37signals and Meetup go way back. Meetup was one of our first design clients back in the day. And founder Scott Heiferman was even a guest poster for a month here at SvN back in ‘03. We’ve watched closely as Meetup has grown and evolved since then, especially during the tumultuous period after it began charging customers. It’s been almost six years since that fateful decision so we decided to sit down with Scott and talk about it.

In April of 2005, Meetup went from free to pay and started charging organizers of meetings. Many customers were outraged:

Congratulations, you’ve officially joined the “Asshole Club” along with the likes of BELL CANADA, EXON, KFC, McDONALDS, and all the other mega-corp. conglomerates who don’t give a shit about anyone or anything but lining their own pockets with money.

Others predicted the company’s demise:

I think it’s fair to say most organisers were shocked, and most of the ones I’ve spoken to will simply cease organising for their groups…There isn’t anything Meetup is doing these days that users can’t simply do on their own and more effectively, and there’s plenty of open source software to make use of and create your own website.”

Meetup wasn’t expecting the harsh response. “We were really naive,” says Scott Heiferman, founder of the site. “We figured that if people didn’t like it, they would just say, ‘OK, I’m not going to do this.’ As opposed to really taking it personally. Because this wasn’t like we were taking away their medicine. But people were so upset and we got such anger and such vitriol. The backlash was very bad. And we were surprised by that.”

According to Heiferman (seen at right in a photo by Tim Wagner), the site lost around 95% of its activity. “Now imagine you’re the hot startup – people forget we were the hot thing that was on 60 Minutes – and all of a sudden, in a flash, you see 95% of your activity go away. I mean, that’s the backlash in its most visceral form. It was like, ‘Oh, man what did you do? What do we do?’ We never really wavered seriously, but it’s a punch in the gut. It’s saying, ‘We were touching this many lives and now we’re touching not many lives, and oh, everyone hates us.’

“Now, did we think it was going to be less? No, not really. We knew. We said, ‘OK. If we get 10% or 5% to continue and pay that would be great.’ Because we were in this to make something great for people.” And Heiferman knew to do that, something had to change.

Little goes according to plan
Back in 2002, the original revenue model for Meetup was to charge venues $1 for each person brought in to a café, bar, pizza joint, bowling alley, etc. for a Meetup. “For a number of reasons it failed,” says Heiferman. “It was too early. It was hard. There was a discrepancy between the number of people who said they were going to come and who actually showed up. And too many people were going to their Meetup [at a coffee shop] and not buying coffee.”

Little was going according to plan. Heiferman explains, “Most of what we thought Meetup was going to be used for, people didn’t use it that way. And what they did use it for were things we didn’t imagine when we were building it. It never crossed our minds that this would be a political mobilizing tool.” Yet that’s where Meetup was quickly gaining the most attention. Politicians like Howard Dean embraced the tool and so did a then-unknown Illinois State Senator named Barack Obama.

At the same time, Meetup began pursuing additional revenue streams. It charged political organizations. It added AdSense. It experimented with Meetup Plus, a premium offering.

None made much of a difference though. When asked what made Meetup Plus special, Heiferman answers, “God, I don’t even remember what it got you. It got you some kind of features where you would be able to…I don’t know. I can’t remember.” Heiferman laughs and continues, “That was the problem. That’s a problem with a lot of freemium things. We refused to handicap the core, free product. So it wasn’t compelling.”

A two-headed problem
The ineffective revenue models forced Meetup to reevaluate. “It was nickel and dime stuff. We were not profitable. So, it just sort of led us down this path of asking ourselves, ‘OK, what business are we in? Who are we here to serve? And how can we establish a business model which aligns with that and get paid properly to do so?’

“I’m a believer that profitability and sustainability are important. Esther Dyson, who was one of our only angel investors and she’s on our board, made some statement way back when we started that the best investor is your customer. I really wanted to have a simple, sustainable business.”

The best investor is your customer.

There was also another huge problem facing the company. “It was way too easy to start a Meetup,” Heiferman explains. “People would be sitting in their underwear starting a Meetup about something. And then 99% of the Meetups weren’t any good. They weren’t successful. They didn’t have enough oomph put into them. The organizer wasn’t in to it.

“So imagine the user experience. You go and you sign up for a Meetup and you’re excited about it: ‘Oh there’s a breast cancer Meetup in this town.’ And then you have the worst experience. It’s just crap. There’s nothing there. Or it gets filled with spam and there’s no one curating it, no one caring for it, no one with skin in the game.

“So our biggest problem was that people would be flowing into Meetups and they would have a bad experience. So what do you do? Well, you could create all kinds of reputation or rating systems. We were trying to figure out how can we institute a quality filter here.”

The charging solution
After discussing it internally, Meetup began to feel charging could solve both the cruft and revenue problems. Meetup advisor Pierre Omidyar, the founder of eBay, championed charging as a filter. “He would just tell us these stories of how, when eBay got going, people paying for listings was a really important quality filter. People forget that Yahoo and Amazon followed eBay and were like, ‘We’re going to crush eBay and offer a free listing auction product.’ And they both did and they both failed at the time,” explains Heiferman.

The company was also inspired by Craig Newmark. “He is our hero, in the sense of building a simple, people-serving product,” says Heiferman. “It was clear that Craigslist charging was a quality filter – when they would institute a fee in the job listing or real-estate listing, the crap would get filtered out.”

Plus, the idea of actually selling something appealed greatly to Heiferman. “I remembered after the dotcom bust around 2001, I would see these interviews with Jeff Bezos where he would be so clear about saying that Amazon is this customer-centric company,” says Heiferman. “And I was just so envious of being a part of a business where they simply got paid for a great product.

“I was coming out of the ad business [at I-Traffic] and I hated it. There was all this convoluted bullshit about affiliate networks and all this crap. I just wanted to earn a good living where there was decency.”

So Heiferman wrote a letter announcing the new pricing model ($19/month for meeting organizers). The backlash was swift. Heiferman took the time to respond to many critics personally in forums and blog comment sections. The company also held an in-person customer Meetup to discuss the changes. Still, most of the site’s activity disappeared.

When asked if he would handle the whole transition differently if he had it to do over again, Heiferman answers, “This is going to sound terrible, but the thing I would have done differently is frankly, to have respectfully listened to everyone but, not taken the complaints too seriously.

“We have this history at Meetup, we make big bets. It’s woven into the DNA of this company that we take big bets. We do it because we have our eye on our mission, which is to see lots more Meetups happen. When things change, I think that it’s easy to get really wrapped up in the complaints.”

It’s woven into the DNA of this company that we take big bets.

Looking back
Charging organizers eventually turned out to be a big win for Meetup. It’s now almost six years later and Heiferman reports, “We’re solidly profitable. We’re doing well. We’re always growing. 85% is us getting paid by the people who use Meetup. Yet 99% of the people who use Meetup today don’t pay us anything, and they get tons of value out of it. We think we found the right spot.”

Meetup has kept its price consistent over the years. “We just launched with a price and never changed it. You could say, ‘Gosh, you probably left a lot of money on the table by not having a small, medium, large.’ Or, ‘What is the price sensitivity? Could you charge more? Could you get higher volume by charging at different levels?’” says Heiferman. “But the DNA of this company is to kind of shun too much thinking, and focus all of our heart, soul, and energy on making the product better and better. It’s funny. An MBA would look at this place and say, ‘You have no idea where your pricing sensitivity really is.’”

Is there a victory lap mentality when he looks back at all those who critiqued the move? “Hell yeah!” says Heiferman. “Am I proud of the fact that we’re a sustainable, profitable business? Yeah. The big headline, by the way, in going from free to fee for us is: Yeah, we lost 95% of our activity but now we have much, much, more going on than we ever did before and half the Meetups are successful, as opposed to 1-2% being successful.”

Heiferman also feels charging has simplified everything the company does. “There’s so much good potential that can come out of just charging people for your good product,” he says. “And it’s a virus. It’s a disease. It’s contagious. It becomes person to person. It takes over. It’s a simplicity of organization. The most important thing is it lets you sleep well at night when you get to say that everything you do is for the benefit of the people, for the user. If you get to say that everything you do, every decision, and every operational thing you do is serving them, there’s a simplicity – and it’s just good for your conscience.”