an international legal framework based on preservation of resource and equity.

Another debate deals with the price of water. Some associations denounce the private sector strategy based on short-term return on investment and highly prices without transparency on margin.

An UNO agency stigmatizes the privatization in a report called “Social policy, regulation and involvement of the private sector in water distribution” which underlines these pervert effects:
• Water multinational companies are not interested by low income countries which represent not profitable market,
• Actions of the private sector in developing countries target the well-off population in urban areas, look for public subsidies or low-rate flexible loans and renegotiate agreements in order to provide services,
• Privatization generally increase water price and inequalities

Conclusion : Facing serious issues for humanity, efforts and collaboration have to be developped on both public and private side to improve accessibility


Denouncing PPP for telecoms or hospitals will not solve the issue of funds for basic infrastructures in ruined states.
No investment means no drinking water: the problem becomes serious.

PPP is a simple way to finance water, because it is a sector that poorest states are not interested in. They all rely on development support fundings (more than 2 billion dollars since 2005 only for water) and the situation is not getting better. Cities and states which are making the effort to build PPP (ex : Casablanca) can see the improvement of water quality and availability and diminution of losses in the network (which means a better water management)

Stakeholders now have to think about harmonizing their position:

In order to facilitate the understanding of water market by different stakeholders, PPIAF and its partners put in place a pilot project This project aimed to better build a commercial basis for service development and a forecasts’ process for sales, access to markets and audits. It will have to create an innovative financing structure to make loans more accessible to little communities, water providing systems’ owners and network maintenance managers. The Global Partnership on output based aid, a funding trust of multi-donors created in 2003 by the department of UK international development and by the World Bank, brings financial support through subventions up to 40% of the project cost. The 21 systems will serve 60 000 people

Social policies on water supply should not be ignored while transforming water sector.

The remaining issue is the agriculture which is a huge consumer in water. This consumption is planned to rise even more with the development of irrigation which has always relied on the model of free water, the « sky gift ». The point is that this water is released by agriculture with a lot pesticides that have to be cleaned of by charging the community. Agriculture needs about 65% of available water versus 25% for industrial sector and 10% for residential. The difficulty to provide needed water to irrigation system is on a long term, more serious than the drinking water issue. Besides, the traditional method used to solve water problems _catching of new supply sources_ has become more complex.

Whereas a lot of governments and companies keep on ignoring results, it has been proved that policies focused on water conservation and decentralization of renewable supply sources didn’t suffice to satisfy energetical demand. Nevertheless those models are less risky at political and environmental levels than traditional models. Even if it is complex, the model that provides sustainability is based on 3 principles contradicting the traditional model and corresponding to around the 3 laws of thermodynamics :
o The first principle consists in reducing gaps between supply and demand in natural resources by acting as much as possible on the demand aspect
o The second principle consists in making fit quality of the water resource with the quality required by the final consumer
o The third principle consists in changing traditional planning models by adopting a retrospective method rather than a traditional one.


As a consequence, the analysis of the soft water leads to some important conclusions:
o International organizations as national governments must focus their policy on the demand reduction instead of keep on developing supply network
o Rich countries as poor countries must reduce their consumption at a global level and per inhabitant
o Nations owning important resources and nations having always missed them both have to optimize water management through a better prices’ policy and technology improvement


III- Those issues bring some opportunities for very new businesses with disruptive ideas


2 main ideas are underlined by this study
- Issues around water are based on a problem of coordination between supply and demand and between the different stakeholders
- The main solution on a mid term is to act and focus on demand

Based on those key findings, it seems that a neutral third party is necessary in the water model.
We then propose a model of consulting agency that would:
- first be an intermediary between public markets and private companies by providing:
i. Communication platform for stakeholders
ii. Benchmark of solutions proposed by private companies and example of best practices according to countries specificities
iii. Consulting services on relevancy of potential partnerships (studies ordered and paid by countries or international organization)
- Then be the specialist on water demand issues, even at micro level
i. It would propose to individuals and companies some consumption analysis with relevant solution to reduce their water bill (on the model of the EDF diagnostic)

This kind of model would help individuals in managing their financial and ecological bill, support international organizations in their willing of addressing the water issue, help water missing states in finding the best solution and the best provider to their problem and bring some new markets to private water providing companies

The model benefits from the multiplicity of the stakeholders an dis then able to multiply the financing sources:
- International organization would support through subventions studies, platforms, benchmark and the global initiative
- States would buy some studies to increase the efficiency of their supply model and to chose providers
- Companies and individuals who want to reduce their water consumption

The company will have to recruit specialists on the topic, but as it is a service company, it should provide very high benefits while helping stakeholders in facing a serious issue for the planet.

Marketing and design in luxury industry

As a student of the Edhec business school, I wrote in 2002 a master's thesis on Marketing and design in Luxury industry.

Here is the introduction and the plan of the work:

"Passionnée de longue date par l’hôtellerie, je suis particulièrement intriguée par l’ampleur que peuvent prendre aujourd’hui les constructions hôtelières dans le monde architectural.

Les architectures intérieures autant qu’extérieures des hôtels sont de plus en plus impressionnantes et laissent dans des endroits féeriques ou chargés d’histoire des empreintes magiques de l’art du vingt-et-unième siècle. Il m’a donc paru intéressant d’étudier pourquoi et comment ces nouvelles œuvres d’art ont choisit l’hôtellerie pour s’épanouir. Ce que l’on nommera design dans ce mémoire sera alors l’architecture d’intérieur mais aussi souvent d’extérieur en ce qu’elle a aujourd’hui d’artistique et d’audacieux.

La surprise de cette étude fut de découvrir que personne jusqu’alors n’avait tenté de comprendre le pourquoi de ce nouveau rapprochement entre design et hôtellerie. Aucune des études que j’ai été amenée à lire ne cherche à rapprocher ce nouveau design hôtelier d’une compréhension de l’évolution des comportements des consommateurs.

C’est donc ce que j’ai cherché à faire tout au long de ce mémoire et j’espère pouvoir vous convaincre que ces deux évolutions sont parfaitement corrélées."

Thesis Plan:
PARTIE 1: L’HÔTELLERIE DE LUXE, ENJEUX ET PROBLEMATIQUES 8
CHAPITRE 1: QU’EST-CE QUE L’HOTELLERIE DE LUXE ? 8
I. Tentative d’éclairage sur un concept flou : le luxe 9
1 ) D’un luxe traditionnel à la française… 9
a ) Pourquoi le luxe à la française ? 9
b ) De l’artisanat à l’art, histoire et péripéties du luxe depuis le XVIIIème siècle 10
c ) Critères d’appartenance et attributs des produits de luxe 11
2 ) …à un luxe moderne et éclectique 12
a ) Le contexte du postmodernisme 12
b ) Le luxe contemporain 14
3 ) Les paradoxes du luxe 16
II. L’hôtellerie de luxe définie par son histoire 18
1 ) Du grand hôtel… 18
a ) Histoire du grand hôtel 18
b ) Les éléments pérennes de l’hôtel de luxe 19
2 ) …au luxe hôtelier contemporain 21
a ) Des petites évolutions significatives… 21
b ) Aux phénomènes de masse sur le marché du luxe : essor des boutique-hôtels et des hôtels design 22
c ) Un luxe qui sort des sentiers battus 24
3 ) Détermination du périmètre d’étude 24
CHAPITRE 2: ENJEUX ET PROBLEMATIQUES ACTUELLES DE L’HOTELLERIE DE LUXE 26
I. Des problématiques structurelles liées à la rentabilité 26
1 ) Elasticité 26
2 ) Le paradoxe du prix dans l’hôtellerie de luxe 27
3 ) La problématique du retour sur investissement 27
II. Des enjeux conjoncturels liés au tournant socioculturel du postmodernisme 28
1 ) Remise en cause du modèle traditionnel de l’hôtellerie de luxe 28
2 ) Quelles opportunités ce contexte offre-t-il à l’hôtellerie ? 29
a ) La redéfinition des besoins principaux 29
b ) Les opportunités liées aux évolutions postmodernes 31
PARTIE 2: QUAND LE DESIGN PERMET D’ACCEDER A UNE FORME CONTEMPORAINE DE L’HOTELLERIE DE LUXE 33
CHAPITRE 1: HISTOIRE DE L’EMERGENCE DU DESIGN EN HOTELLERIE 33
I. Au commencement, le business d’une artiste 33
II. L’hôtel de luxe contemporain – quel est-il ? 34
III. Succès de la nouvelle formule 37
CHAPITRE 2: DESIGN ET HOTELLERIE, UN MARIAGE REUSSI 38
I. Les synergies 38
1 ) Deux personnalités fortes… 38
2 ) Issus d’une culture commune 38
a ) L’art 38
b ) Le respect du passé 40
3 ) Partageant les mêmes aspirations 42
a ) L’art de vivre 42
b ) L’émotion sensorielle 42
c ) L’évasion et le respect de son environnement 47
II. Les apports du design à l’hôtellerie 51
1 ) Un apport en modernité 51
a ) Le design par son concept permet à l’hôtellerie de se post-moderniser 51
b ) Par sa fonction de véhicule artistique, il rend les tendances sensibles 53
2 ) Un apport en valeur perçue 54
a ) Apporte l’espace 54
b ) Le bien-être 55
c ) La personnalisation 56
3 ) Un apport en rentabilité 58
III. Apports de l’hôtellerie au design : l’hôtel contemporain, la vitrine des designers 60
CHAPITRE 3: UN MARIAGE PERENNE ? 62

Innocentive board interview

Innocentive Model

Innocentive helps companies facing an R&D problem that they cannot solve by themselves. Through innocentive.com they can use the widest worldwide network of scientists to solve their R&D issue by posting their R&D Challenge on Innocentive's website and by proposing an appropriate award. InnoCentive's Solvers submit solutions to the Challenge. A commission checks the validity of the solution, only the best solution is awarded. The Seeker pays an award to the winning Solver only if the Challenge is solved. Identities of both parties are kept confidential until the collaboration is accepted and award paid; Innocentive bills the seeker for that amount plus its fee. An indemnity agreement is obtained from the solver to protect both the seeker and InnoCentive.

In 2001, InnoCentive was begun by Eli Lilly in order to connect the global biochemistry scientist community to R&D challenges facing leading companies rewarding scientific innovation through financial incentives. Innocentive wants to innovate the way to innovate: by using the global and worldwide network of the web, it creates a global knowledge economy.
Benefits for customers, “seekers”
Customers are whether pharmaceutical companies (as was the first company to use this website as a seeker) , consumer goods companies or non profit organizations.
Companies such as P&G can spend billions of dollars in R&D. The model helps seekers in increasing their productivity, lowering costs and providing better solutions faster.

Benefits for customers, “solvers”
Scientists have access to bankable issues. A recent challenge posted by Price 4 live, a non-profit organization, promised an award of 1 Million dollars.
Intellectual property is protected: when a solution or innovation is found, the scientist, by taking on the reward, agrees to deliver his property rights.

Benefit for Innocentive
Beyond fees that are systematically billed when a solution is found and a solver rewarded, Innocentive has developed a highly valuable scientists database. More than 110000 solver scientists in over than 175 countries are connected to Innocentive network. This kind of information is a big asset.



This kind of business can have a lot of application:
- Databases can be sold to a lot of entities such as pharmaceutical companies or as government who often need to identify best scientists all over the word in order to hire them.
- The model can be extended to non scientific innovation. Companies always need innovation, in a Marketing point of view, in a communication point of view, etc. Innocentive can be the new platform for companies as P&G or Microsoft to find very disruptive innovation, using worldwide imagination and avoiding barriers of marketing rules without taking any risk in time spare and budget. The new product proposed can also be a service, and even the marketing mix can be proposed with. If the idea is good, and disruptive it can be tested on a panel and the company only pays the award if it works.
- We could also imagine that investment funds propose awards to best business plans in order to help people with great project plan to launch their business. In return, the award payer will get some shares in the new business.

Ventes privées.com

Ventes Privées proposes to join a club of smart buyers. It works through membership and offers luxury products for cheaper prices to members. Membership can only be obtained through invitations from members. The system proposes special brands day selling overproduction of one brand on a special day for a special price.

Customers then get trendy and luxury product for very cheap prices, feeling they are part of the community of smart buyers: they found the way to buy valuable goods not with their money only but also by being alert. It solves the problem of inaccessibility of luxury good and the problem of money frustration: “I can compensate my money lack by being alert on good deals and by being part of the smart buyers club”. Buy smartly is fashion today. So ventes privees proposal is twice trendy: through the purchase act itself and through products it offers.

Suppliers of this business are luxury brands. With this type of business they can sell overstocks in a safer way for their brand image: In their stores network they can’t sell their product at too low prices because the proximity for very high prices and very low prices devaluates brand image: there is no reason that you consider that a suit worth 500€ if you see a similar one in the same store for 50€. So overstocks have to be sold on other channels. And ventes privees is a wise one because it works on VIPprinciple also (even if VIP is not based on money but on trendy behaviour).

Thank to the number and the fashionable aspect of offers, the owners of the business attract a lot of customers and develop high turnover. They first attract people through the cheaper and the most efficient marketing mean which is “ear to mouth”, they make them buy with the promise of a clever purchase and finally, they causes compulsive purchase from their customer since they are sending e-mails announcing good deals almost every day. The main revenue source is sales but there are also premium services like alerts on mobiles and ventes privees certainly gets some revenues from selling data from their customer database.

The main target is customers attracted by fashion and as fashion is always moving, those people want to be able to buy a lot of things. Whereas fashionable goods are often luxury and very expansive products. So that’s people willing to buy a lot. If they are caught by the model, they can become very valuable customers.

Competitors of the model are as well offline than on-line. If we focus on models addressing same customers, online competitors are “privateoutlet.com”, brandalley.fr”, or “surinvotation.com”. Off-line there are less big models but stocks are showroom exactly propose the same service to customers. On a basis of ear to mouth and membership, they propose overstocks from fashionable and luxury brands at cheap prices.
The link between online and offline is made by websites like “shoppingactu.com”
I would say that on-line a big competitor is also e-bay. The model is a little bit different, but the idea of good deal and clever purchase is still there. And prices are similar.

According to me the main concerns linked to purchases on ventes privees are first the fact that you can’t try clothes and then the number of mails that you get when you are on their list.
Then a way to increase business would be to lot the model into different kind of services: one for low buyers, choosing the brands for which they accept to get e-mails, and one for premium buyers, who could get additional sales days by paying membership fees.

Expend revenue sources could be done through heavily advertised partnership with new brands. I think designers would pay to be sold through ventes privees at it is now labelled as a fashionable sho. If Ventes Privees chooses smartly those partners they can become a stepping stone for new brands willing to become a fashionable and luxury brand.

Social Entrepreneurs

"Social entrepreneurs are not content just to give a fish, or teach how to fish. They will not rest until they have revolutionized the fishing industry." Bill Drayton
Definition of a social enterprise: Any organization, in any sector, that uses earned income strategies to pursue a double bottom line or a triple bottom line, either alone (as a social sector business) or as part of a mixed revenue stream that includes charitable contributions and public sector subsidies. (Jerr Boschee, source socialtalent)

Social entrepreneurship is often a militant way of doing business as the purpose of developing business has not only revenue objectives but also social objectives. Social entrepreneurs claim to change the word, not to have found the most sustainable way of doing business.
However I think that this new model may be much more sustainable than the traditional ones are. Today's classical business model only aims at increasing the number of customers. It works as a circle: do business in order to develop business. Things cannot grow endlessly and the model is now highly criticized. Why do you want to develop the business if your business is spoiling environement? Why having more and more customer if your product make them obese? George Vallentis explains for Veolia the principle of contestability (link): Businesses are now observed in a global view. As far as impacts of the business are known, they are all included in the judgement of the business and consequently in the judgement of the product sold. As knowledge of all impacts is difficult to gather for all businesses and all products from a consumer point of view, the value of the product is still not measured according all impacts, but those impacts make the product and the company contestable or not.
On my point of view social entrepreneurs are currently developing a competitive advantage as they are improving their global value. By contrast, that makes traditional models contestable: they are not impacting positively their social environment. In a long term view, social entreprises will attract much more customers than traditional one do, what will make them competitive.
Of course all social entreprises don't have a sustainable business model, but now a new business model has been proposed, offering more added value to people, customers and environment, so why would we need to keep the former model?

Freemium Business Model

The freemium business model works by offering basic services for free, while charging a premium for advanced or special features.
The model was first described by Fred Wilson on March 23, 2006 on his blog.

Several convictions have been developped about freemium. For Fred Wilson this is very important that all barriers to the initial acquisition are eliminated in order to attract customers. Then some analysis explain that the model is based on the following actions:

Advantages of the model are mostly:
- to attract a lot of consumers to try the product and reduce the problem of the hard competition of the web. Sampling is a very efficient communication mean. And as this kind of business is still not frequent, it generates even more buzz and communication about the product
- to create loyalty by generating habits
- to compete with new marketing tools on a very fast moving market: More and more products are now accessible for free on the web. For music industry for example, this trend is now a real threat for majors. Experience shows there is no way to avoid the free availability of music on the web. How to compete then? By using same tools?

But of course the most obvious issue for this model is the revenue model. How to make money while giving for free high valuable products and services? The model absolutely needs to optimize the conversion rate from free use to premium use. But according to Sebastien Provencher this conversion rate doesn’t exceed 3% in average. This is the most important drawback of the model. For the moment, advertising rarely covers those website’s costs. And with low conversion, opportunities to make those business profitable are not obvious.
A second drawback, linked to the first one is that the limit between the initial basic service and the premium one is still very diffcult to draw. There is few histocity on those kind of business and no best practice has really been identified. The difficulty lies in the importance to provide a high valuable service to attract consumers while creating a frustration about the premium service. How to satisfy and frustrate in the same time? That’s the tricky point.
The last disadvantage of this model is linked to fix costs. To provide the basic package, costs are running whereas no revenue is linked to it. At the beginning of the business, the provider needs to create high valuable products or services with few revenues for an unknown period. The service can be used for free for some months before generating conversion. Even after, the effort made to provide the basic service is not linked to the conversion rate, so it is not linked to revenues. It is then a high fix cost model, with all related drawbacks such as sensibility to slow downs of the market (first to fall with crisis and last to rise when growth is back).

Nevertheless the Radiohead case has to be analyzed. On last October 10th, Radiohead decided to launch his last album In Rainbows on line for free. Actually that was not totally free since people could pay for it in a way reflecting their satisfaction. According to the Times, one third of the album downloaders decided not to pay for it. On the other hand some fans paid more than 40£. A few weeks later, the collector album was launched on traditional market.
For the moment no communication on the profitability of the operation has been made, but some other famous music groups such as Nine Inch Nails used the same idea.
The question now is how the music industry will transform to ensure profitability? Madonna gives a part of the answer since she leaved her lifelong record label Warner to sign a contract with concert promoter Live Nation. As for Radiohead case this is a kind a freemium business orientation: music will now be provided for free and concerts, collectors products will become premium offers.
On my understanding, freemium will shortly become a new major model for a lot of industries. In that case, marketing costs would move from advertising to free sampling on the web. Why not imagine free trainings or even free access to the web as teasers?

Examples of freemium business.

Skype – basic in network voice is free, out of network calling is a premium service
Radiohead last album “In Rainbows” – music is freely accessible on the web. The consumer can give some money to artists according their satisfaction. A premium collector album was then launched a few months later in traditional off line channel.
Second Life – A network free game in which additional abilities are accessible with fees.



Links :

Wikipedia definition
Fred Wilson’s post: "My favourite business model"
Fremium’s name birth

Conversion rate analysis

Sebastien Provencher’s post about freemium model conversion rate