
Stop asking “But how will they make money?” - revorad
http://andrewchenblog.com/2012/05/30/stop-asking-but-how-will-they-make-money/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+AndrewChensBlog+%28Andrew+Chen+%28%40andrewchen%29%29
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wpietri
Oh god.

I just mentored at a startup event this weekend. Half the teams had no idea
how they were going to make money. None. They were building products, not
businesses. Many of them were subconsciously hoping that the VC fairies would
visit them, and then 18 months later somebody would buy them. "Instragram!",
they cried. And then I cried.

Facebook is the worst possible business to use as an example here. They are an
outlier, a once-a-decade company. Building an actual ad-supported business
these days requires you get massive amounts of traffic quickly, and that means
that a very large percentage of your brainpower will be devoted to user
acquisition, ad network optimization, and trying to decide how you feel about
auto-play video ads and popunders. That is, you will always be thinking _but
how will we make money?_

It also kills me that when talking about ways one makes money he mentions
Stripe, Boku, and Kickstarter in the same breath with ad networks. Those are
not business models. They are just ways that money travels. It's like saying
one's business model is accepting checks.

His post, if it's relevant to anybody, is only relevant to a very small number
of businesses that will take $10m-100m in venture funding and are doing
something so trivial that nobody is willing to pay money for it. It's
ridiculous.

~~~
cube13
>It also kills me that when talking about ways one makes money he mentions
Stripe, Boku, and Kickstarter in the same breath with ad networks. Those are
not business models. They are just ways that money travels. It's like saying
one's business model is accepting checks.

I came here to post this. Kickstarter's intent is to assist with bootstrapping
a product. It's not monetization. It's a way to get the capital to produce
something. They answer the question "It's going to cost $100,000 to make a
batch of our widgets/books/etc. Is there enough of a market to actually sell
that number?"

Stripe, Amazon Payments, Google Checkout, etc. are payment processors. Again,
they're not monetization. They're there to get money from customers hands into
your hands. They're the answer to "We want to sell this, how can we get our
customer's money?"

But even if you're using those methods to provide answers to those questions,
the fundamental question still remains: "What are you selling, and how do you
sell it?"

THAT is where the business model comes in. If you cannot answer that question,
I seriously question your entire startup.

~~~
wpietri
Agreed 100%.

The thing that really kills me about this: cluelessness about one's business
model can be an adaptive trait in a bubble. When the situation is crazy,
sanity is not a virtue.

A post like this makes a good Exhibit A in a case that we're in Bubble 2.0.

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trimbo
Wow. Making money is anything but commoditized. What _is_ commoditized is
often the business itself. That's the problem for these guys who don't make
any money. Twitter has taken $1B in investment. Google makes three times that
in profit in a quarter. It's cheap enough for Google to keep at it with G+ for
the next century if they have to.

If you think being connected is worth something, AT&T had 99.9% of the nation
connected to the rest of the world with a dialtone for a century. And then
they got completely owned within the span of 5 years. Long distance is worth
exactly zero today. The copper itself is worth more. Being connected in itself
was worth nothing to the company that did it. Someday maybe people will look
back at Facebook and say the same thing. Who knows.

BTW, non-search-related ads are a fight for eyeballs. There is a limited
amount of eyeball time in the world. The graph of growing internet presence is
nothing but a pyramid scheme is this regard. Ad money is not endless. Ask NBC
(now, Comcast).

~~~
beambot
Not to belittle your point (since I agree with you), but didn't AT&T get owned
simply because the MaBell monopoly no longer existed and thus couldn't simply
acquire the up-and-coming wireless carriers? Perhaps that's not the best
example.

~~~
trimbo
That certainly marked the end of something for them. But they continued to be
a very powerful company for another 10-15 years. They leveraged their long
distance business to buy everything in sight in the 90s (cable, mobile, even
NCR). But by the time the internet bubble came, and everyone built out massive
amounts of fiber, that ate the lunch of long distance in a matter of a few
years (hence my "5 years" claim above -- they had to start selling assets in
2000 and were acquired in 2005).

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untog
No, keep asking. Ask until you are blue in the face. Just look at the Facebook
IPO- yes, they have a business model, but that doesn't stop people asking
whether they will make _more_ money, or even _continue_ to make money in the
face of mobile, etc. Look at Netflix and their various issues over the years.

These are all huge challenges. To dismiss it with a hand-wave and say "the
answers are all obvious" seems wildly misguided. The only reason I can think
you would take that attitude is because _you don't want to think about it_.

~~~
mey
Thank you, while there is certainly a grey area, and I don't expect a company
to know the future. They should be actively figuring out how to make their
company sustainable. If not, you aren't a business, you are either a charity,
hobby or scam.

~~~
thenomad
I'm not sure about that. There's nothing wrong with a business that's going to
burn out in three years, provided everyone knows it will, it's making profit
now, and there's an exit strategy in place.

A fairly common strategy among certain types of entrepreneur is the news-
driven mini-venture. See major news, make product to capitalise on it, expect
revenue to dry up as it becomes old news, move on.

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potatolicious
Author seems to have equivocated "online business" with "displays ads for a
living".

Which seems like the least creative, suboptimal way to go about things. The
most profitable of tech businesses invariably have little to do with
displaying ads. See examples Google (ad brokering), Amazon (selling shit to
people), eBay (selling shit to people), LinkedIn (selling subscriptions to
people), Apple (selling shit to people), AirBnb (selling rooms to people),
DropBox (selling storage to people).

Holy shit, I'm starting to see a pattern here. It seems the most stable,
profitable tech businesses all involve /whisper/ _selling things to people_.

 _sigh_

And people say there's no bubble...

~~~
thenomad
On the smaller end of things, I literally know no pro-level ad-supported
website owners (generally in the 200k - 2m uniques a month range) who prefer
ads as a model any more. Since I run a website in that range (ad-supported -
for now) I know quite a lot of those guys.

Everyone's trying to move as far away from ads and toward, once again, selling
shit to people, as fast as possible.

~~~
wpietri
Can you say more about why? I think I know what you're getting at, but since
you've talked with a lot of people I'd love to hear your broader take. (If you
can't talk here, please do email me.)

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beambot
"Outsource your monetization" has to be one of the most nebulous statements
I've ever heard. Last time I checked, it was a critical factor in the success
of a company and shouldn't be taken lightly (especially when the proffered
solutions are "sell ads" and "use Kickstarter", among others).

That's quickly approaching the slippery-slope of outsourcing your entire
company -- product development, personnel, and monetization. Then what are you
left with?!

~~~
sliverstorm
"Outsourcing your monetization" sounds awfully close to "outsourcing your
profits"

------
joelrunyon
Making money from an IPO offering (a one-time event) is _very_ different from
making money from a customer base (an all-the-time event).

IPO means you can have cash in the bank. Customers mean you have a business.

Facebook did pretty well on Wall Street, but I wouldn't expect those following
suit to get the same opportunity.

Making money is not commoditized. Startups who plan on changing the world with
no metric to measure so other than VC money are.

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vibrunazo
Twitter already has 100+ million users, a business model and reasonable
revenue. But I'm pretty sure many are still asking how will they make money
for many other reasons.

I suppose when people ask "how will they make money" they're not expecting a
short "I'll just sell ads" as it seems to be what the author is implying. But
instead they're expecting a detailed analysis of your whole business model
versus market research of how many people would actually be interested in
paying for that.

Investors usually ask for detailed multi-page business plans and not a single
page business canvas. These are only meant to give you an overall idea to
spark interest, not to justify an investment.

------
egallardo
"You should aim to hit 100 million active users"

Wouldn't it just be easier to sell something at a profit?

~~~
nateberkopec
Blasphemer!

------
rockmeamedee
I don't think the business model is commoditized. I understand that there are
a wide variety of solutions that a site can pick up and switch very quickly if
need be, denoting a 'commodity'. It's also true that the costs of these 100MM+
user things have dropped precipitously, making it easier to prolong the
decision on the business model. However, it's called the "business" model for
a reason. Without one, you don't have a business, you have an app. If a
business model doesn't fit a business, it becomes a bad business.

100 million users is a huge opportunity. There are only 11 countries in the
world with that kind of population. Maybe that just makes it easier to use
ill-fitting business models longer. It seems like the internet is getting a
bit tired of ads.

------
mipapage
"The new question to ask[...] Could this product engage and retain 100s of
millions of active users? For the first time ever, hitting 100+ million active
users is actually realistic."

Where the author goes on to list a small handful of internet hits and misses
as examples.

Realistic? Maybe for the top of the top apps and services. The "get a bunch of
users and then solve the money problem" model seems the path of the apps that
hit it out of the park, oftentimes fortuitously. Choosing it as a model
doesn't seem prudent.

------
rwallace
The author is missing the elephant at the dining table. He claims if you can
attract a couple hundred million users, you don't need a business model to
make money. But "we'll attract a couple hundred million users" _is_ a business
model, and a very specialized one! It's a model that won't work for the vast
majority of companies, hence the need to think of a different one.

------
Symmetry
Yes its obvious that Facebook can make money. They're making money now! That's
why you'd be a fool not to buy Facebook stock if it was trading at $2/share.
But the question is, exactly how much more money can they make in the future
than they're making now? Enough to justify a $30/share price? To figure that
out you have to go into the details that this post dismisses.

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scott_meade
_“how will they make money?” isn’t an interesting question. The answers are
all obvious._

Reminds me of the famous misquote: "Everything that can be invented, has been
invented."

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mgkimsal
"Let me repeat that: They wrote their own ad server as part of building their
news site. And that means they had engineers writing lots of code to support
their business model rather than making their product better."

Ummm... their 'product' was eyeballs that they sell to advertisers. Making
sure you have the best ad server possible to accommodate that _is_ making the
product better. What a dismissive and shortsighted 'observation'.

------
joelrunyon
_The point is, if you have the audience, you can find the revenue – it’s
getting the big audience that’s the main problem._

Cash in the bank /=/ revenue. Also, have people forgotten you don't need a
billion users to make not only a business, but a substantial sum of money.
User count are _not_ the only way businesses scale.

------
taylodl
This is the kind of tripe we were hearing just before the bubble burst the
last time. Turns out, you really did need to be concerned with how you were
going to make money. There are no money fairies that are going to put the
dough under your pillow.

------
gawker
Businesses need money to survive. You can't really scale your startup to 100
million users without having to pay for your servers. Product engagement and
retention does not automatically bring in the cash.

------
khyryk
And how many of these "great products" will survive for 2 years? 5? 10?

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j45
I don't know if it's this black and white.

If your'e pursuing a whole new paradigm of doing or using things, yeah, money
won't be at the center of it.

For the majority of businesses and successful tools, there is thought about
money. Maybe it's just me but it seems easier to stop asking this when you
have enough money not to ask this question.

It's fine not to ask, but will not asking pay anyones bills in the meantime?

~~~
mgkimsal
But... many people _think_ they're doing the 'whole new paradigm' thing, when
really, it's just a regular business/idea/service/product, and they don't have
the insight or experience to know that.

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huggyface
the tldr; version is "there is no bubble...there is no bubble...there is no
bubble..."

Saying "there are a lot of possible sources of monetization and a lot of
people on the internet" is fundamentally _useless_. It is a meaningless
statement that every wide-eyed naive entrant to any business originally
thinks.

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its_so_on
_A Man_ : ... Jeez, stop asking how they'll make money! They'll make money the
same way _you'll_ make money! By getting their numbers up! Any fool will be
able to see that they'll be worth a lot more than, than this valuation anyway.
(Points with derision.) And believe you me, they will have _no_ trouble
finding someone to pay them what they're worth.

 _A Man (cont'd):_ Guys like Sequoia Capital. Who, by the way, have already
asked for a summary. Then the company will have a _whole_ lot more runway -
enough to figure it out. Enough to make it to an IPO, even. (Thinks
longingly.)

 _A Man (cont'd):_ Not to mention what _your_ shares will be worth by then.
Just look at this. (Points.) Can you imagine what it'll be worth by the time
they IPO? That's how _you_ make the money. Who cares about _them_? Fuck
_them_! Isn't it time you thought about _you_ for a change?

 _A Man (cont'd):_ Look at you. 'How will they make money.' Jeez! (mockingly)
'How will they make money.' 'How will they make money.' It's like you're
_TRYING_ to pop this bubble! (Becomes silent.)

 _A Man (cont'd):_ I don't know what else to tell you. Just sign the papers,
will ya?

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franzus
And I thought making money was the most important thing about a business.
Stupid me.

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h84ru3a
I think what he means is getting funded is commoditized.

But that will not continue indefinitely. And that is because eventually
someone will want to know how the company plans to make money. When the
company cannot tell them, they stop investing. And it spreads back up the
chain. The whole thing collapses.

It's like a pyramid scheme.

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sparknlaunch
Agree with some of the article. However proving that the product can make
money is fundamental and validates your business. It proves customers will buy
from you.

User base is only part of the problem. The question remains the sane.

So maybe the new question is: "have you made money?"

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chestercheetaz
huh? I'd believe this kind of nonsense only if it were coming from a founder
who had exited via this strategy and was buying a round of drinks for the bar.

The thesis lacks any real _sustainable_ evidence to back its claims.

