Ask YC: Who is building a startup/product and making money by charging customers?

[terpua]

Per the link I just submitted (http://news.ycombinator.com/item?id=83536), I would have to agree that there are waaay too many free web apps chasing a highly competitive ad market.

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?)

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?

I for one would like to see more web apps that charge users because they provide value.

[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.

[skmurphy]

This is a great list. I think an alternative to #1 is that ad driven sites tend to promote more page views and page refreshes, which tend to lower productivity compared to a well designed subscription driven site (so they value their employees time, and the work that they deliver, more than they want to get a "free app"). Also, some amount of screen real estate has to be lost to ads that could instead be applied to improving the information content on the page directly relevant to the task the employee is performing.

2 & 3 are very under-appreciated by the advertising driven sites. I think that startups stay in "free beta" too long in particular. Any application that involves helping my business I only want to use if I know the developers will respond, and the default terms of service typically say that they can disappear without warning (along with my data). Even a 15-30 day grace period with a warning for shutdown would be a huge improvement. Also, I think there is a misunderstanding behind the actions of the "TechCrunch 50K" who chase cool new applications and small business who has to bear a lot of cost in workflow and process changeover. They do want you to stick around because their true cost of adoption is much higher than what they are paying you.

[terpua]

What are you offering?

[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.)

[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.

[imsteve]

Amount/whether you can charge correlates closely with value? Unfortunately, often no.

[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?

[dcurtis]

Yeah, but if it's crap and it's free, does it really matter?

[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.

[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.

[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.

[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.

[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.

[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

[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.

[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.

[brlewis]

Money means accountability, legally speaking. When they give you money, that's definitely "consideration" in terms of contract law. Looking at an ad is probably not consideration.

[jamongkad]

Not only that but they prefer if you install your software on their own servers. Which makes sense I believe.

[brlewis]

Users can choose pay or free:

http://ourdoings.com/hostingplans.html

[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.

[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.

[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.

[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.

[terpua]

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

[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.

[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.

[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.