Ask HN: Should monetization be an afterthought ? | Hacker News Reader

Ask HN: Should monetization be an afterthought ?

16 pointsunohoo30 comments

Over the last couple of weeks, I've been toying with a startup idea.

My concern is this:

Should monetization be an afterthought ? With the current economic market, its evident that an ad-based biz model only might not be sustainable. But the moment that I try to dissect my idea from a monetization perspective, I cant come up with anything. That makes me rethink, revisit and re-evaluate my idea.

In fact, when I start analyzing most of my ideas from the perspective of 'make something people will buy' (credit-Sachin Rekhi), it invalidates pretty much all of them.

Do you think I should worry about monetization later ? Build a community / user base and the money will follow ? Or am I just over-analyzing stuff ?

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If you can build the site without a significant investment of money or time then it's OK that it'll take time or tinkering to earn back your money. If it's expensive to build and doesn't have a clear path to earning back that investment, it's at best a gamble.

I guess that's what I'll need to do - throw it against the wall and see it if sticks.

"Should monetization be an after-thought?" The answer depends on you - is your primary goal with this application to make money? If so, then no, monetization should NOT be an after-thought.

I would spend some serious time thinking about ways to monetize your app. While everyone seems to jump on the bandwagon of advertising for money, many are coming to realize that it's a huge gamble.

Rethinking, revisiting and re-evaluating your idea isn't such a bad thing. I would follow Sachin Rekhi's advice - is your product something that people will pay for? If not, I would put some time into thinking about whether you can mold your idea product into one that people WILL pay for.

Even if it's something as low as $5 per month, you can make up the difference in volume (if your product is good enough for MANY to like). Your main goal should be to break even as fast as possible and the subscription model can allow that.

Or better yet, split test the two - advertising vs subscriptions. Either way, I wouldn't just push this to the back of my mind because it seems like you can't find a clear answer. That's only more reason to think about it harder. Take some time to research and analyse apps that are successful in terms of charging subscriptions. Think about WHY people are willing to pay for them.

Having a business plan is not "over-analyzing stuff."

If your goal with this project is to make money (i.e., it's not just a hobby), then figuring out how to monetize it is an important step.

The question you need to be asking yourself is: what value are you creating, and for whom? If your idea doesn't provide value to a group of people, it's not going anywhere as a business.

(Note that the users of the product aren't necessarily the same people it provides value for.)

providing value is one thing. Getting users to pay for stuff seems to be a whole different beast.

Somewhat. Different animals, part of the same ecosystem.

If people are using your site, that implies you are providing value for them. Which implies you should, somehow, down the line, be able to find a way to make money - even if it isn't immediately apparent how.

This logic isn't entirely flawed, despite the fact that it's as unfashionable now as it was fashionable 3 years ago.

A few fundamental flaws to look out for.

I. Being one source of a cheap abundant resource. Very few people will pay for a chat client, no matter how much value it provides them. There are too many freely available competitors.

II. Transaction costs. This mostly refers to the time, hassle, and risk that come along with making online payments, that ultimately come out of the amount you can charge. If the value you are providing is very small, but among a billion people, these transaction costs can prevent you from monetizing.

Any other things to look out for before going for a monetize-later strategy?

I don't disagree. The question in both of the cases you mention comes down to value-- in both cases, the marginal value provided to the user is too small. The fact that people are using your site doesn't necessarily mean that there is much value there to be extracted.

I'm not suggesting a "monetize-later" strategy, mind you, but if that's the plan, I'd think it a good idea to make sure you have something that can actually be monetized.

Another thing that is somewhat interesting about the social networking aspect of some of these ventures is that it makes it easier for people to socialize against you. This could mean something like "fight facebook so they don't charge us" to "let's move to shmacebook they have cool feature xyz". So switching from non-pay to pay could be more troublesome than anticipated.

How are you planning to pay for your hosting costs, advertising, marketing, branding, design, coding, food, rent, a car, and all the other luxuries in life?

That money has to come from somewhere.

How much money do you want and or need to survive? How many jobs do you want to create for others? How long do you want to retire? What are your plans over the next 1 year, 5 years, 10 years...?

What do people want to pay for? Well, people don't like waiting. Once they decide they want something, they want it now now now.

People pay for food. You have to eat. People pay for management of life's necessities. People pay for more life. They pay for less fear. They pay for convenience. They pay for more time.

They pay for more money.

They pay for less cost. They pay for more entertainment. They pay for more control over their environment. They pay for vision. They Pay for stability, accessibility, consistency...

What do you want them to pay you for?

Paul Graham once told me something about this...

http://news.ycombinator.com/item?id=153547

I'm not convinced by the analogy that pg gives:

""" why waste time on something you "don't know" will work

For the same reason that I'm willing to fly to any large airport without knowing for sure that there will be a taxi waiting. There almost always is. """

This is something that you've 'learnt' based on prior experiences. And based on past experience you know that the probability of a taxi waiting outside an airport is high. So, its not completely 'unknown'.

Not just "once", but "a year ago today Paul Graham told me...".

Interesting observation - I didn't even notice!

There was an podcast yesterday here about "pricing is hard" or something like that. It was about how to price an enterprise app. One suggestion was to ask the client, "How would you use this app if it were free?" The idea being to find out just how useful the software could be to the client if the client maximized use of the software. The more your product is worth to your client, the more revenue it should generate for you.

By initially pricing your product for free, you're carrying out the free-pricing thought experiment for enterprise software in real life: you get to actually see how your potential clients would use your software if it were free. You encourage them to make maximum use of the product. Then, you can figure out how to price your product to reflect it's value to the users.

Having a conversation with a prospect where the product is hypothetically free is different from giving your product away. One example: some prospects won't use a product in their business unless it's supported (and they assume if it's free that they won't get reliable support). Giving it away won't allow you to assess how they value it. Also, as a rule of thumb it's easier to drop prices over time than raise them.

See "The Penny Gap" for another perspective on the difficulty of starting free and charging later: http://redeye.firstround.com/2007/03/the_first_penny.html

Depends on the kind of startup you're starting. If it's Facebook or Twitter, yes. If it's PollEverywhere, no.

True, of course.

Assuming a startup falls in the latter category, coming up with a good monetization for a B2C web-app is challenging.

Majority of the apps I use daily fall into the 'nice to have' category. Most dont provide me the value to the point that I'm willing to pay for them.

And seeking out that distinction - between the 'nice to have' and 'must have' categories is what turns several of my ideas into vaporware

Can you give a bit of insight into this? It seems to me that facebook or twitter are simply a reinvention of the same kinds of companies that started and failed in the dotcom era.

I thought the lesson learned was that technology companies are not magic. And one should invest in companies with a sound business model. What about twitter or facebook invalidates this?

The lesson learned was to not to avoid companies that aren't currently profitable. It was to avoid companies that could never be profitable-- e.g. because they were buying users. Facebook and Twitter aren't doing that.

Ask yourself this question: what fraction of businesses that want to be ad-supported actually turn enough of a profit to be worthwhile? If the percentage is high enough for you to consider it a reasonable risk then go for it.

[edit] I can't imagine starting a business unless I knew exactly who would buy the product, why they would do so, and I had a fairly good idea of how much they would pay for it. That means I start by figuring out what people need and then examining if I can provide it. But I'm not a millionaire yet.

If you just throw something against the wall to see what sticks, something will. The question is will it be enough to be a worthwhile use of your time?

If it's a "startup", then no: monetization should not be an afterthought. If it's just a project (even if its a very involved project) that you'll benefit from in other ways, then maybe.

Right now, I'm (barely) working on a (project|potential startup) that I know that me and a few friends will have a ton of use for. I have a few ideas re: how to monetize it, but it's less of a concern for me right now. Right now, I'm just building a killer project for less than 100 people to use. If other people find it useful, awesome. If they don't, my goals will be reached with the project anyways.

It depends on your objectives.

If you take angel/institutional money, you should at least have a good idea of what billion-dollar-plus market you're going after.

How specifically you monetize within that market can't always be pre-determined because its a function of a really good product (which takes a lot of morphing/iteration).

It's not a good idea to bank on advertising (unless you're building an ad network) or unless you're product has a great context for capturing purchase intent (from which you can do some pretty killer lead-gen/affiliate).

Totally depends on the market you are serving, the size of the opportunity, and the amount of cash you think you can drum up.

But it's certainly viable to first create something that people would rather chew off their own arm than give up (Google, Facebook, Twitter).

It's also great to have a revenue model out of the gates (salesforce.com).

What's the startup idea?

If you have access to a research library, you could do some research and write a feasibility study in a day of work. A feasibility study would be the first draft of your business plan after working on it for a day.

Do some basic market research at the library, know how big your market (users) would be and some basic information about them (are they 13-25 WoW players or 30-45 baby booomers.)

Find similar services to your idea and do some research on them. Even if your idea is really novel, you can find replacement products and research them. e.g.: My company is a lot like Hacker News, but for serious hard core chefs. Hacker News make X amount of dollars with a userbase of Y users, we could probably do something similar.

So spend one day of research and produce a 1-2 page document with your research. That will really help you start to think of how to convert an idea or service into a business. Even if you have a strong idea of how to make money on a service, knowing this basic info will help you polish your ideas and help you sound really smart when talking to investors, potential partners, and even customers.

I believe you should do it if you can build, promote and manage it without any cost structures...

I think Facebook/Digg would be vastly profitable if they didn't employ all those people. Do they need to?

Don't rely only on your perceptions of whats valuable, ask others... you'd be amazed what people will pay for, things like data, pro accounts, products tangentially tied to the purpose of the site etc...

if you'd be willing to share some of the basic details of the idea I'm sure we'd be happy to act as armchair quaterbacks and toss out ideas for how it makes money

It shouldn't be an afterthought if you have any expectation of making money.

I'm guessing I wont be alone in expecting that :-)

There is no harm in having a hobby, just don't let it get too expensive.

The question you should be asking yourself is will the users buy your product/service? Ads or subscriptions you are still trading your product/service with your customers. Is it something that will be useful enough for them to trade some money or click on your ads? Whether they will depends on how much value they are getting in return.

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