

Ask HN: Are white-labeling deals ever a good idea? - fezzl

Hi. We had previously posted on HN our startup about mixing Groupon mechanics with Facebook:<p>http://news.ycombinator.com/item?id=1988016<p>Twice, we had offers from businesses (one retailer and one technology vendor) for white-labeling deals, where we basically hand over our entire systems to them for white-labeling and integration, because they "have the infrastructure to scale" and "want to protect the privacy/security of their data," among other reasons. In return, they propose either a lump sum payment or revenue-sharing arrangement. I don't think that we would later be restricted from continuing to license our app to others, but I was wondering if doing white-labeling deals like this are common for startups (or product companies in general).<p>Our pricing is currently $9.95/mth, affordable even to the smallest online retailers. We have had sales with this model: low-touch and web-based. Why wouldn't they just pay and use, as opposed to coming up with complicated arrangements that would obviously cost them more? In general, what do you think of this sort of deals? What is in it for them, and for me, if anything?
======
jeffmould
When you are first starting out white-label offers can be enticing to say the
least. I have not heard of any companies doing them recently though. Most of
the time, white label is common in the hosting/web-based service (i.e.
email/project management/support companies).

Like ecommando said, don't get sucked into it though, unless you can control
every aspect of the deal, code, database, etc... As the white-label grows they
will expect the world from you in terms of support/updates/code
modifications/etc... They will take away from your time to support your own
customers. I would offer a hybrid solution at most where you allow them to
change the logo and remove references to your company, but you continue to
host and control the code.

To answer your question on why they wouldn't pay/use, well it is all about
marketing. They want to be able to offer something different from their
competitors and make it look like they are the ones behind it.

As for pricing, NEVER, NEVER take a lump sum payment. Always work something
from a revenue-share or monthly fee arrangement. You could even do an annual
contract with built-in price increase each year based on percentages of their
sales/revenue.

If your product is that good that other companies are approaching you to
white-label the solution, the best advice I can give you is to review your
marketing/sales strategy. Why can't you sell direct to their market? Why risk
losing revenue and allowing them to make money off your product?

~~~
ecommando
Jeff is right on target.

THE biggest issue I have with it is that one app never fits. There are ALWAYS
an endless number of feature requests, and the license usually never takes
these into consideration. Make sure that if you plan on doing it, and making
changes, then you (a) charge for time, enough to make it painful ($150/hr or
more), (b) are charging for time and that they don't own the code, and (c)
limit the number of requests per day/week/month/year, etc, and (d) have the
right to terminate the app, hosting, licensing, and support at will, and the
only recourse they have is to buy it for a minimum amount decided by you.

If they REALLY want it, they'll be willing to make concessions.

If you go this route, you need to be willing to lose control of the app, and
be blocked from the industry for up to three years.

It will happen. Chances are they've looked for the app, even tried to have it
written, and now they've found it for license, and a guy that's willing to
keep it up. All that stands between them and the app is negotiations.

We're not painting a pleasant picture, but we're holding back. It's worse than
it appears.

~~~
fezzl
We definitely don't want to lose control of our app, nor do we want to be
locked into any particular partner. Thanks for bringing up the potential
pitfalls.

------
ecommando
No. Don't do it. You will completely undermine any chances of being acquired,
the white-label will own you if they grow larger, and you will find yourself
losing control of your code and product. Focus on building your brand, your
product. Cut costs if you need to make that happen, any way you can.

If they want a white label, tell them "Only if WE run it, we'll code it, and
you won't have access to the code or database schemas."

The other option is "buy us out and we'll run it for you internally."

Cheers.

~~~
fezzl
But are there any known successful startups that have offered white-labeled
versions of their products to partners/customers? We're not desperate for
cash, but we just want to know what is common in the industry, i.e. if it's a
shit deal.

~~~
ecommando
I've done it. PM me your contact info at "me at rwd dot im" and I'll give you
a call to discuss.

