In “A Radical Business Plan for Facebook: Charge people” [Slate], Farhad Manjoo proposes “something crazy”: Tech companies should start charging people to use their services.
David is interviewed in the piece and explains why “having a price is really cool for making profits.”
“[Hansson:] “You have customers, they pay you money for the product or service, and you get profits! It’s almost too simple to work.” Of course, 37signals didn’t come up with this idea on its own, either: “I’ve heard that over time—hundreds of years actually—this has been how most businesses have made their money. But somehow that notion got lost in the Web world.”...
“People tend not to look closely at the odds,” Hansson told me. “There will always be people winning the lottery, but that doesn’t mean a good financial strategy is to go out and buy lots of lottery tickets.”
Instead of taking a heap of venture capital money—lottery tickets—in the hope of one day getting a huge payout, Hansson says that Web entrepreneurs would be better off starting their businesses in the way most offline entrepreneurs do: Use a small amount of seed capital to make a good product that appeals to a client base that is willing to pay you for it. Then, over time, use the money you make from your customers to improve the product or to create more products—allowing you to attract more paying customers, which then lets you invest more into the business, and so on. It’s a cycle that has proved quite successful over the millenniums that humans have engaged in economic activity.
Read the full article for more.
Also recently published: Die Kraft des Mittelfingers [brand eins] is a recent article (in German) on 37signals. Even if you don’t speak German, you may be able to get the gist:
David Heinemeier Hansson ist vulgär, und das ganz bewusst. Seine “Fuck you! ”- und “That’s bullshit”-Sprüche setzt er dosiert ein, wenn er Gesprächspartnern seine Sicht der Dinge nahebringt.
Related: The Secret to Making Money Online [SvN]
Nic
on 03 Nov 08Which is precisely why most startups don’t use this model. Because it is not nearly as easy to come up with a business (any business) that makes money than to come up with one that doesn’t.
GeeIWonder
on 03 Nov 08So the difference between ‘Frustration-free packaging’ and old packaging is that the toy comes outside the box? Why do you still need the box then?
Derek Scruggs
on 03 Nov 08I think Facebook is closer to TV than business services. In that context, an advertising model makes sense.
GeeIWonder
on 03 Nov 08Gah. Wrong thread. Sorry
I agree with Derek and DHH. Selling things for currency is a viable model. But the question is also what are you prepared to take as currency? Then the ‘hundreds of years’ argument can be extended to ‘millenia’
Eyeballs and influence certainly have value that is directly convertable to cash. Politicians understand this, of course. Arguably, 37signals’ most profitable products are their free ones.
Luke
on 03 Nov 08In a Q/A time at Oregon State University for budding entrepreneurs, Randy Conrads (founder of Classmates.com) actually said that this concept is why Classmates.com survived the bursting of the bubble. (I have audio somewhere I can dig up if people are interested).
Of course, there is also a corollary that people will pay for good content (in this case a list of their classmates and details about them) despite a relatively burdensome interface and user experience.
john
on 03 Nov 08charging money for their non-business services would kill facebook and twitter overnight—it’s so stupid it’s unbelievable.
Tor Løvskogen
on 03 Nov 08The methods for payment online suck too much to do this.
diarmuid ryan web design
on 03 Nov 08the likes of facebook and other social media sites make their money on the back of advertising; this is primarily their business model. moreover there would be outcry if facebook started to charge for use of their service, consider if google started to charge to perform searches….its just a business model unsuited to a lot of web properties where advertising revenue makes more sense
Tim
on 04 Nov 08It wouldn’t hurt the big guys to think about profitability either. Heard a guy from Google say that every minute, 14 hours of video is uploaded to YouTube. Imagine the storage, processing and bandwidth costs!
And how can taking hires, 360 degree photos every 15 metres in the middle of a desert in Western Australia be a good business idea?!
pwb
on 04 Nov 08I think a free or partially free product/service is totally appropriate in many situations.
Matt Kocaj
on 04 Nov 08I think if anything, DHH’s vulgarity get’s 37signals more coverage/press. Surely that can’t be bad for the marketing. ;)
Berislav Lopac
on 04 Nov 08Guys, this is so tiring. There are startups and then there are startups, and no model fits all sizes. Some startups are (or strive to be) businesses; others are freewheeling R&D departments. The former need a business model, the other need a good project and lots of funding. The problem is that on the Web it’s sometimes difficult to tell the difference.
This discussion is closed.