This weekend the New York Times published a piece called Using ‘Free’ to Turn a Profit. The piece focused on Evernote, a web-based and smart-phone based application for taking notes, snapping pictures, and storing stuff you want to remember later. The following critique isn’t about Evernote (it’s an impressive product which a lot of people love). It’s about the incredibly low bar for “success” in our industry and how the tech-business press perpetuates the perception. (ugh, did I just turn into one of those who blames “the media”? Yes, on this one, I did.)
Let’s erase one claim right off the bat. The headline, “Using ‘Free’ to Turn a Profit”, is misleading and downright false as it relates to the subject of the story. Near the end of the piece Phil Libin, the chief executive of Evernote, says they are generating about $79,000/month in revenue. Then the article goes on to say “By January 2011, Mr. Libin projects, the company will break even.”
$79,000/month and they won’t break even until January 2011. So every day they’re losing money until 2011. And the title of the piece is “Using ‘Free’ to Turn a Profit”. What? How can the Times let a headline like this slide?
Then yesterday a piece pops up on Gigaom called How Freemium Can Work for Your Startup. This piece references the “Using ‘Free’ to Turn a Profit” New York Times piece. Om Malik says “And it in reading Damon’s article, the qualities of a successful freemium product finally became clear to me.” Then in the next paragraph Om acknowledges that Evernote doesn’t generate enough revenue to turn a profit. Later he says “I’m sure there are many more ways to build great freemium applications, but one [Evernote] has stood out for me above all the others.” The product may be excellent, but until their business cracks a profit I don’t see how Om can say it’s a model for how to build a freemium application (or a business).
This pattern — “success” based on forecasted future success instead of current success — shows up all over the tech-business press. Instead of metrics like “they make more money than they spend” we see stuff like “user count growth” and “followers” and “impressions” and “friends” and “visits” qualify success. Whenever you see someone piling big numbers into made up metrics, it’s a diversion. They want you to think that this time it’s different. But like Judge Judy says, “If it doesn’t make sense it isn’t true.”
Don’t agree? Would you take your next paycheck in page views? or users? or followers? or visitors? or eyeballs (remember that one from the 90s)? Go down to the corner store and plunk down a million impressions for a gum ball. They’ll probably call the cops.
If there was an airline that flew more passengers than anyone else, but lost money on each one, would we call it a success? If there was a restaurant that served more people than anyone else, but lost money on each meal served, would we call it a success? If there was a store that sold more product than anyone else, but took a loss on each one, would we call it a success? Would the business press hold these companies up as business model successes? Would anyone? Interesting, maybe. Promising, sure. But successful? Then what the hell is going on with the coverage of our industry?
What’s the rush? Why not wait until their business is proven? Wouldn’t the Evernote story have been 10x better if they’d actually been able to say “We’re making money with this model. It works.” Wouldn’t the New York Times be doing its readers a service by providing insight into a proven model with a proven example? Instead, we get an article titled “turn a profit” about a company that is over a year away from meeting that definition. There are thousands of interesting internet-based businesses that are actually turning a profit — and I know of dozens running the freemium model that are deep in the black. Pick one and write a great true story. Why all the fiction?
It still blows me away that David’s talk at Startup School 2008 was met with such enthusiasm (I know David was surprised too). The talk was simple. Come up with a product, charge money for it, make more money than it costs to run it, and you turn a profit! This is the formula that’s been in place since business began. Yet in front of a group of new tech entrepreneurs it seemed like a revelation, a brand new story never told before. David said people were coming up to him in droves after the speech thanking him for opening their eyes. Who closed them?
So I guess what ultimately bothers me most about this New York Times piece, and many other pieces just like it (see TechCrunch daily), is the example that’s being set for the next generation of entrepreneurs. They’re seeing business success defined as “the projections say we’ll profitable later”. They’re constantly being exposed to excuses. They’re being taught that profits are these things that only happen one day far away. That’s just wrong.