Hopefully people will read into this and learn that building a product without figuring out how to make money and just hoping it becomes obvious -- or that someone will acquire you -- is NOT a business model.
I would argue that it is A business model. The debate would be around whether or not it's a good business model. I guess as long as you're honest with yourself and your employees, aiming to be acquired as a profitability plan is perfectly valid.
Getting acquired and becoming a cost center for another organization is not how I'd define success.
Yes, companies like this exist, but they typically are in the news because they're the exception to the rule.
For any sustainable business, the obvious part has to be how it makes money; the tough part is building it in a way that captures the customer.
Did you make money? Yes. Did your investors get their return? Yes. Sounds like a successful exit to me. Every week I'm seeing an article about Google/Apple/Microsoft buying a small company that had no hope of being profitable on their own. Everyone defines success on their own terms.
I'd not consider that failure, either; Many things are valuable, yet often defined as "Cost centers". IT Support, for example, is almost always defined as a cost-center, yet it fuels so many parts of the business and can be such an improvement to getting things done it's insane in the modern world not to have it.
Building a technology or product that is only good as an add-on, loss leader, or tech demo isn't shameful. If somebody's willing to pay for it, if you and your investors can get a good return, that's a reasonable measure of success. It's nice when a product is successful on it's own, but not everything is about direct-sales.
The reality is: not every startup and business is qualified for making profit. They should pursue it diligently to merge to a model to have enough margins, but be prepared to fail. Therefore the founder will not be that sad.
"Starting a startup is so hard that it's a close call even for the ones that succeed. However high a startup may be flying now, it probably has a few leaves stuck in the landing gear from those trees it barely cleared at the end of the runway."
1) What's the difference between a business model based on having enough users vs. having buyout offer?
I don't differentiate a business from a company in that way. Business and company in the real world are pretty much the same thing. In the tech world, large number of users may bring a business into profitable stage because they have a huge pool of leads. Even if the conversion rate is low, there is still many chances to earn, especially due to the trust level. This model is similar to the traditional business.
High tech startups rely on the second way a lot because once they catch some investors, they made money no matter if the business is really profitable or not. That's why it's like gambling, you don't need to have a real business, as long as you make somebody believe you can make money, you win.
2) Is every business a gamble?
Not quite. The odds are a lot higher if you follow the typical business rules in the real world to provide true values to your customers. Now, a lot of people believe in that money can make money, so no real product is necessary. That's completely wrong. This belief puts everybody into gambling. At the end of the day, you will find that only the product/service values being realized can make money. So business is not gambling. We consumers are living on it everyday. If there is no product/service value but money trading, we will be running out of the fuel so quickly.
However we need to move further. People know that the web is messy. So we need to organize it to improve the efficiency finding relevant information. So quality should be over quantity. And instead of sorting out from the large amount of information from time to time, we need some way to keep the useful information and share it easily. This is the goal that I'm working on.
We make more than $1 per monthly active user and I know for a fact that our game monetises poorly when compared to the free to play games that monetize very well.
We didn't really have many options. We tried to build a business and failed. We could have tried to raise a bridge financing -- but what are we bridging to in that case? A financing (no), an exit (also not an option, as we found)?
Ultimately spinning things down into a skeleton state and doing our best to operate the service for the coming months (heck, maybe years) was the only path forward.
Re: the OP, I think 400k MAUs is actually pretty decent for a mobile app, but maybe I'm mistaken.
Running a centralized messaging service without ever thinking about selling aggregated data (e.g. sentiment analysis) or anonymized ad targeting data (e.g. based on keywords in recent tweets)? I can also hardly believe that.
I'd like to hear about a monetization model for DrawQuest, even as far-fetched as the ones I listed above — besides simply putting hard-to-target ads on the page.
The point is that distant possibility wasn't enough in this case. Of course everyone had a distant possibility in mind, 95% of the readers of this article already thought of a distant possibility of where the company could have made money eventually if it had kept growing.