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

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

27 pointsterpua59 comments

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.

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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.

What are you offering?

A web-based small business system (order processing, inventory, accounting).

I have always wanted a simulation based cash flow application.

The app would tie into real data points and show how my cash flow is breaking down and comparing to estimates.

It would then allow us to role play a few scenarios to predict which numbers are important for us to change. I have even considered putting an agent in there and doing Genetic Algorithms on creating a good agent.

Its a lofty thought, but I was thinking that if I started small and just did the cash flow modeling well, the other parts could be added over time.

What makes you think a web-based system is best for this? Here are some problems that have prevented me from pursuing this market: 1. Perceived security ("My information is out there in cyberspace? Won't it be hacked?") 2. Offline usage ("What happens when the internet/power is out?") 3. Speed and technologies (Is web-based better than local application, i.e. MYOB/Peachtree?)

Most of the problems are probably in customer perception, but because you're dealing with small businesses, perception is really hard to overcome. They presumably don't have IT people to talk sense into them.

"What makes you think a web-based system is best for this?"

Doesn't matter what I think. Only matters what they think. I am building a business in response to a tremendous demand.

There seems to be a low level theme running here that the <enterprise><small business><IE using><anyone over x years of age><you name it> crowd is missing the <Web2.0><social networking><everything cool> boat. Don't you believe it! They're not all PHBs. (Most of the smartest people I know run small businesses.) They see what's happening. And they don't understand why there's so much going on these days and they're still stuck with garbage business software that costs a fortune, is hard to use, and doesn't serve their needs.

So who to they complain to? Me! "Give me something that does business the way we do, make it simple, price it right, and put it on the web so I can stop paying XYZ Systems a small forture to never be available!" Every demo I give ends the same way, "Finish that and I'll buy it in a minute!" (Needless to say, I do know the difference between a promise and a check, so we'll see...)

Hopefully it won't be too long before I post one of those "How Do You Like My App" posts.

I think you're on a hot trail, edw519!

An interesting thought is what kinds of standards you can hook into. Perhaps stuff for tax file exporting, calendaring, sales /product channels, etc. The standard formats might be easy to provide and could increase the value of your pitch.

Yes. No need to replicate the horizontals. The verticals are what everyone is clamoring for. Hooks into existing horizontals seems to be the way to go.

Yeah, I find it ridiculous that MYOB and Peachtree are the best small business apps out there, because they're horrific monstrosities.

Please make awesome small business software!

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.

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.)

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.

"Free software is worth nothing -- even if it has a lot of users."

This is the problem with all the people that embrace open source or free software. The developers price themselves out of existence. Sure you have to hand out the source code, but you can still charge for the software.

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

Anything that can be free, will be free.

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

Who cares. Startups ultimately exist to make money. How do we get the most of that?

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.

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.

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.

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.

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.

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

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.

I'm charging a monthly per user fee. Most businesses won't use free products simply out of principle. I'm not sure why.

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

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.

If something goes wrong, the guy who picked you is going to look like an idiot for choosing a free service.

Users can choose pay or free:

http://ourdoings.com/hostingplans.html

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.

That's actually 52/year. I'll take this as a lesson that the word "year" should be in bold.

The "sort-by-date" feature is the starting point for what distinguishes ourdoings.com. But I don't want to go into detail here. If you have a few hundred photos that lend themselves to chronological organization, make yourself a free site and give it a try. If you don't like it, use the "Tear down this site..." option on your site info page, and the "Forget I exist..." option on your personal info page.

More relevant to the business model question, it's important to look at the ad vs pay question from your customer's point of view. From my own point of view, pay is better because I don't want ads on the pages where I share my photos. However, I'm catering toward people who have very little time to spare. Freeing them from filling out a form with credit card info is a time saver. They will put up with ads for other convenience.

Initially it was pay-only, but I changed it.

Yeah, actually picasa doesn't have ads at second glance either, I've been using it for quite a while now, and as with most ads, I don't even notice that they're there (a note to people who think that ad-based models get user's attention).

I certainly don't want to argue with you, or tell you that your business won't work (I can't say that I know TOO much about that), but picasa auto-arranges albums by date too. It doesn't have the blog feel of your albums, which I sort of like.

I like that you've added a free service, but I guess I just didn't see what made somebody choose your pay service (even per year) over google's, who gives 10Gb for $20 per year.

My bigger question, is how can us little guys compete with Google and Yahoo and Microsoft on anything?

Here's a quick answer to your bigger question: Google has attracted a large number of users who like the way picasaweb feels now, and they need to keep those users happy. How can they ever compete with lots of little guys who make things that appeal to others?

A longer answer will appear in a blog post in the not-too-distant future.

They do that with the ability to change the defaults, and add new features, like a hosted blog management (blogger) or similar. The same could be done for picasa.

Every option/feature has a cost. If they try to be all things to all people they will fail.

The question of price optimization is easily answered by basic supply/demand curves.

If you're saying that they should charge less just because other photo sites are then you're doing it totally wrong.

I don't think that I'm totally wrong, or else x-mart would never accept t-mart's coupons, or say "look how much you save with us"

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.

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.

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.

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

Agreed

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.

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.

we are at our early stages, we can not yet afford supporting any (even popular) browser. Though Opera SUPPORT is planned to be far earlier than IE support ;)

That seems like a silly decision to me.

Unless you can be sure that your target market is Firefox/Safari then I think you could be cutting yourself off from a big customer base. Personally, I use Firefox on my Mac, but there are _lots_ of people out there that are still using IE, and will probably "still" be using IE for a long time because they are on Windows.

Secondly, I was surprised to see that you _force_ people to use OpenID to authenticate with your web site. It's a pity there isn't a classic login/password solution since you force me to go get an OpenID (I don't have one yet), and since I'm a nerd you are delaying me using your site because I need to investigate this whole OpenID thing.

slightly off topic but I agree. In this day and age it should work on the 3 main browsers from day 1. Opera should work if this is the case.

Opera is not one of the three main browsers. The three main browsers are, in order, IE, Firefox and Safari.

Personally, I don't use Opera or one of the three main browsers most of the time, so I periodically run into a site that tells me they don't support my browser, in which case I switch browsers.

I don't expect everyone to cater to my whim all the time.

I disagree, when you are a startup you are also creating a culture, and you need to manage it.

Firefox is by far the easiest browser to develop for. Firebug, makes it so damn painless. Ec2, and S3 now have plug-ins for Firefox.

I always develop for Firefox first. I tend to figure that if someone is using IE6 or IE7, and the browser is buggy, its microsoft's problem and not mine. I do not have time to hack javascript and css that is out of spec.

Safari and Opera often times work when Firefox does, but usually have different defaults for padding, boarders, forms, fonts, and margins just a bit differently which can all be handled withing the bounds of normal css and javascript.

IE on the other hand, is a mess, and breaks rules all of the time. Not only that but the culture of the IE team is to not fix the problem, but to create new HTML features so that you can branch between browser versions. The culture behind the IE team is all wrong. I hate developing Google Gadgets for IE because Google will not let you publish your gadget iFrame in xhtml strict for which most browsers come close to rendering the same.

As far as the OpenID thing goes, it was also easier to support than a registration system for users, and it encourages a certain culture for the site. I myself do not like OpenID, as it is based on HTML redirect protocols, and not something that works well for applications. OpenSocial is better for authenticating application permission for a given user, but it still seems lacking on API consistency, OpenSocial is going to be an API arms race, like IE and Mozilla are in the browser market.

Also for our app, we would much rather support enviroments like the Mac, iPhone, and treo 700p than IE, based on the audience we are trying to reach.

"Also for our app, we would much rather support enviroments like the Mac, iPhone, and treo 700p than IE, based on the audience we are trying to reach."

Sure hope you have a fertile niche and you master it well. You better, since you're discounting 70% of the population.

This is actually a very wise strategy...after all its the early adopters who generate buzz and better guide product development.

"I tend to figure that if someone is using IE6 or IE7, and the browser is buggy, its microsoft's problem and not mine. I do not have time to hack javascript and css that is out of spec."

IE CSS and JS is annoying but with this attitude you are just screwing yourself.

On the sites I tend to create, Firefox usages is above 50%. Safari is like 10%

And the site looks OK in IE7, but is not a pixel match to Firefox at all.

I will usually let things like margins and padding slip a bit, its not like the site is totaly broken, i just do not develop for IE or spend any significant time optimizing it outside of CSS or Javascript spec.

If something does not work in IE i usually ask if its worth doing, because I have spent way to many days chasing rabbit holes in that stupid browser.

> Unless you can be sure that your target market is Firefox/Safari

Actually this is fantastically easy to measure. Are you kidding? And I think we were talking about opera.

Get used to it, unless you are making a product for geeks (who are pretty much the only opera users) there are probably better things to do with your business than tune your website for 1.5% of the population (even less if it is mainstream).

Worse still, the message is written with improper (bad) grammer "We was not able to..."

thanks!

Just for the record, it is still wrong..the correct thing would be: "We are not able ..."

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.

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