John Pollard

John Pollard doesn't understand why people think every service on the Internet has to be free. And now the founder of Seattle's Jott is following up that message, dumping the company's free voice-to-text note taking service in favor of a subscription model. The way Pollard sees it -- and this could be a warning for all those ad-supported businesses out there -- Jott won't be the first one making this leap.

"We are not optimistic what is going to happen to advertising CPMs in 2009," Pollard tells me.

Luckily for Jott, it is not starting for scratch. It introduced a $3.95 monthly premium service last August in a move that Pollard said was one of the smartest things it ever did, even though it led to a lot of "flack" from people who expect everything on the Internet to be free.

"The reality is, we had to do what we had to do and a lot of customers think it is reasonable," he said. Since the launch of the premium product, Pollard said the 20-person company has attracted "north of 10,000" users. Furthermore, about 30 percent of the company's active users are already signed up for the premium service.

Obviously, Jott will lose some of the customers who used the free version of the product when it shuts down on February 2. But to make an advertising service successful, Pollard said they would have had to grab massive numbers of users and "paper the product with ads." That became especially difficult given that many people use Jott to have voice messages converted to text and then delivered to email, a problem since Pollard said that many email programs strip out advertisements.

Furthermore, he said, the company is targeting cash flow break even this year and paying customers are simply more valuable.

"When you have a free model, are your customers really your customers?" he asks. "They are kind of transient.... In some ways it is kind of liberating (going to a paid model) since it is not based on fiction."

Anyway, Pollard said the company -- which introduced a new service today that converts voice mails to text and sends them directly to email a la Kirkland-based GotVoice -- had to look at the financials. And he argues that $3.95 per month really isn't that much, equating it to a "double mocha."

Jott, which announced the news today on TechCrunch and this follow up blog post, is backed with about $7 million in venture funding.

In addition to shutting down the free service early next month, the company also notified customers that it turned off the free iPhone application. Pollard said they plan to release a new iPhone app in the coming weeks that will be "mind-blowingly cool." It will be free for the premium subscribers of the service.

Asked whether other ad-supported Internet businesses will take a similar path this year, Pollard says they will be forced to.

"I think you are going to see a lot of it, unfortunately," he said.