What’s making money and how much? Jason 02 Dec 2005

36 comments Latest by Chris Briggs

There’s a new web-app every day it seems. Emily Chang compiles a list she calls eHub which “is a constantly updated list of web applications, services, resources, blogs or sites with a focus on next generation web (web 2.0), social software, blogging, Ajax, Ruby on Rails, location mapping, open source, folksonomy, design and digital media sharing.”

Granted, not all the apps on this list are built with profits in mind, but I do wonder: What’s actually making money and how much? Anyone care to venture a guess? Any estimates? With all the talk of the new web, and with all these apps popping up, I wonder how different it really is this time. Have things really changed or it is just easier/faster/cheaper to build something these days that won’t make any money?

Disclaimer: Obviously building tools isn’t all about making money. Many of the tools/sites listed on eHub are pure labors of love without a profit motive. Nothing wrong with that. But I suspect a lot of these are being built with a business in mind. So I’m wondering which ones are working so far.

36 comments so far (Jump to latest)

ES 02 Dec 05

Someone has to ask…

How about you guys? Would you ever share a ballpark figure for revenue or profit?

JF 02 Dec 05

How about you guys? Would you ever share a ballpark figure for revenue or profit?

Ever? Maybe. Now? Nope. Being a private company has its advantages.

Feel free to guess, but we won’t say hot or cold.

Peter Cooper 02 Dec 05

My “FeedDigest.com” was one of the early ones on the list, and we make money. I can’t tell you how much; it’s not a considerable amount, but we turn a tiny profit and our costs are not insignificant :) We’re working on some things so we can kick it up a few notches to be a “great business” next though.. In any case, we’ve proven it’s a good business and people are willing to pay.

Peter Cooper 02 Dec 05

Feel free to guess, but we won�t say hot or cold.

Thanks for the invitation! :) It’s reasonably clear 37signals makes a profit, so by guessing at the costs, we can figure out a minimum revenue. We can figure out a maximum revenue by taking some liberal guesses on customer numbers multiplied by an estimated revenue per customer.

So, costs.. 7 staff, unsure whether any are part-time or not, but will assume 4 of the 7 are taking a lower salary than the others. I’ll guess total payroll costs of $40,000 per month inclusive. I’d guess infrastructure costs at $4,000 per month, and perhaps office/miscellaneous at $6,000 per month. About $50,000 per month in expenses.

Potential revenues.. I think Basecamp is by far the big money spinner, that I’ll automatically guess it takes 80% of revenue. So, you claim 100,000 users, but I’d guess you only have about 1,500 paying clients, and from other businesses I’m involved with.. guess your revenue per customer is approx $40 per month. I can’t guess what you might be taking in ad-hoc client work, if you’re still doing it, so will leave this out. $60,000 per month in Basecamp revenue, or about $75,000 for the whole company.

In conclusion.. I’d guess the company’s turnover based over the next year would be in the $600,000-$900,000 range, but I’ll not know if I’m hot or cold ;-)

Bob Aman 02 Dec 05

I’d have guessed that Basecamp was closer to 60 or 70 percent of revenue. I imagine there’s a lot of people with the $5 backpack plan. And don’t forget The Deck.

Colin 02 Dec 05

My speculative guess is that these companies don’t make that much but are happy with what they do have.

BTW, if Jason told everyone what the true revenues were then the “perceived value” of the products would be a lot lower, to customers and or potential buyers. (This type of thinking is no secret.) Think about it. If you new for example that X product had 10 customers would you preceive that X product has any value? Probably not, even if the product itself provided a ton of value to it’s customers.

Josh Williams 02 Dec 05

Peter — Only 1500 paying clients? Heh… I don’t think so.

Walker Hamilton 02 Dec 05

Peter, I know you’ve lowballed it.

Peter Cooper 02 Dec 05

Josh: You say that, but in my experience with Web services (which, admittedly, is not significant!), at this price point I wouldn’t be surprised if most of the users are people who tried out Basecamp once, especially considering the media attention it got. I know I have a free account I logged into once, and another account that was paid for several months but has since been reverted to free.

On reflection, I might have been a bit conservative, but I’d be incredibly surprised if more than, say, 10,000 users are paying month after month.. but incredibly happy for 37S of course :)

Audi S4 02 Dec 05

Lets keep in mind that Jason drives a $50,000 car….so you might want to up your estimate of their salaries.

JF 02 Dec 05

Let’s keep in mind that I bought that car in April of 2004 and Basecamp launched in Feb of 2004. I can assure you Basecamp didn’t pay for that car. 14-hour days of web design consulting in the 90s did. ;)

Shaun Inman 02 Dec 05

Mint is making money. I won’t say how much but it’s enough that I can afford to support and continue developing Mint for the foreseeable future.

Britt 02 Dec 05

1,500 paying Basecamp users seems a bit low. I’m the communications manager for a mid-sized engineering firm and I have set up 5 Basecamp accounts for different projects within our company (most of them at $49/mo. package). I’m only one “paying” user but I manage several accounts. I know those accounts have spurred other paid accounts as well.

Chad Brandt 02 Dec 05

I don’t know about the products, but the workshops seem to be profitable!

50 attendees @ $695/person = Lucrative Friday.

Matt 02 Dec 05

IMHO, the barrier to adoption of most software isn’t the price.

It is the fact that most software is not even worth using, much less learning (and memoriziong another fricking password).

This is particularly true for “web 2.0” software, where the low investments don’t force the normal reality filters like banks, friends, family to tell devs that their idea is worthless.

Dick 02 Dec 05

37signals must be making a ton of money by now. Often, it seems Jason’s only job is to surf the web all day and add entries to this blog. I know, I know, all that blogging has most definitely been a major factor in their success. I’m just jealous that all his hard work has paid off.

Scott Woods 02 Dec 05

When I just created a new project in basecamp, it received ID 257674. So it looks like about a quarter-million projects have been created during basecamp’s lifetime.

Let’s say half of those are tests or tryouts (defunct). Let’s say that half of the rest are from free account owners.

That leaves 64,418 projects for paying customers.

If the average paying customer has ~10 projects, that means ~6,441 customers.

If the average income per customer is ~$18/month (to match the ~10 projects), then that’s ~$115,953/month gross income.

Maybe I’m a bit high on the customer retention rate, but it sounds like people are pretty satisfied with the service. I hedged that estimate by trying to lowball the average income per customer, since I think that some people pay the extra for the time tracking feature that don’t need the additional project capacity.

My guess is around $100,000/month gross income for basecamp.

JF 02 Dec 05

Often, it seems Jason�s only job is to surf the web all day and add entries to this blog.

Ha! I wish man, I wish. Actually, I don’t, but…

vishi 02 Dec 05

What would 37s do if they had more money? Hire more of the smart people, ofcourse. They waited untill recently to hire people, 7 in all with a low pay. I guess revenues are in the range of 25k. Which implies that they must have crossed their 1000th paying customer recently with an average rpu of 25$ for basecamp. Congratulations 37s on your 1000 customer!!!!

Yup, starting a company is tough.

Brandon 02 Dec 05

Man, I’d love to see some figures. I want to be 37S when I grow up… Basecamp is a huge hit and I think they’re well into 7 figure annual revenues just with just Basecamp. I’m on a $25/month plan, which is most likely the most popular paid plan.

They would need just over 3000 paid accounts monthlly to break $1,000,000 in annual revenues *not including other services and products*. With over 100,000 users, I think that’s a fair assumption.

I’d also bet that with 100,000 users on Basecamp alone, their monthly technology and hosting costs are much higher than some have estimated. If they’re running a decent server cluster with a web server for each main product (Basecamp, Backpackit, etc.) and a dedicated database server or two for each, plus gateway, load balancing, or other hardware/servers. I’d guess they’re looking at around $20,000/month just on hosting costs (look at Tilted’s website for some of their pricing - check out the complex hosting page).

I’m extremely happy for 37S’ success. I have some ideas and I look at them for inspiration. The fact that they can make it in this industry filled with huge software giants and desktop apps is inspiring.

All guesses aside, as long as you guys keep providing the quality and service you have been providing I hope you make millions. You deserve it.

Not an S4 02 Dec 05

I wouldn’t necessarily spot the S4 as a sign of either Jason’s or the business’ income. As a small business owner, I’ve driven a comparable BMW through lean and thick years. Because it is a deduction, it’s very misleading as an indicator of income.

Peter is much more on track with his calculations of Basecamp and average streams.

Peter Cooper 02 Dec 05

I don’t know, I’m starting to think I was lowballing! I’m wary of going over the top though, most businesses (and most people you know) aren’t doing as well as they make you think they are :-)

Also, a $50,000 car isn’t really that expensive. Many people earning $60k a year will drive $50k cars and have it on credit, etc.

Sam 02 Dec 05

We’re launching something very soon called NCLB QueryMaster - and I guarantee that noone lurking here will be interested 8) unless you are a closet education policy freak.

We really take some of the 37S philosophy to heart and reject other parts so lets see what happens. I’ll be happy to post numbers once we have some. But I’d love to a have some benchmarks to compare with.

I love that the title is “whos making $ and how much” and so far we have no real numbers for anything.

anon 02 Dec 05

How about people making money just off AdSense, Amazon referrals, and the like? I�ve seen some wild figures online, but would be interested in some more authoritative opinions (or facts!)

Dan Hartung 02 Dec 05

Often, it seems Jason�s only job is to surf the web all day and add entries to this blog.

Nah. Took them forever to find eHub.

dmr 02 Dec 05

It’s clearly enough to pay 7 talented people AND operate an office in Chicago. Sounds like they’re doing just fine. And it’s *all* absolutely deserved; well done lads!

olmir 02 Dec 05

Why don’t you think that these guys just have fun, being the pioneers in the new technology? I know many guys, who having fun coding in Ruby staying in the office every evening.

Chris Wright 02 Dec 05

Oimir, read the disclaimer.

leslie 02 Dec 05

pMachine (the ExpressionEngine people) are happy and enjoying life in the web publishing community. We love what we do and are looking forward to a great 2006. Its a nice treat to make the ehub list too.

Peter Cooper 03 Dec 05

olmir: Sure, most of us are having fun, but making money is important. Making money is a way of giving back to your society, to keep you being able to produce stuff, and to help the Internet, your family, and the world as a whole.

To be honest, if someone paid for all my living expenses and let me riff developing cool stuff, I’d probably take them up on it, but hey, we gotta get money to live.

Zach Stepek 04 Dec 05

I’d venture to guess that Basecamp has more than 3% of it’s customer base as paying customers. In fact, IMHO, it’s probably about 10% of the customer base at an absolute minimum. Taking into account the fact that most people like to operate at 100% markup over expenses, I’d say that the fact that an unlimited projects plan is offered leads me to believe that the average cost per project for storage and bandwidth is minimal.

That aside, I would imagine that in order for the Signals to shift focus to being an Application Service Provider and hire people to build web apps, it’s more lucrative than the web design industry, and they have had some pretty big name clients on their roster. Being the principal of a Chicago area web design firm, I would have to say they were grossing well over $2M a year doing web design, especially since they are well known, published “experts” in the industry! I know small ad agencies in Northern IL that I do work for who bring in at least half of that, so I may be considerably low with that guess, as well.

But, lets look at some numbers. Assuming (wrongly, I’m sure) that the $24 a month Basic plan on Basecamp is the most used plan, and that 10% of the 100,000 users (10,000 accounts) are paid customers, that would be an operating capital of $240,000 per month before expenses, or $2.88M per year. Even at 50% profitability, that’s $1.44M per year! And I still feel like I’m undercutting the potential of Basecamp by guessing numbers so low ;)

Chris 04 Dec 05

Zach I’d bet my left leg they don’t have 10% conversion. That’s insanely high for any paid service.

Peter 04 Dec 05

I’m not 100% sure, but I think Jason mentioned on a “building basecamp” seminar I attended, that the conversion rate for Basecamp was between 0 and 10%.

But again, my memory isn’t what it used to be ;)

Mark John 04 Dec 05

I would say that making all these web 2.0 web apps is a lot of fun — and it’s not always about the money (at least not in my case — we’ll indirectly not. :))

In my case, i made it (txblogr.com) purely to show my skills, as it’s becoming really hard to compete in the freelancing world (especially in my case that i’m still starting) without showing something to your clients. I know portfolios are a good way to show ‘em what you got, but it is always an added advantage to show something that is working and that a lot of people are using.

Anyway, there’s always Adwords that can help foot the bill on operating costs. :)

Joel Mueller 06 Dec 05

I’m leaning toward agreeing more with what Peter is saying in terms of actual paying subscribers. 100,000 users is a great start for getting people to sign-up. My guess is that of that 100,000, about 3,000 are paying customers. I’d be very surprised if it broke the 5,000 member mark.

This coming from my personal experience with (1) talking to many companies that have paid membership features, (2) running MacUpdate.com, (3) running many other types of monthly subscriber companies.

Chris Briggs 28 Feb 06

I would caution that the 100,000 number is defined as “users”. I have a Basecamp account and have 10 contractors signed into it. Now does Basecamp count that as 10 users (all seperate email address) or just one?