

How Are We Going To Make Money? - edw519
http://howtosplitanatom.com/questions/how-are-we-going-to-make-money/

======
dkokelley
I think too many people have fallen into the trap of thinking "If we build it,
they will come (with money)."

This simply isn't the case. You must build something valuable, and capitalize
on the value. Unfortunately, traffic isn't quite as valuable anymore.

Think about it, there are a lot more startups now, each with their own
eyeballs. The supply of eyeballs has gone way up, which in turn means that
with a static demand the value of the traffic has gone down.

Many startups begin with the thinking "We'll build something a lot of people
like, and sell advertising from all of this traffic we'll receive." As I've
just explained, the value of traffic is much lower with the increased supply.
Startups capitalizing on traffic are entering a very competitive market.

Sure, a few companies will gain a massive amount of traffic and do very well
(think digg, reddit, etc...), but the majority will need to find another way
to be profitable.

~~~
procrastitron
Why would demand be static? Do you really think that demand for marketing
doesn't increase? That would require having only a fixed number of people
wanting to sell, and for them to only be willing to sell to a fixed number of
customers.

~~~
dkokelley
The demand is static for argument's sake.

The reason I believe it is valid to assume a static demand for demonstrative
purposes is because I believe that the supply has shifted much more
significantly than the demand has over the past 10 years or so, to the point
that the change in demand is negligible.

This is just from first-hand observation. I don't have any evidence or reports
to show this. It's only my hypothesis. If there are any reports showing a
different supply/demand relationship please let me know.

------
andrewparker
I think it's much harder to gain traction than it is to find an appropriate
business model, and thus it's far more important to focus on traction first
and then nail down the business model once you know you have a product that
people find engaging.

Think about it this way: you can have the smartest business model in the world
that maximizes the value of your users, but if no one uses your service then
you'll make zero money and be totally irrelevant. By contrast, if you have a a
service that people love and becomes a part of their daily usage, but you
don't have a business model yet, this is a much easier problem to solve.

Attention is most important currency.

~~~
tom_rath
If I started a service which gave away free cases of beer, I'd have insane
'traction' with a product hundreds of millions of people would find engaging.
Like Pets.com, WebVan and the other "we'll make it up on volume" disasters, my
service would be loved by everyone but it wouldn't be a good business.

It seems the lessons of the first dot.com bubble have already been forgotten.
A business needs to have a clear path to profitability or else it's going to
be left without a seat when the music finally stops; and the music always
stops.

~~~
pg
The lesson of the Bubble is not that you have to know right away how to make
money from users, but that you shouldn't pay a lot to acquire them. If an
additional user costs you nothing more than a few cents a month of server and
bandwidth, you can safely just grow.

Google didn't have their business model figured out when they started, and
they seem to have done ok.

~~~
dpapathanasiou
Google is a black swan; modeling yourself on an extreme probabilistic event is
not realistic.

~~~
pg
It's a black swan in the size it grew to, but not in the fact that the
founders didn't have the business model figured out when they started. That's
more common than not, if you look at recent web startups.

~~~
dpapathanasiou
It's about expectations: having a popular service does _not_ mean a successful
outcome (this is the implication against which I object).

~~~
pg
Can you think of a counterexample? How many purely web-based startups have
become massively popular and then died?

~~~
pius
Just about any of the social networks that were "the next big thing" except
for Facebook and Myspace. Friendster was the first social network I joined,
was massively popular, and now seems pretty moribund.

~~~
pg
They didn't die of not figuring out a business model, though. They died of
ceasing to be popular. If anything these examples support my case for the
primacy of getting lots of users.

------
zkinion
Excellent read. I think there is something in the air or water in the bay area
that has been poisoning people into making startups that have very little
chance of ever actually making any money.

Having a good business model does not mean you have to write out a 100 page
business plan and have miles of spreadsheets. Just figure out a way to make
money. It is even better if you design your startup to both get money AND user
traction.

Tossing adsense onto your main page does not normally cut it.

With my startup, I'm using a low cost subscription based model for an online
poker site, plus I am upselling microphones/headsets for the voice chat
functionality that is being added to the application. The software is still in
beta, but is actually working. I also have years of experience in analyzing,
getting, and converting traffic.

-Zak

------
Kaizyn
FTA: "If there is one thing more valuable than eyeballs it is data. If your
system collects information that you can reasonably package into trend data,
you have a great source of additional income."

Am I the only one who finds this suggestion an apalling way to go about making
money? It seems that if your startup is doing this, it deserves to go out of
business.

~~~
Readmore
There are a large number of ways to utilize data from your web app to make
money. It doesn't mean that you are selling user's account names, passwords,
emails, or any identifying information. Trend data is very valuable in certain
markets and there is no impact on the actual user in selling it.

