"There will always be a company that replaces you. At some point your BlackSwan competitor will appear and they will kick your ass. Their product will be better or more interesting or just better marketed than yours, and it also will be free."
I don't understand why this argument is being specifically tied to freemium models, it sounds like a normal threat in business no matter what your revenue model is like.
It's a normal threat in business, but when customers are paying for products or services, the old companies still have some movement. If Dell is charging $1,000 for a computer and another company comes along with a way better computer for the same $1,000, Dell can drop the price to $500. Then the consumer has to decide if the better computer is worth more money, and you can bet that Dell will keep a lot of customers by doing that. But if Dell is giving away that computer for free, and another company comes along with a better (define "better" however you want) computer that is also free, they're screwed.
The computer example is obviously not a realistic example, but you can apply it to any market where people are already paying for something instead of getting it for free.
I think there is the impression that if your service is free, then no one can undercut you so the cheaper competitor has been eliminated.
But that has made freemium companies feel safe. Mark's point is that you still have competition on other fronts besides price: interestingness, marketing, etc.
I did not realize that there was this special feeling of safety with freemium services I guess... why would anyone feel safe from competitors? In any business you have a revenue model, someone can usually copy that and compete on all the other factors... no matter if your product's price (something very different than the revenue model) is zero or non-zero.
Freemium or purely-advertising-based companies should even worry about competitors that release for pay services, price is not the be all and end all of why a customer engages. And since we're strictly talking about "freemium," that implies a for-pay option. The new competitor could be a for-pay-only service but have an excellent advertising campaign (or excellent product + the word of mouth that it will generate) that simply leads more paying customers to the buy button.
I don't understand why this argument is being specifically tied to freemium models, it sounds like a normal threat in business no matter what your revenue model is like.