
Ask YC: Who is building a startup/product and making money by charging customers? - terpua
Per the link I just submitted (<a href="http://news.ycombinator.com/item?id=83536" rel="nofollow">http://news.ycombinator.com/item?id=83536</a>), I would have to agree that there are waaay too many free web apps chasing a highly competitive ad market.<p>More importantly, some of these web apps just don't lend itself well with an ad model (e.g. are you going to want ads on an online word processor?  Are you ever going to click on the ad?)<p>With that in mind, why, oh why are we all chasing the same ad biz model?  Does the ad model even scale for some of these apps?<p>I for one would like to see more web apps that charge users because they provide value.
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edw519
My target market is small business.

3 Reasons They Prefer Pay Over Free:

1\. They don't want their employees looking at ads.

2\. They need leverage when they have complaints. (Why would they listen to me
if I'm not paying anything?)

3\. They want you to stick around.

Provide them with something they want and charging them will not be an issue.

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terpua
What are you offering?

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edw519
A web-based small business system (order processing, inventory, accounting).

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dcurtis
What makes you think a web-based system is best for this? Here are some
problems that have prevented me from pursuing this market: 1\. Perceived
security ("My information is out there in cyberspace? Won't it be hacked?")
2\. Offline usage ("What happens when the internet/power is out?") 3\. Speed
and technologies (Is web-based better than local application, i.e.
MYOB/Peachtree?)

Most of the problems are probably in customer perception, but because you're
dealing with small businesses, perception is really hard to overcome. They
presumably don't have IT people to talk sense into them.

~~~
edw519
"What makes you think a web-based system is best for this?"

Doesn't matter what I think. Only matters what they think. I am building a
business in response to a tremendous demand.

There seems to be a low level theme running here that the <enterprise><small
business><IE using><anyone over x years of age><you name it> crowd is missing
the <Web2.0><social networking><everything cool> boat. Don't you believe it!
They're not all PHBs. (Most of the smartest people I know run small
businesses.) They see what's happening. And they don't understand why there's
so much going on these days and they're still stuck with garbage business
software that costs a fortune, is hard to use, and doesn't serve their needs.

So who to they complain to? Me! "Give me something that does business the way
we do, make it simple, price it right, and put it on the web so I can stop
paying XYZ Systems a small forture to never be available!" Every demo I give
ends the same way, "Finish that and I'll buy it in a minute!" (Needless to
say, I do know the difference between a promise and a check, so we'll see...)

Hopefully it won't be too long before I post one of those "How Do You Like My
App" posts.

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DanielBMarkham
I think you're on a hot trail, edw519!

An interesting thought is what kinds of standards you can hook into. Perhaps
stuff for tax file exporting, calendaring, sales /product channels, etc. The
standard formats might be easy to provide and could increase the value of your
pitch.

~~~
edw519
Yes. No need to replicate the horizontals. The verticals are what everyone is
clamoring for. Hooks into existing horizontals seems to be the way to go.

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BitGeek
Charging tells you a very important thing: if you're adding value. Probably
this would prune a lot of fruitless branches from your development tree.

There is a much larger universe of "wouldn't it be neat..." ideas than there
are "this would really ad value and people will be begging to pay us..."
ideas. Even things that people will pay for because they add value but that
are so small a morsel of functionality don't work either- eg: little tiny
utilities where people would gladly pay you $1/month to use, and where you
could make big money at $1/month given the size of the audience, but are
simply not worth the effort to renew on an annual basis for people because $1
a month isn't significant enough in the customers mind to get them to sign up.
(EG: a spam filtering service is borderline here, anything less featurful or
significant is not going to get many customers, I expect.)

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DanielBMarkham
This is an excellent point.

The market needs pay-for-software because without it, there's no way to have
the software industry make things the users want. Sure you can count eyeballs,
but simply because I'm willing to surf over somewhere doesn't mean that I
assign the place value -- I surf all kinds of places. In fact, the places I
surf are kind of a herd mentality thing. The software I buy is based on my
careful analysis of what I need and what it's worth to me. Free software is
worth nothing -- even if it has a lot of users. This is the difference between
just looking at a pretty girl from afar and actually getting a date -- both
experiences may feel good, but one has a lot more significance than the other.

It's also interesting to note that there is a gap between free, nada, el zilco
-- and paying money. Ten bucks a year is probably too close to zero. Something
like 20 bucks or more sounds like more of a commitment. That's just a guess,
though.

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omouse
_"Free software is worth nothing -- even if it has a lot of users."_

This is the problem with all the people that embrace open source or free
software. The developers price themselves out of existence. Sure you have to
hand out the source code, but you can still charge for the software.

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paul
Anything that can be free, will be free.

~~~
imsteve
Who cares. Startups ultimately exist to make money. How do we get the most of
that?

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optimal
Nice topic--I'd really enjoy seeing more discussion of this kind here.

>>why, oh why are we all chasing the same ad biz model?

I think this may be--at least partially--a case of "get rich quick" versus
"get (sort of) rich slow."

I believe if you follow the pay model you go your own way and forget about VC
and GYM money, at least until you're successful enough for others to notice.
This may never happen, however. I used to work for a guy who was probably one
of the first ASPs in existence, only it likely never even crossed his mind
because he's a businessman and not a techie. I'll bet he's barely even known
in his niche, but he owns a successful business with about five employees and
just keeps on adding customers.

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nickadams
Charging for your application is a big step -- you are making a statement that
what you are offering is of value.

I think that if you can offer some premium lever of your software for a price,
do it.

My company created billQ (<http://www.mybillq.com>). Now this is a VERY
specific and simple app, but it is very well done (biased?). At first we
offered it completely free. This came partly from fear. Is this simple app
really worth charging for? After a few months, and a bunch of feedback, people
were actually offering to pay us even though we weren't charging. We learned
from this, and the latest version now has a premium level that has more
features and costs a small amount. And people pay for it.

Most people aren't not going to use your product because of the price, they
are not going to use it because it a) isn't useful to them, or b) it sucks.
The onus is on you to make the value match the price.

If at all possible, charge for your product. It will not only bring you better
customers, but it will provide you with the resources to invest back into
those customers. And this is something they are more than willing to pay for.

I would hope more companies put a value on their products. Web apps shouldn't
be just commodities in the same way desktop software is not. If everyone
relies solely on ad revenue, there will be a lot of cash-flow starved
companies out there.

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Shooter
I HATE the "CPM and a prayer" mindset that masquerades as a business model. I
don't understand why anyone starting a business these days would rely
exclusively on ad monetization for their business. I personally would never
invest time or money in any startup that had ad sales as the only source of
revenue (and I've invested in magazines, fergoodnessakes!)

I believe in MULTIPLE revenue streams. Most of my startups have charged
directly for the product or service, but the most successful have all had
multiple revenue streams. A startup I'm working on now, for example, has six
distinct revenue streams...and there are probably others we haven't figured
out yet. One of the revenue streams is advertising, but we deal directly with
the advertisers (no ad network or agency taking a cut), there is a minimum
$50K ad buy (reducing time/communications overhead), we have no dedicated ad
sales staff (just 'order takers' and ad screeners) and it is our smallest
source of revenue by a significant margin.

There are too many opportunities out there to rely on the whims of the ad
market.

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jdavid
the ad model might not scale for apps like word processors or spreadsheets,
but it will scale for other information work.

we are creating an event network, and there are more than enough event
marketers out there that need help when it comes to getting the word out, and
there are even more users that don't use the calendars they have because they
are hard to keep in sync with what everyone else is doing.

i would suspect that there are plenty of information worker apps that have yet
to be revealed, just look at where money changes hands based on a known
process, or product shipments.

an architect might actually find it usefully to have all of the worlds
building materials organized, and material suppliers would be more that
willing to pay to organize that info, if it meant that an architect might
select that material for a new office building or subdivision.

There are plenty of Pro2Pro or Pro2Consumer application touch points that have
yet to be explored.

You should read about MITs Fab Lab project and vision.

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uuilly
A few thoughts on ad supported SW:

-It's interesting how TV is moving towards a pay-per episode model (HBO orignals, ITMS and netflix) and SW is going towards advertising. I haven't owned a TV in 10 years b/c ads became so intolerable. But I now rent / buy TV episodes commercial free (I missed the TIVO revolution.) I'm the type of consumer who would rather pay for something and not deal with ads / potential privacy violations.

-People can only spend so much time on the interweb in a day. And a site has to go nuclear to make real money off ads. So if you're going to make money off ads you have to steal traffic from google, yahoo and FB etc or you have to grab traffic from emerging net markets. 

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dottertrotter
with our app, we have been lucky enough to both charge our customers, as well
as we have leased out our software to a bigger company and set them up with
their own site. Similar to what reddit did with lipstick.com

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jdavid
does anyone know what the licensing arrangement was?

I am trying to figure out how to price our services to a few websites.

Right now I am trying to think about flat rate licensing with maybe 3-5 tiered
packages, that vary based on volume, features and included consulting time.

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carpal
I'm charging a monthly per user fee. Most businesses won't use free products
simply out of principle. I'm not sure why.

~~~
mwerty
If something goes wrong, the guy who picked you is going to look like an idiot
for choosing a free service.

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brlewis
Users can choose pay or free:

<http://ourdoings.com/hostingplans.html>

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izak30
That's nice and all, but what do you offer at 52 bucks a month that is more
than what picasa and picasaweb offers for free? it's not space, if it's the
"sort-by-date" feature, I would reconsider your model.

~~~
brlewis
That's actually 52/year. I'll take this as a lesson that the word "year"
should be in bold.

The "sort-by-date" feature is the starting point for what distinguishes
ourdoings.com. But I don't want to go into detail here. If you have a few
hundred photos that lend themselves to chronological organization, make
yourself a free site and give it a try. If you don't like it, use the "Tear
down this site..." option on your site info page, and the "Forget I exist..."
option on your personal info page.

More relevant to the business model question, it's important to look at the ad
vs pay question from your customer's point of view. From my own point of view,
pay is better because I don't want ads on the pages where I share my photos.
However, I'm catering toward people who have very little time to spare.
Freeing them from filling out a form with credit card info is a time saver.
They will put up with ads for other convenience.

Initially it was pay-only, but I changed it.

~~~
izak30
Yeah, actually picasa doesn't have ads at second glance either, I've been
using it for quite a while now, and as with most ads, I don't even notice that
they're there (a note to people who think that ad-based models get user's
attention).

I certainly don't want to argue with you, or tell you that your business won't
work (I can't say that I know TOO much about that), but picasa auto-arranges
albums by date too. It doesn't have the blog feel of your albums, which I sort
of like.

I like that you've added a free service, but I guess I just didn't see what
made somebody choose your pay service (even per year) over google's, who gives
10Gb for $20 per year.

My bigger question, is how can us little guys compete with Google and Yahoo
and Microsoft on anything?

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brlewis
Here's a quick answer to your bigger question: Google has attracted a large
number of users who like the way picasaweb feels now, and they need to keep
_those users_ happy. How can they ever compete with lots of little guys who
make things that appeal to others?

A longer answer will appear in a blog post in the not-too-distant future.

~~~
izak30
They do that with the ability to change the defaults, and add new features,
like a hosted blog management (blogger) or similar. The same could be done for
picasa.

~~~
brlewis
Every option/feature has a cost. If they try to be all things to all people
they will fail.

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izak30
My service (not yet launched to public) is a pay model, right now the idea is
a pay-for-what-you-use model, but having four general brackets to encourage
people to pick what suits them best and save a little money.

People want to know that you're dedicated, and a subscription type service has
a contract on both ends.

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aantix
I charge $5/mo for RunFatBoy ( <http://www.runfatboy.net> ).

I would rather service 100 paying customers vs a million freebies. Less
customer service emails, less scaling costs, and I can sleep at night.

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jamongkad
That's a good question, I'm working on project management software that is
aimed towards advertising firms and post production companies. And no it's not
going to be free :) but I guess the demo will be.

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terpua
Project management software seems to be going niche these days :)

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jamongkad
Agreed

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yrashk
as a matter of principle, we don't show our users ads, since we provide a
productivity tool, and we surely don't want our customers to distract. and
yes, we charge for premium account types.

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corentin
I went to your website out of curiosity: "We're sorry, but we was not able yet
to support Opera 9.23. Please use Firefox or Safari. We'll do out best to
support your browser soon."

It's not the place to bitch about the any browser principle; still, I find the
line "Please use Firefox or Safari" insulting.

~~~
nanijoe
Worse still, the message is written with improper (bad) grammer "We was not
able to..."

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yrashk
thanks!

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nanijoe
Just for the record, it is still wrong..the correct thing would be: "We are
not able ..."

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DarrenStuart
yes I am planning on charging for my next product. I run a web dev shop at the
moment and plan on branching into products from there.

