"How will they make money?" is the wrong question
1–10 of 21 posts
Re: "How will they make money?" is the wrong question
#2Maybe it is the wrong question, but VC's keep asking it. unless you have mad traction.
Re: "How will they make money?" is the wrong question
#3Excellent summary by Ev at the end of the post.
Re: "How will they make money?" is the wrong question
#4Maybe it is the wrong question, but VC's keep asking it. unless you have mad traction.
This touches on a lot of the no-nonsense reasons why a VC would say no if you have some traction, but not explosive traction.
As someone who has gone through the process of bootstrapping, getting traction, and trying to raise money for the first time in a "consumer unfriendly environment," I think he touches quite eloquently and precisely on a lot of important points. Most VCs don't lay it out as nicely as this either.
Re: "How will they make money?" is the wrong question
#5Social networks must be the ultimate winner-takes-all product. They're probably great investments for VCs. They're high return, and they bleed money until the magic inflection point so you can probably get good terms. I think they're crappy products for founders, because the risk is so high and you don't have the same opportunity for diversification that an investor does.
Speaking as a founder, I feel it comes down your own risk/reward preference. I'd rather have a good chance of a $50M exit than a miniscule chance of $1B.
Re: "How will they make money?" is the wrong question
#6I beg to differ, if you dont make a profit, youre not a business. I dont care if you raised tonnes of money from investors, built a talented team, built an amazing product and sold it to facebook/google/yahoo for a huge sum. Thats failure because you couldnt make more revenue than the costs you had.
Re: "How will they make money?" is the wrong question
#7I beg to differ, if you dont make a profit, youre not a business. I dont care if you raised tonnes of money from investors, built a talented team, built an amazing product and sold it to facebook/google/yahoo for a huge sum. Thats failure because you couldnt make more revenue than the costs you had.
You effectively missed the point of the blog post.
The author isn't suggesting that revenue is insignificant compared to a user base; this is an extreme example of undercutting competitors via price slashing, and it's historically not necessarily a good idea.
That said - Tumblr has so many users that it's difficult not to be valuable. A social network can be a currency of its own - having ownership of a platform that tens or hundreds of millions of people use daily puts you in a position to make revenue in a number of creative ways.
Ev Williams' specific point is such that if you achieve that many users, you will eventually not find it difficult to be profitable. How could you? People wondered about Facebook this way. Then they introduced ads - the number of users only climbed.
Conversely, if Facebook maximized its potential for revenue streams before solidifying organic user base increases, they would have plateaued a long, long time ago. That's the point.
Re: "How will they make money?" is the wrong question
#8Social networks must be the ultimate winner-takes-all product. They're probably great investments for VCs. They're high return, and they bleed money until the magic inflection point so you can probably get good terms. I think they're crappy products for founders, because the risk is so high and you don't have the same opportunity for diversification that an investor does. Speaking as a founder, I feel it comes down y…
True, but for the entrepreneurs and founders that want to take over the world (so to speak), they're perfect ambitions. While not all founders tend towards that goal, the ones that are most "high risk, high reward" will naturally gravitate to that.
No one founds a successful social network and doesn't end up wealthy. Tumblr, Facebook, Instagram, etc. all leave their founders with significant exits.
Re: "How will they make money?" is the wrong question
#9I beg to differ, if you dont make a profit, youre not a business. I dont care if you raised tonnes of money from investors, built a talented team, built an amazing product and sold it to facebook/google/yahoo for a huge sum. Thats failure because you couldnt make more revenue than the costs you had.
You effectively missed the point of the blog post. The author isn't suggesting that revenue is insignificant compared to a user base; this is an extreme example of undercutting competitors via price slashing, and it's historically not necessarily a good idea. That said - Tumblr has so many users that it's difficult not to be valuable. A social network can be a currency of its own - having ownership of a platform that…
I still take issue with the idea of "oh we'll worry about making money later" If facebook is the prime example then just take a look at what a piece of crap its become for users. Facebook couldn't find a decent revenue model so now they're cannibalising their users by making the experience terrible. Which in my opinion, long term is going to be their downfall.
Also, getting lots of users and then just slapping ads on your site is also a terrible business model and its what you tend to do if you haven't bothered to think it through clearly before starting.
Re: "How will they make money?" is the wrong question
#10I contend that monetizing social software is actually very much easier than most people believe.
However, the trick, I think, is to look at assistive rather than extractive models. Rather than looking at how to interject ads into social media, or to otherwise hijack a fraction of the collective attention span of your userbase that you can then sell to the highest bidder, instead look at how to leverage social functionality to put tools into people's hands to help them help themselves in the service of commerce. For example, google search ads and pinterest.
Other examples: enable finding product and restaurant reviews, ratings, and suggestions by friends; improve wishlists for gift-buying; make group purchasing at discount easier for many products (games, books, movies, concerts, events, etc.); enable time sharing of services; facilitate picking up hobbies, skills, and activities; and so forth. There's tons of money in these ideas, but it's more common for companies to go to the advertising trough because it's seemingly so easy.
In my view it's always easier to make money off of a transaction that both sides obviously benefit from.