

"How will they make money?" is the wrong question - wallflower
https://medium.com/i-m-h-o/a5890c2c2cc0

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kintamanimatt
It's far from cynical to ask how a _business_ proposes to make money,
especially if it's non-obvious! Yes, there are other challenges beside this,
marketing, engineering, and others, but the whole purpose of a for-profit
company is to make money. Asking how a business plans to do so isn't
naysaying, it's a sensible question.

Also, a valuation is more or less a made up number that suited the VCs and
others. The words, "okay, we'll change the valuation to..." seem to be uttered
quite commonly when the previous valuation is inexpedient.

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noelwelsh
Social networks must be the ultimate winner-takes-all product. They're
probably great investments for VCs. They're high return, and they bleed money
until the magic inflection point so you can probably get good terms. I think
they're crappy products for founders, because the risk is so high and you
don't have the same opportunity for diversification that an investor does.

Speaking as a founder, I feel it comes down your own risk/reward preference.
I'd rather have a good chance of a $50M exit than a miniscule chance of $1B.

~~~
dylangs1030
True, but for the entrepreneurs and founders that want to take over the world
(so to speak), they're perfect ambitions. While not all founders tend towards
that goal, the ones that are most "high risk, high reward" will naturally
gravitate to that.

No one founds a successful social network and _doesn 't_ end up wealthy.
Tumblr, Facebook, Instagram, etc. all leave their founders with significant
exits.

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TamDenholm
I beg to differ, if you dont make a profit, youre not a business. I dont care
if you raised tonnes of money from investors, built a talented team, built an
amazing product and sold it to facebook/google/yahoo for a huge sum. Thats
failure because you couldnt make more revenue than the costs you had.

~~~
dylangs1030
You effectively missed the point of the blog post.

The author isn't suggesting that revenue is insignificant compared to a user
base; this is an extreme example of undercutting competitors via price
slashing, and it's historically not necessarily a good idea.

That said - Tumblr has so many users that it's difficult not to be valuable. A
social network can be a currency of its own - having ownership of a platform
that tens or hundreds of millions of people use daily puts you in a position
to make revenue in a number of creative ways.

Ev Williams' specific point is such that if you achieve that many users, you
will eventually not find it difficult to be profitable. How could you? People
wondered about Facebook this way. Then they introduced ads - the number of
users only climbed.

Conversely, if Facebook maximized its potential for revenue streams before
solidifying _organic_ user base increases, they would have plateaued a long,
long time ago. That's the point.

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TamDenholm
I still take issue with the idea of "oh we'll worry about making money later"
If facebook is the prime example then just take a look at what a piece of crap
its become for users. Facebook couldn't find a decent revenue model so now
they're cannibalising their users by making the experience terrible. Which in
my opinion, long term is going to be their downfall.

Also, getting lots of users and then just slapping ads on your site is also a
terrible business model and its what you tend to do if you haven't bothered to
think it through clearly before starting.

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shacharz
Maybe it is the wrong question, but VC's keep asking it. unless you have mad
traction.

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zmitri
This touches on a lot of the no-nonsense reasons why a VC would say no if you
have some traction, but not explosive traction.

As someone who has gone through the process of bootstrapping, getting
traction, and trying to raise money for the first time in a "consumer
unfriendly environment," I think he touches quite eloquently and precisely on
a lot of important points. Most VCs don't lay it out as nicely as this either.

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InclinedPlane
I contend that monetizing social software is actually very much easier than
most people believe.

However, the trick, I think, is to look at assistive rather than extractive
models. Rather than looking at how to interject ads into social media, or to
otherwise hijack a fraction of the collective attention span of your userbase
that you can then sell to the highest bidder, instead look at how to leverage
social functionality to put tools into people's hands to help them help
themselves in the service of commerce. For example, google search ads and
pinterest.

Other examples: enable finding product and restaurant reviews, ratings, and
suggestions by friends; improve wishlists for gift-buying; make group
purchasing at discount easier for many products (games, books, movies,
concerts, events, etc.); enable time sharing of services; facilitate picking
up hobbies, skills, and activities; and so forth. There's tons of money in
these ideas, but it's more common for companies to go to the advertising
trough because it's seemingly so easy.

In my view it's always easier to make money off of a transaction that both
sides obviously benefit from.

~~~
mijustin
Everybody seems to keep forgetting about Geocities.

They had millions of passionate users who built over 38 million pages on the
site. They introduced ads in 1997 and two years later became the _3rd most
visited sited on the web_.

Yahoo acquired them in 1999 for $3.57 billion.

Yahoo was unable to _further_ monetize those users. There wasn't some magic
money tap they could turn on to make money from the site (despite it's
popularity). Geocities never made a profit.

What's Geocities worth today?

~~~
bfgmartin
I think Josh has it mainly right in his Medium post [https://medium.com/i-m-
h-o/a5890c2c2cc0](https://medium.com/i-m-h-o/a5890c2c2cc0) \- it's not just
about traffic but engagement.

I was one of those passionate users on Geocities, to the point where I was
given shares in the Yahoo acquisition for my work in the community. GeoCities
died on the vine because they didn't continue to innovate on the site building
and community they had. They certainly could have been so much more -
foreshadowing blogs, social networks, everything myspace became, etc and could
have found a way to build the kind of sticky (and huge) audience that
monetises better - if they'd continued to develop.

~~~
mijustin
I think it had more to do with the fact that Yahoo needed to start making
money with Geocities... and couldn't.

The sequence seems to always looks the same:

1\. Big social network needs to change privacy settings and TOS in order to
make money: users start to leave.

2\. Big social network is under increased pressured to make money and
introduces paid accounts (or more advertising): most of the users leave.

3\. Big social network is no longer cool (because everyone's left and it's
full of ads) and can no longer innovate (because there is no more money).

4\. Big social network dies

We've seen this play out before: Digg, MySpace, Geocities.

I'm willing to bet this will play out with the current crop of consumer
networks: Facebook, Twitter, Reddit.

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tmandarano
Excellent summary by Ev at the end of the post.

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ronilan
True. But the "monetize THEM" is not the perfect choice of words.

You don't monetize the users. Either a third party pays for their attention,
or, they pay for their own access. No one owns the users. That's why they are
so valuable.

