The depressing math behind consumer-facing apps | Hacker News Reader

The depressing math behind consumer-facing apps

gabrielweinberg.com

135 pointsrevorad43 comments

This post should be renamed the depressing math behind consumer-facing apps without a business model that operate by setting money on fire.

I think Gabe is generally right with the metrics he quotes. It's going to be a long slog to go from 1 million users to 10 million users. But it is completely mind-boggling to me how he discusses 1 million users as an emergency condition that needs to be rectified as soon as possible.

If you're a startup with a consumer-facing app with some sort of business model (ie. some way of making money besides chucking up ads) and operating relatively leanly (ie. not having a huge sales force) then 1 million users should provide plenty of revenue/profit to let you reinvest into the marketing channels he describes and optimize accordingly.

Let's take our theoretical site with 1 million unique visitors a month. If you figure out some way to get 1% of them to pay you $10 a month, then you are now clearing $100,000 a month. Depending on the product, there are lots of different ways to do this. Just because "freemium" is cliched doesn't mean it's not effective. Just ask Dropbox. And that revenue is on top of any sort of ads you'll serve!

The only reason to be depressed if you have a million users is if you have no business model, and your operating costs are so high that making over $1 million in revenue a year is not enough to pay the bills.

Sure, there are some companies where there was an early conversation at some point where someone said, "we're going to hire a huge sales force, and get a ton of users, and not figure out any way to make money on them besides ads" and everyone else replied "brilliant!" and they all toasted their Guinness and got so drunk that they never realized how absurd that was. They should be depressed. Everyone else with 1 million users though, I'd say, is doing just fine.

Thank you for saying it better than I could have.

Alarm bells should go off when someone with a million users is talking about spending money to get more and not about converting existing users into customers. Free users are not customers. Strategies for spending money to acquire customers make sense because you end up making more than you spend.

"Free users are not customers."

Free users are the product. The point is to develop the product until you can sell it.

EDIT: to clarify, "converting existing users into customers" suggests that the parent assumes the users are the customers. In an advertising driven business, the users are the product (time spent by people on the app) and the customers are advertisers wishing to advertise to the users. Think about google: gmail is free, but its revenues come from advertising and not from the users directly.

Ha. I'm not sure I get the metaphor, unless you are talking about trying to get acquired based on your user graph, or applying "greater fool" theory.

the idea is that your 'users' are the product you are selling to advertised.

Isn't DDG inherently fucked here though because of their whole privacy deal? The massive advantage the Internet creates is extremely targeted tracking and advertising methods, which DDG is explicitly against.

It's like they're against the most proven business model for search engines yet expect to survive somehow.

DDG does show ads: https://www.dropbox.com/s/9r0hxyxew3aiddr/Screen%20Shot%2020...

They are trying to build an advertising model that doesn't track or store your searches (just show ads based on the search at hand), which is actually plausible

gah. The idea is that your users are the product you are selling to advertisers, who are your real customer.

Are you speaking from personal experience? Or do you know of any examples of consumer apps with 1 million monthly uniques clearing $100,000 a month with a freemium model of $10/month? Did they get to that size and then just sailed along without going up or down?

Dropbox is a particularly bad example to use. Even with an amazing product it took them a while to figure out their growth. They did burn some money in that process. And eventually found that organic user-driven growth was the fastest and most sustainable way - which is exactly what Gabriel is saying in his post.

If Dropbox did not have the cash in the bank to test out various marketing strategies, they would have probably died.

I think the thing you're missing is that there is a growth curve. You don't get to just choose a point on the curve and stay there.

Don't dismiss the premise of Gabriel's post because you're talking about a different growth curve than him.

I read it the other way. I read it as meaning that you have to achieve a large user base for the app to be beyond ramen successful. You say a million users that that's a piece of cake. I took it to mean that was the depressing part of the equation.

Yes, 1 million users is an Everest - and collapsing at the top you find it is merely the foothills, above you lies Mons Olympus, and there's not even oxygen up there.

Yes, that is exactly the way I meant it. The post I referenced at the top on orders of magnitude (http://ye.gg/magnitude) phrases the same concept another way. You generally have to go through a lot of orders of magnitude to get to one million, and then everything that worked to get you there probably won't work to get you to ten million in any reasonable amount of time. Unless of course you have that amazing organic growth.

It feels like its not about scaling - I could design a system that could handle ten or hundred fold traffic increase and just need more servers and config. But at some point I need to change - like I could have a career of the same years experience repeated twenty times. Or I could grow in each year and come out of a decade a different person

It seems that duckduckgo has same code as google just needs more servers - but as each year of experience or each order of magnitude passes it would not be enough to buy more servers - you would need to own fibre networks.

(Don't get me Wrong on "same code as google" - I am always amazed by how many developers it seems to take to do things - google for a company that "just" runs web crawlers and map-reduce seems to have about 10,000 too many staff.

Which I guess puts me in the camp of someone who would have ground google to a halt at 100 staff saying - we don't need to hire more people, just write code to do it instead.

So goin a little off the point there - but there is a metric of growth that is not "the same users repeated a million times" but is a new and different company - and you hit that at ten or a hundred. And if you are a twenty years repeated kind of person you won't grow past that level.

I think I get it.

I never intended to imply it is an emergency condition. 1M users is in fact an enormous accomplishment, and I had exactly your theoretical business in mind when writing it. Not the one with no business model, but the one making 1M year.

I was just trying to say as you said that unless you have significant organic growth, "it's going to be a long slog to go from 1 million users to 10 million users." A much longer slog than people think when they reach that point and are planning to re-investing in traditional channels. A great 20% growth rate only gets you to 6x in ten years.

Dropbox is the counter-example. They've grown viraly.

So sick of this vile greedy a-million-X-isn't-cool mentality. This Disqus comment sums it up for me: "OR you can skip the VC bullshit and build a sustainable business that makes you boatloads of money and generates hundreds of great jobs with a <1 million user base."

Seriously. From the title, I figured it would be something like, "There are sixteen godzillion apps in the various App Stores to compete with, and umpty million app-buying users, so you're likely to only sell X thousand copies, which won't pay for your time, unless you can somehow get ahead of the pack."

Instead, I'm supposed to be depressed that it's hard to go from 1 million users to 10 million? Holy moly. If you're not doing well with a million users, maybe you screwed up.

I'm not sure exactly why, but I think you both took this a way other than that I intended. I think it is an amazing accomplishment to get to 1M users, and generally makes a great business, which I've written about countless times, e.g. http://www.gabrielweinberg.com/blog/2010/06/paths-to-5m-for-... and http://ye.gg/fan.

The depressing part has to do with vision. If you have a truly mass-market consumer app and you believe in it and set out to change the world with it, you should not be satisfied with 1M users. After all, the more users you have the more will experience your vision.

It is depressing because what generally got you to 1M, which can happen rather quickly, generally will not work to get you to 10M (http://ye.gg/magnitude). That's why I suggested to double down on engaged users and organic growth because that is the quickest path to realizing the vision.

There's the second half of the question: How much money are you making from your users?

If you're able to effectively monetize a million users, that sounds great. If you're making millicents per user a year, a million users is only a few thousand dollars. And if you haven't figured out monetization, and are just hoping to make an exit, you probably need a larger number of users to catch the attention of BigCorp(r) if you want them to buy you out for a reasonable amount.

The numbers of users that you need to be doing well depends on the product, the market, your goals, and umpteen other factors. If a million users is enough to keep you afloat sustainably, congrats!

> If a million users is enough to keep you afloat sustainably, congrats!

If it's not, perhaps you need to ask yourself why you chose that business model (or lack of business model) to begin with. Startups don't happen to you. You design your startup from day 1.

Take this kind of thing as a warning not to design one you'll certainly fail at.

> If you're not doing well with a million users, maybe you screwed up.

I think his point is that just because a company gets a million users, that doesn't equate to success. It's fallacy to think that just getting there means that you're doing everything right. As you pointed out, acquiring users doesn't make you a business.

Startups are supposed to be about explosive growth. Your startup is a failure if you don't get huge - then you're just a small business. Most people here aren't interested in building a small business they have to take care of for a few decades!

Awesome post Gabe, and so so true.

It doesn't help that a million different people and organizations are trying to get through to you, the end user. My wife expressed it pretty clearly to me when she said "I feel like I'm being attacked by a million marketing mosquitoes trying to grab their bite of blood." There are advertisements everywhere, they become the digital snow of the electronic generation.

Getting through that organically takes a long time, years. You can blast through it with a big chunk of cash (temporarily light up the sky) but you risk resentment from the folks who don't care. Leanness and frugality are the traits to cultivate when you're in it for the long haul.

If you think getting past the first million users is tough, try reaching the first $1M in revenue and growing to $10M... many of these consumer-facing apps have no idea how to get to that first million, let alone the tenth. When I work with other startups, that's usually my first question: "How are you going to get to your first million dollars in revenue?" Even for those that have an answer as to WHAT they'll do, they haven't thought through HOW they'll do it. In many cases, for these consumer-facing apps, it will cost $2M in customer acquisition to get to $1M in revenue... if they can get there at all. Many are building to flip - hoping that the music doesn't run out before the money does.

I don't think that getting 1 million users is something to scoff at.

It demonstrates that 1M people think that the service is valuable. Deciding how to extract money from them is a first world problem.

I could give our free hamburgers and get 1M users tomorrow.

Deciding how to extract money from them is not a "first world problem". It's the entire problem.

I agree with you -- who's scoffing? What I'm saying is that without the revenue model, the million users gets you something that's impressive, but not quite yet a business. And without it being a business, it's hard to see how to sustain that million user base. Isn't that the whole idea of the Underpants Gnomes? Yes, you can get the users, and yes you can get profit... but exactly how? Many times you can make it work if you can figure out Step 2, but if you don't have enough capital, you can't.

Underpants Gnomes ?!

http://en.wikipedia.org/wiki/Gnomes_(South_Park)

Thank you, I think this is one of those times you need to see the episode to understand.

I'll live :-)

check out the video on this page: http://onstartups.com/tabid/3339/bid/8608/Startup-Lessons-Fr...

I find the math behind any consumer apps that depend on online advertising very depressing...

Let's say you get a million visitors a month. With a CPM of $5 (very optimistic), and each visitor = 5 pageviews, that's just $25,000/month. Great if it's just a lifestyle business. Depressing if you're trying to build a company around it.

Here is a study that shows that the median (not mean) value of internet sites (note that these are not applications, but blogs or forum sites!) is around $500, with a monthly revenue of $133. http://www.slideshare.net/Flippadotcom/how-do-websites-make-...

It's basically that most niche sites have a hard time scaling up to 100,000 users, let alone 1M.

Not sure how well those numbers scale to consumer applications however, but you can probably interpolate from those online advertising/affiliate marketing numbers.

The concept is to not get depressed about $25,000/month, but excited. If you are able to come up with a number of simple products that have a quick development and production time, then with five hits, you are at the $125,000/month. Look at the <insert name of the company that makes that ridiculously simple conversion program that posts here to Hacker News alot whose name currently escapes me>, they have three hits on their hands, and would assumedly be at $75,000/month.

It is easier said than done - you'll be lucky to develop 5 products that total $25,000/month. It takes a lot of manpower to make 1 hit, let alone 5.

I get a little over a million uniques a month (~4mil pageviews) and earn about $2500 / month from ads.

Think I'm missing an order of magnitude somewhere.

Great article. I totally agree; User growth is an uphill battle that requires a well thought strategy to 'cross the chasm' and beyond. However, I did not see any mention of Value, which I find to be inherently important. When it comes to User Acquisition (or I guess what we now call Growth Hacking), I believe that Value is one of the most important (and sometimes overlooked) aspects of any project. Solving real world pain points creates inherent Value, which in many cases facilitates organic growth. If your App or Service is Valuable, then people will naturally want to use it, no promotion necessary. I've found that the Value of a project is usually tied to the Vision of the Founders, what types of problems they want to solve, and how painful those problems are. I try to make all my Projects High Value, but many are still in the beginning stages, and how successful (or unsuccessful) they will be has yet to be seen.

Most of the money in the world isn't in the hand of consumers. It's in the hands of business.

"I've heard of them" is not a useful metric for success. It gives you sample bias towards thinking consumer-facing businesses are good, because the only thing mass media journalists have in common is that they're mass market consumers.

http://chester.id.au/2013/01/05/on-selling-to-consumers/

In the USA consumer expenditures represent 70 percent of gross domestic product, in pure 'output'. Though Economically business investment is a stronger driver, (business moves more money around), it's not the larger slice of the final pie, or 'in their hand' as such.

The point is that at any instant in time, almost all the current "stuff" is not in the hands of consumers. It is situated in the structure of production.

Read the Hayek essay I mentioned, he explains it better than I have.

Maybe I communicated my point poorly - I agree. Supply is the driver, not demand. I was just annotating the use of the phrase 'most of the money' comparing the difference in final output (as GDP), and throughput. In the context of this discussion, internally the mechanics of the economy are driven by business spending (which is most likely more than double GDP alone). But if you take final output, consumers do hold the larger portion.

Very good comments here. If you can't make a sustainable business with a million customers, then you have a lot of problems, and getting even more 'customers' isn't one of them.

As soon as I saw dark background with white font, I closed the tab. Sorry, but it hurts my eyes to read like that. Why the hell do people still do this?

Because the opposite hurts their own eyes.

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