By Yoon Ja-young
Freechal, an Internet site, is being sold to Icon Cube. At its Website, the company, which went bankrupt in March this year, has notified that its service and user information will be transferred to Icon Cube on Nov. 20.
The fall of Freechal gives a meaningful lesson for Internet companies.
It was the hottest Internet site in Korea in the early 2000s.
The site, which had its name coined from “free” and “challenge,” was ahead of its peers in many ways. It offered a venue for social networking, enabling anybody to easily open an Internet community with the neat user interface. Its avatar service, where a person could dress up as an alter ego, was another attraction for users.
Mainly young people belonged to dozens of communities at Freechal, and they were “community masters,” or managers of Internet cafes, for some of the communities.
It was as popular as Facebook here back then. The site drew 1 million users in only six months after its launch, and the number soon surpassed 10 million. It also got $10 million in investment from a few companies, including $5 million from GE Capital.
This, however, didn’t last long. Freechal made what proved to be a wrong decision, which turned fatal. In 2002, it hastily announced that it would start charging users for the Internet community service, 3,000 won a month per community. It didn’t expect much resistance as it thought 3,000 won a month was small sum. It also calculated that the decision would be successful even if only one tenth of the communities there agreed to pay for the service.
However, users resisted fiercely, as they were accustomed to free Internet services. They were also angry that Freechal threatened to delete the postings and photos they had uploaded on their community if they refused to pay.
They deserted Freechal. They switched to the then rising stars, Cyworld and Daum. Cyworld quickly posted on its website that it would never charge users for its community services, and some Web developers made freeware where people could easily move their postings from the Freechal community to their new one on Cyworld.
The number of communities at Freechal fell to 400,000 from 1.1 million in less than a year, and the number of users dropped to one third from its peak.
After a few months, it withdrew the charging plan, but it was too late.
After going through a number of handovers, Freechal tried new services such as social commerce, video services and games, but failed to recover. After recording billions of won in losses over the past few years, it finally filed for bankruptcy in March.
Why did Freechal choose to charge users? At that time, there were no profit models set for Internet companies. Even with the 10 million users, Freechal had nowhere to make money while the cost of supporting the communities was snowballing. Failing to come up with a solution, it took the radical measure of directly charging users, and fell.
Many new services have debuted recently, especially since the launch of smart devices, but most of them lack an income source. They seem to be focusing on increasing the number of users for now, but they will finally have to answer the ultimate question of how they are going to make ends meet. However, it will be a very delicate and difficult task. A wrong decision at the wrong time can cause even an empire to collapse, just as Freechal did a decade ago.