An age of companies too good to be true
An economic chasm exists between the young and old for particular key life pillars: housing, education, and the cost of raising children. However, in other areas, particularly in areas touched by technology, things have never been easier. Two generations ago, the concept of someone earning an average income being able to have groceries delivered to their door would have sounded absurd. The idea of having access to (practically) every song in existence would have sounded equally fanciful. I can access software that runs on literal supercomputers for free. Everyone keeps saying there is no such thing as a free lunch, but it certainly feels like there is in many aspects of life.
“Freemium” as a business model started in the 1980’s, but the modern incarnation of the word has only existed since 2006[1]. Here is how it was originally described:
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.
We’ve since moved even further into the strange world of wishful companies, encountering some truly staggering examples of just how far venture capital will allow you to run without making any money at all. Heck, you don’t even need to have an idea for how you plan to make money, you can just label yourself pre-revenue. Free is a fun ride, so long as you able to get off before the house of cards comes crashing down, and haven’t torched everything else in the process.
Partiful
If you are between the ages of 20 and 40, there is a decent chance that you received a text message that looks like this over the past few summers:
Hey John, Mike invited you to Jason’s Birthday! Reply ‘X’ to opt out of invites from this host. RSVP at https://partiful.com/e/…
Partiful, a company launched in 2020, has taken the event planning scene by storm, adding millions of users per year[2]. While many articles in the popular press will credit its “humorous and casual designs”, what really sets it apart is the features it offers: text messaging, photo hosting, and an easy to use app and web platform. It does all of this for free. No ads, no upgrades, no tiers. Just. Free.
This intrigued me so much that I tried to figure out how I (as a hypothetical customer) could pay them for anything. Apparently the question is pondered often enough that they decided to answer it directly on their website[3]:
How do you make money?
Partiful makes money through its Group Order feature, where hosts & guests can order drinks and snacks for their event. Everyone only pays for what they add to the cart, the host pays a flat $5 for delivery, and everything arrives at once. Group Orders are powered by Fizz, a 21+ app from Instacart. We also offer party add-ons and merch on our online store.
I have doubts that this brings in any serious revenue. Instead, it reads like filler when you need something to say about how you make money, to instill confidence in the business or to show it doesn’t need to sell data to survive. To be clear, Partiful states that they don’t sell user data for money, making this a strong candidate for a service currently too good to be true. SMS messages (simple text messages) are expensive to send[4], which is why almost every company avoids them and what makes Partiful stand out from the competition. Storing photos for all of those users would also cost money. Without ads, this is a dream come true for party planners.
I asked a friend about why they use Partiful, and a lot of these too good to be true factors play a part. Planners like the ability to mass text people, but if they had to pay anything for the service, they would choose something else:
My favourite feature from a functional perspective is that it allows you to send texts to people, because it’s the most direct way to contact people and doesn’t require everyone to have a certain type of social media account or download any app to receive updates.
Partiful raised $20 million in a series A round in November of 2022, which gives the company runway. How did they convince investors to give over that 20 million in the first place? Either there is an innovative, clear path to revenue that has been kept under wraps, or it is expected that the company gets acquired based on the value of the data[5]. Even if this isn’t what the founders have in mind, it may be the path the venture capitalists see.
Spotify
Spotify launched in 2008, and never turned a full-year profit until 2024, 16 years later. The free plan for Spotify used to be usable, now waiting through audio ads and being bombarded with visual ads around every corner makes the experience more hassle than it is worth. Artists don’t make very much money on Spotify, and other streaming services, such as Apple Music and Prime Music are maturing. For Apple and Amazon, music is a loss leader, enabling higher payments to artists from a business model that doesn’t turn a profit. As Morning Brew brilliantly explains, music streaming just isn’t a huge money making business.
Streaming almost every song in existence, with artists that are fairly compensated, for $12 a month, is too good to be true. We are seeing the dream begin to wither, with pop-up recommendations, and a shift towards playlists that contain lower royalty titles.
Uber
Remember when taking an Uber felt like a bargain? The cost would sometimes be half that of a taxi service. To incentivize people to start driving with Uber, the pay to drive also wasn’t bad. The secret that made this happen isn’t all that sophisticated, just burn venture capital money. Related services like UberEats (and competitors like DoorDash) handed out discounts like candy. It felt exceptional because it was, it couldn’t go on forever, as investors would begin to realize that the path to profitability wasn’t just long—it was incredibly difficult.
Now, Uber is trying to re-invent public transit. It’s unclear whether this is to try to find a business line that can turn a profit, or if Uber has caught a bad case of scope creep (cough cough Airbnb). Whatever the reason, taxis are starting to catch back up, and the last time I landed at the airport I just gave a wave instead of going through the hassle of logging into an Uber account.
AI
I’m not going to go too in depth here because the point is well known, however AI fits this idea too perfectly to leave it out. Using an ad-free chatbot for free, is way too good to be true. The burn rate of AI companies is unprecedented, with OpenAI burning through $2.5 billion in the first half of 2025 alone. For better or for worse, the world is getting to use chatbots, image generation tools, and a whole range of AI startups at a price far below market rate, on the dimes of investors. The costs are projected to rise into the trillions with more and more money being used to keep the data centers humming. Most of this is for new constructions, imagine how much money will be required when existing chips need to be replaced across such a massive fleet.
We can see the same sorts of signs when profit remains elusive, particularly in pivoting with Sora 2. Showing ads to a feed is a business model that has been shown to turn a profit.
Other cases
I could go on for a while. Briefly, some other examples might include: meal prep services, grocery/food delivery apps, dating apps, 23andMe.
How this affects users
There are two big takeaways on how this era has affected customers and users of these services. The first is that it is possible to come out on the right side of this trade; essentially using venture capital money to subsidize something in your life. The Partiful example is a good case of this, if you don’t factor in privacy concerns around the data[6]. VC investors at a16z will pay for free text messages and photo hosting for you and your friends, and continue to develop a web platform that has a really low barrier to entry. Assuming that nothing locks you into the platform, you can just leave if when the platform ever becomes more trouble than it is worth.
The second effect is a little more troublesome. In the process of gathering users, newer companies will “creatively disrupt” existing markets. This is normally a healthy part of the free market, allowing good ideas to out compete bad ideas and for everyone to be better off. However, when companies can run at a loss for absurd periods of time, it destroys solid profitable businesses. The business model by the new (usually tech) company doesn’t last, and so at the end of the cycle we all get back to the same place. Uber becomes more similar to older taxi services. Spotify becomes the radio. Netflix now has commercials, and streaming services are so abundant that they might as well be the channel bundles of old TV. In the process, people have had their jobs disrupted, customers have been tossed and turned between platforms, all for little gain. We are driving in circles quickly, burning fuel to get right back to where we started.
As more and more companies follow this pattern, customers and users are becoming more discerning from the get go. We are skeptical of things that don’t have a clear explanation for how they make money. We don’t like to get locked into network effects (look at how mediocre Meta’s Threads has been). We are thinking more long term about the relationship we have with businesses. Technology can work wonders, but it isn’t magic. Everything has a cost, the only question is if we are willing to recognize it.
https://avc.com/2006/03/the_freemium_bu/ ↩︎
https://www.cnbc.com/2025/04/19/meet-partiful-the-gen-z-party-planning-staple-thats-taking-on-apple.html ↩︎
https://help.partiful.com/hc/en-us/articles/26526557943067-How-do-you-make-money ↩︎
Partiful uses its own in-house service, not Twilio, I just use Twilio as an example to see the costs compared to say, email. ↩︎
In the case of being sold, the Privacy Policy states “We may disclose or transfer your information in connection with a merger or sale of our business, including during due diligence.” ↩︎
This is both in the event of an eventual sale, and in an operational sense. For example, TechCrunch recently found that location data was not stripped from uploaded photos, which could allow other users to find the home address of other partygoers pretty trivially. ↩︎