There might have been more than a few raised eyebrows last November when we at  Babbel decided to move away from our known Freemium model. We were forging into unknown territory; we got a lot of feedback saying that it was “daring”, “dangerous”.  But now the verdict is in – the switch to a pay service has been a resounding success. The change has brought in a committed cadre of learners happy with Babbel’s usability, efficiency and overall quality. It shows that our concept works.

The financial crisis has left Babbel unscathed, while at the same time the tense state of the job market has motivated more and more people to take their further education and career preparation into their own hands. It seems that Babbel has zeroed in on one of the select services on the internet that users value enough to pay for. Just in the first few months of 2010, over 80,000 new users have registered.

The largest percentage of users is made up of Spanish speakers, and the preferred learning language across the board is English. Surprisingly enough, the most active Babbel users are 35-45 years old, a bit older than the typical internet user. Meanwhile, it’s apparent to Babbel that there is an increasing interest all over Western Europe – especially in Spain and France – in improving foreign language skills. So on the roster this year are new languages, more courses and an effort to broaden visibility in Western Europe.

Our plan, in fact, was to partially finance Babbel with advertising. We intended to provide a “freemium” product that would have a basic version that was public, while providing additional premium content for those who might want to dig deeper. But now we see this just doesn’t work. It simply is not possible to build a high-quality online learning environment while simultaneously selling ad space effectively.We tried to bring these two objectives together. But ultimately we had to accept that a business model appropriate for social networks and news services is plain wrong when applied to online education.

Babbel is now one of the first online services to decisively abandon this antiquated idea of “free”. We certainly still want to make the world – or at least the internet – a better place, but we no longer think that we can do so using online advertising. In this (admittedly epic) blog post I’d like to give some background about our decision and some words on some related, internet-wide changes.

Free as in “Free Sharing” or as in “Freebie”?

The internet does provide a number of highly valuable things for free. Software such as the Linux operating system or the Mozilla browser belongs to this category, as well as some online encyclopedias and communities. It’s wonderful how many useful things you can find online that are absolutely free. This is thanks to a combination of internet technology, on the one hand, and the selfless dedication and idealism of a great number of people all over the planet on the other.

But beyond these truly free services, there are a great number of websites, as well as search engines, free mail, and a good portion of online dictionaries and social networks, that are sponsored by ads. In contrast to Open Source software and Creative Commons, where developers and authors often work for free, ad-sponsored services are designed to make money – and they do.

What’s Wrong with Ads?

Of course, making money is not necessarily a bad thing. But ads can have drawbacks for users of these sites, some of which are obvious and some of which are not so apparent.

The most striking downside of advertising is the ads themselves. They have to attract attention, so they are flashy. They are constantly evolving to keep us from becoming immune to them. The objective is consistently to draw our attention away from other things like news or blog posts and to make us read, click and interact with more ad content and, ultimately, buy a product. Advertising’s main strategy is interruption. And interruption is what we at Babbel are trying to avoid.

Yet another aspect of online ads is that they don’t have to get everybody’s attention. They can focus on a specific target group. So besides making ads more attractive, promoters and engineers are working to “target” them to those who are most likely to respond (i.e. to buy). To do this, user data has to be collected, processed, and analyzed. This data analysis doesn’t harm people per se, but more and more internet users want to protect their privacy and are justifiably feeling uneasy about it. I must admit I feel a bit uneasy myself when I see how much it is possible to know about the users of your website when their personal data is what you’re after.

But there is another, more insidious, drawback of ad-sponsoring that is less visible to the naked eye: the true customers of these ad-sponsored services are not the users but rather the advertisers. And as everywhere else, the Customer is King. This means that these services are not optimized for the best use-value but for the best click-rates and advertising revenue. Of course, users need to be brought back to the website somehow in order to see the ads and to click on them… but that is just a means to another end.

Strictly Commercial

These downsides of ad-sponsoring are especially problematic in a learning application. If we want to build a new kind of learning environment that really works, we simply cannot let the learner’s attention consistently get drawn away. We don’t want to spend our engineering resources on ad targetting, but rather on improving the Refresher and Recommendation systems. Most of all, we need our customer to be the learner.

Our idea is to create a new kind of online learning system that adjusts itself to the needs of the learner and makes it easy to comprehend new subject matter without too much effort. This has yet to be done successfully, and we have no real role model we can emulate or by whom we can “be inspired”. It’s pioneering work, and it requires expertise to be constantly rethought and redone.

To significantly improve our service and to approach that user-centered learning environment we’re dreaming of, we’ve put together an extensive team of professionals from different disciplines. Software developers and internet specialists work side by side with more than 20 teachers and language experts. Simultaneously, we are striving to make this complex application easy to use and more or less imperceptible behind the content.

So yes, Babbel 2.0 is commercial. This means that we want to – and have to – make a living from of it. We’ve got some financing and loans, but ultimately, we have to pay our own bills. And it seems that advertising is the wrong way to do this.

Because we deliver Babbel over the internet and don’t have so many variable costs per user, we can keep the price relatively low. Instead of charging more than a hundred Euros per product, as many learning software companies do, Babbel goes for a price of €4.95 to €8.95 per month. That’s affordable for anyone who wants to learn a new language. Also, we make it a point to have fair conditions. There are no hidden costs or implicit commitments. Users can cancel their membership at any time without any unpleasant surprises.

Internet Beyond the Advertising Industry: Will this be Web 3.0?

It’s clear that we are breaking a taboo. Many internet users think that all online services should be free. A lot of them will be angered by our change in strategy. But we’re convinced this will be the best way. As a matter of fact, we think it brings with it a lot of exciting opportunities.

As the internet plays an increasingly important role in all our lives, unreliable quality becomes more and more of an issue. If we use the internet for our basic everyday needs, we can’t afford to waste time comparing and verifying information and stitching together our own services. We need quality delivered steadily and without distraction. Again, this is especially true for online education.

This is why paid services have a great future. The demand for high-quality services and providers who don’t monetize user data is rising. After the huge wave of ad-sponsored “Web 2.0″ websites, these new business models might be the core of what could be “Web 3.0.”

Paid services are particularly advantageous for small providers and start-ups because you don’t need to reach a “critical mass”. You can survive on the subscriptions of your customers, even if you have a comparably small niche market. That’s why this potential Web 3.0 could be more diverse – and less monopolistic – than what we see now. Babbel 2.0 is one step in that direction. We hope that many users take that step with us.