In an email to staff yesterday, new Ning CEO Jason Rosenthal wrote that “When I became CEO 30 days ago, I told you I would take a hard look at our business. This process has brought real clarity to what’s working, what’s not, and what we need to do now to make Ning a big success.” With that, he announced Ning would be abandoning its longstanding business model and discontinuing non-paying sites on its network. In light of this, is it time to reevaluate and reign in some of the excitement about the freemium model for startups?

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Offering free services for a product alongside premium fees for advanced or special features – the freemium – has been touted as a promising business model for startups for several years now: “Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.”

The Freemium Summit in San Francisco last month featured many companies who’ve been able to leverage the freemium model to great success, including Evernote, Pandora, and Dropbox. A recent New York Times article predicts Pandora could reach $100 million in revenue this year.

Finding the balance between what to offer for free and what to charge for is not easy. The trick is to put enough in the free version to get traffic and usage, but not so much that there is no incentive to upgrade. Companies who use the freemium model need to integrate their free service or product into someone’s routine so fully (either by making sure it’s accessible on their computer and on their mobile phone, for example) that users reach the point where they feel they simply must pay.

In yesterday’s press release, Ning noted that 75% of its users do pay for some sort of premium service. It may well be then that Ning’s announcements are less a reflection on the freemium model than on the company itself. Despite over $120 million in VC funding, Ning has been unable to develop a sustainable business. Yesterday’s announcement about the end to free Nings was accompanied with news that 40% of their staff would lose their jobs – an indication perhaps that the company’s overhead was simply too high.

Nevertheless, the news may serve as a cautionary tale for those startups who think the freemium model guarantees success. As David Heinemeier Hansson wrote in a post on 37signals, “Eyeballs Still Don’t Pay the Bills.” It remains to be seen if Ning can pull through this reorganization and turn a profit, or if they will also serve as a lesson on what happens when a business that’s used the freemium model dumps all those “freeloaders.”

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We’ve talked a lot on ReadWriteStart about how design is an important facet of the development of a web applications for startups. Last week we provided some advice on how to deal with irate customers who hate your design changes, and earlier this month we talked about how small design tweaks can have big impacts of the use of your site.

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The main theme of these posts is that good design is worth the time and effort because it goes a long way in attracting and maintaining users, but really, who is to say what “good design” is? A recent entry on the blog ignore the code by Swiss software engineer Lukas Mathis raises an interesting point about user interfaces and how some users prefer that they maintain their complexity.

They like complicated user interfaces? It seems strange, but Mathis argues that mastering a cluttered interface gives users a sense of superiority. One example of this that Mathis points out is the Bloomberg Terminal, a complexly designed business interface whose users might revolt if it were simplified, as some studies have shown.

“Some complex user interfaces may also give people the perception of having more control,” writes Mathis. “Another reason why people sometimes avoid simple devices is that they perceive them as being made specifically for children, or for ’stupid’ people.”

So how does this apply to Web startup culture? What it says is that not all users are the same. Not everyone is looking for the cleanest and simplest design; some want more features and more complexity. The thing to remember is there is a difference between having a complex interface and having a complicated interface.

Even the simplest of interfaces, Twitter, has begun to add more complexity with new retweet features, lists, trending topics, and more. Aesthetically, “good design” means design that is appealing to the eye, and is easily navigated visually. With this idea, it is important that complex interfaces are well designed so that the users who prefer simplicity do not feel overwhelmed.

So “good design” may be simply design that is both aesthetically refined, and that also serves to aid both novices and power users in easily finding the features they want without feeling over or underwhelmed – balanced, and right in the sweet spot. I would love to hear what people think of this idea, so please let me know your thoughts in the comments.

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