3 ways to make money with your software 14 Aug 2006
43 comments Latest by Martin
There are three primary ways to generate revenue from web-based software. Let’s take a look…
Give your product away for free and sell advertising around it. You can do this with desktop software (as IM clients usually do) or web-based software.
It’s definitely the easy option for web-based software: Just paste in the Google Adwords include and bam, you’ve got ads. But pasting in ads doesn’t mean you’re pasting in revenue. Unless you have massive traffic, revenue can be very hard to come by using this strategy.
This option also doesn’t work for password-protected, log-in-required products since Google can’t get behind your authentication. If you want ads on a password-protected app, you’ll need to sell them yourself — and that’s a full-time job.
Grade: B-. Personally I don’t like this model because it throws your priorities off — you’re beholden to your advertisers and their screen real-estate demands instead of your customers. It’s tough to serve these two groups at once since their priorities are likely to be different; The advertisers want to win your customers’ attention but customers want to focus on the task at hand. A true win-win is tough in this scenario. Possible, but tough.
Subscription-supported (or single price)
This option asks the customer to pay for the service. This model is really saying, “We think our product is worth paying for and if you agree we’d love to have you as our customer.” It can be a monthly/yearly subscription or a single one-time price like traditional software. From a revenue standpoint, the subscription model really fits. If you look at in reverse, your company is subscribing to each customer’s bank account (not in an evil way, of course).
The downside is that it’s tough to make a product that people will pay for. Some customers are willing to pay but are there enough of them to keep you afloat? That’s part of the territory when you sell anything though. However, if enough of the right customers find you, healthy revenues await. Plus the people who pay you and the people who use the site are the same. That helps bring priorities in line. When there’s a clear connection between customers and revenue, it’s a lot easier to focus.
Grade: A. I recommend this model. If you go into your project thinking you have to build something worth paying for, then you’ll likely build something worth paying for. You’ll try harder because you know it has to be really worth something to people. Of course, even good ideas sometimes fail. But building-to-charge puts you in the right mindset to succeed.
One more thing I’ll say about this: When people pay for your product they have a vested interest in seeing it succeed. They want their investment to be a good one. They want to believe in it and care for it. And they want you to stick around. All that helps ignite passion and interest around what you’re doing and that’s a very good thing.
This is the strategy of the open-source software movement. SugarCRM is a good example of this. Their software is free — but if you want vendor-backed support help you’ll have to pay for it.
Grade: C+. On the surface it seems like a good deal, but for who? If the revenue model depends on helping people, then there’s an implicit motivation to make things difficult instead of simplifying and make things easier. This model punishes tools for being intuitive and easy to use. In essence, you wind up selling complexity and a secret language that only insiders can speak. That’s good for the company but bad for the customer.
A combo meal?
There are other ways to make money off software too. You could create a model that mashes up the ones mentioned above, Or you could license your software to other companies to sell or give away. Or something completely different.
The bottom line
In the end, we think building a real product that people are willing to pay for is the best way to go. It’s a dive with a high degree of difficulty, but if you can pull it off you’ll be swimming in profitable, sustainable waters.
Related: Russell makes sense this time