To partly rebut what maciej is saying here, I'd point out that Backblaze is a very successful not-free service which was also courting purchase offers; paying for a service is no guarantee that you'll get to rely on that service forever, which is a major failing of web-based services in general (and a frequently-mentioned point from my clients when I suggest using some web-based service or another).
But I mostly agree with him anyway.
I paid for and love pinboard. I will probably start paying for his page archival service within the next month. I'm more comfortable with it not only because of his track record so far, but because I know I am his customer. If it were a free service, I'd be far more concerned about how many concessions he'd be willing to make for his real customers -- advertisers or metrics companies or who-knows.
Even if that happened, wouldn't you think Backblaze is less likely to be dismantled by a potential purchaser than some free social doodad? (I'm not saying it's impossible; just that the incentive to kill a profitable product is less than the incentive to kill one that's still feeling around for a winning business model.)
I will probably start paying for his page archival service within the next month. I'm more comfortable with it not only because of his track record so far, but because I know I am his customer. If it were a free service, I'd be far more concerned about how many concessions he'd be willing to make for his real customers -- advertisers or metrics companies or who-knows.
As the old saying goes, "If you're not paying, you're not the customer. You're the product." Kudos to Pinboard for asking you to become a customer, rather than settle in and be sold like a product.
If you aren't paying and the company is trying to make money, then yes, someone else is probably paying for it. However, the implication does not go the other way. If you buy a newspaper, go to a movie, or watch cable TV, you are both a customer and a product.
If they aren't profitable now, I don't see how they will ever get to be. There are no network effects where a tipping point would make them profitable, and hardware is already customized and costs are directly dependent on number of users.
Seeing Pinboard's success was really helpful in getting over the sick feeling of charging a sea of free, and I think we're finally seeing a non-trivial amount of web users understand that if you're not the customer, you're the product (after they've been burned a time or twelve).
Great post, and glad to see a lot of other Hacker Newser following suit.
It does make you a product. Google can take the millions of you searching for that term and say "hey you people related to that term", and sell them based on the fact that you searched for it an a small percentage of you will click that advertisments. I almost feel that we are lucky that advertisements are more profitable when they are more useful to us, god forbid if A/B testing showed that FULL PAGE FLASHING BANNERS somehow brought in more revenue.
No one is ignoring advertising revenue, harvesting millions of users in order to bring in said advertising revenue is the problem.
> No one is ignoring advertising revenue, harvesting millions of users in order to bring in said advertising revenue is the problem.
Why is it a problem? So they show me a few adverts... big whoop. I can just ignore them.
The issue is, the vast majority of people will never pay for access to online websites/apps (Me included). If you restrict yourself to the business model "charge users", then you've just got rid of 99% of the online population.
Advertising means that everyone gets what they want (Apart from the very very small but overly vocal minority that don't like adverts or have privacy concerns).
Only if you block them. Advertising is not informative, it's coaxing you, and just because you don't consciously decide you're going to read an ad now doesn't mean you get to ignore it.
BS. Advertising is useful and informative, and I choose which interest me and which don't. If you can't ignore things that don't interest you, then you have problems.
Walk down a city street. It's full of adverts for shops you might want to go in.
Well, yes, of course I have a problem. That's one of the reasons of why many places put regulations on what kind and amount of ads on streets is allowed. If I didn't have a problem, I wouldn't complain about ads that much.
On the other hand, while you claim my previous statement was BS, I claim your statement displays denial.
But the vast majority of people do pay for online access to ad-funded apps every time they purchase something from a company that runs an ad. I don't imagine Heinz ads make any money from click-throughs, they promote the brand - but Heinz paid for those ads with the money I spent on ketchup last week, which is the only brand in the local store, so it's not like they needed the ad to convince me.
Unfortunately, there's no way to guarantee that you're not the product without access to financials and inside thinking, even if you're paying. There are plenty of paid services where you're the product, because the people buying your usage data or access to you are paying so much more than you that your revenue is negligible.
With many magazines, the only reason they even bother to charge is to prove to advertisers that you're a "serious" reader: they don't care about your subscription fee, but about what it says about your value as a product. This has even led to a weird cat-and-mouse game where magazines try to give away free promotional subscriptions while pretending they charged you, and advertisers respond by demanding that subscription numbers be audited by third parties so magazines have to prove that you "really" paid (and this produces complex legalistic rules about things like whether paying with frequent-flyer miles counts as paying). That's because they really want the "paid subscriber" bit to sell to their advertisers, but don't particularly care about your measly $20.
The issue of BigCo's closing useful small services just to harvest the developers post acquisition is certainly a valid one that's worthy of debate.
However, the premise that this only happens because the startup in question was "free" doesn't hold weight. Call me a cynic but the recommendation to use "paid-for" services only to avoid this outcome just seems a little too self-serving to paid-for-only service PinBoard (as excellent as it is).
I don't have an exhaustive list of startup acquisitions that were then shut down, but here's a few just from a Google acquisition list I found:
* PostRank was a paid-for blog data service Google acquired, shut down
* Jambool was a virtual gold payment processing system Google acquired, shut down
* Gizmo5 was a VOIP service Google acquired and shut down.
In some cases even if a company is taking money that alone still doesn't make it viable. In other cases, like PostRank and Jambool where the $$$ being paid by customers was probably significant, acquirers like Google have other circumstances where they'll shut a profitable businesses for a 'higher goal' in a bigger project.
I believe the point is less about revenue being a guarantee that it won't happen and more about the fact that a lack of profit makes it increasingly likely that the product will eventually be shuttered because free isn't a sustainable model.
But that also doesn't really ring true either because a "lack of profit" doesn't necessarily mean that an acquiring party will shut said service down either.
I doubt Friendfeed makes Facebook any money, and was clearly a talent acquisition (Bret is their CTO now) but they still keep it running.
You're right that anyone using any tool/service with an unsustainable model needs to be cautious. But there's a lot more to it then is being proposed by the OP.
They keep the lights on, but Friendfeed might be as well dead. The impression of activity is maintained by posts imported automatically from connected accounts, and the list of supported sites haven't been updated in years. For example, neither Rdio, Spotify, nor Grooveshark are available in the music section, same with Instagram and picplz in the photos section.
That's the claim that I'd like to see some data to believe: are, in fact, paid cloud services more long-lasting than free or freemium services? My guess would be no, that a large number of them also go bankrupt, are acquired and shut down, pivot to other lines of work, or otherwise fail to stick around.
I'm with you on your guess. There are hundreds of reasons why a paid service may stop to exist. Still I would argue that running a paid service gives you more options compared to free/freemium: if you balance right you should not go bankrupt, it's cheaper to run (less users -> cheaper hosting and less support), better position to fend off acquisition or during acquisition-negotiations, easier to bootstrap.
As someone that runs a paid service, I can tell you it's awesome to interact with customers. There's an air of respect that you don't get from completely open products.
From what I've read, the effect is actually the opposite. If I remember correctly, patio11 had a post a while ago about how his free users consumed most of the support requests. The hypothesis is that giving users one entitlement (free use of the service) leads them to believe that they have access to others (your time).
To second this line of thought, I've noticed that the customers who pay $150 are less likely to think of you as their personal butler than the ones who paid $15. It's a weird thing.
let me summarize the main idea for you: A bunch of people pay me because I store their a few hundreds lines of text, save their ass from the sites full of annoying ads like cjb.net or freeservers.com.
no need for the user friendly, smart business models. no need to develop a new vision. this is the hack.
Oh yeah, thanks for the reminder. I just switched to being a paid user of pinboard (which I had always intended to do but hadn't gotten around to yet).
While I agree with the reasoning, I don't like the point being made here. A better one would be to say: be prepared for a possible shutdown of the service you're using if it's free. That means, make sure you can easily take your data out and that you're not too much dependant on it.
He keeps saying "free software", and also says "anti-free software movement".
He means "free service", which is a radically different scenario from "free software" in either sense, and should be treated as such.
Whether we're talking about Free software or just freeware, the user's use of a normal piece of software on their computer doesn't suddenly disappear when the developer goes away.
But free web services are not like free software. If your free software project suddenly gets popular, you gain resources: testers, developers and people willing to pitch in. If your free website takes off, you lose resources.
So are you willing to have native code pushed to you with no control over it? Because that's the major logistical advantage of webapps that has Enterprises trying to use them.
Untrusted native code isn't strictly necessary. There is no need for locally-run software to be in any particular form, so long as it doesn't depend on the developer's server to function.
Java bytecode is excellent precedent for what is broadly possible. There are problems with it, but most of what's missing for the end user is a better degree of convenience and control.
Actually, the iOS model isn't that great IMO. Rather than relying on verifiably safe bytecode, Apple uses a combination of TrustedBSD-based technology on the phone, and human-directed testing in their labs, in an attempt to keep native code from doing things they don't want it to.
I think this is backwards for what they're trying to achieve, and I think that's part of the reason their app review process is such a pain in the ass.
But that argument is also flawed--free software in web applications is possible through other forms of revenue generation. Advertisements, services related to the product, in-app purchases....none of those options are precluded simply because the company chooses to respect their users. In fact, those options become a lot more prevalent, since there's no longer any payment for the service. But since the users saved that money, they will probably pay more for the extras--and they'll certainly be happy that they're allowed to change the product. This will also benefit the original site, since they get the changes made by everyone else.
This article operates under the very incorrect assumption that paid services never shut down and free services are never carried on by their purchasers.
See Flickr or YouTube or PayPal or Skype or Picnik or Grand Central or Picasa or Siri or mySpace or FriendFeed or FeedBurner or even pinboard's biggest competitor Delicious for examples of the latter.
Delicious, for all intents and purposes, WAS shut down, and a new, barely related site was put up in its place.
I was a Delicious user for years, with thousands of links tagged, and I continued using it for as long as I could stand under Avos, but the features that they cut and/or broke in the transition finally made me throw up my hands, give up, and switch...first to Trunk.ly, which Avos then bought and shut down (oops), and then to Pinboard.
I for one welcome my new Pinboard masters, especially if they're willing to fight to keep the service alive. :)
What exactly do you have against delicious' new interface ? I continue using it as I always did, and except for the design I barely see any difference.
1. I used the Delicious plug-in for Firefox. It no longer worked with the "social" part of social bookmarking: I got no suggestions when I clicked on a link.
2. The tagging was completely broken in the plug-in; the plug-in, unlike the new interface, still accepted spaces to separate tags. The new site considered EVERY set of tags to be one big unique tag, so several MONTHS of tagging had to be fixed by hand. There are TONS of complaints about this change, and Avos has ignored them all.
3. The secure RSS feeds were limited to 10 items. I use these as feeds for common links (news, comics, what have you) and several of my link folders were truncated by the arbitrary limit. They kept trying to fix this, but seemed to be incapable. When I realized I'd missed nearly a month of one of my favorite comics, I was quite annoyed.
4. Links were just lost several times; I would bookmark something, and two days later look for the bookmark and it would be gone.
I rarely went to the site, so the design changes were irrelevant to me. It looked like they were trying to make it into a Reddit or Digg or equivalent, though, and having the site move further in that direction and away from how I wanted to use it just seemed like a terrible idea.
But the core problem was that they broke their own API and the core functionality that caused me to want to be there to begin with.
Now in Pinboard I don't get to use the Delicious plug-in any more, but everything else Just Works. The site is clean and easy to use. Pinboard also offers an "archive everything" option that's awesome; so many old links eventually go bad, and having an archive of everything you care enough about to link is just cool.
They killed the 'network' feature, which was the only feature I used really. I didn't really use the bookmarking.
I used it as a kind of lo-fi Hacker News. I was following the bookmarks of a bunch of interesting people. It would aggregate all the bookmarks of the people I follow into one list.
I found that it was a great way to find interesting stuff on a variety of topics. It was a fantastic complement to HN, so I'm really bummed that they killed it. :-(
I'd love to see pinboard implement this (if they haven't already).
There is a lot of difference. They've basically killed the social bookmarking and moved more towards those funny-pics, funny-videos portals pointing towards different sies.
Slightly unrelated, but what you should say is visuals instead of "design". It would be pretty impossible for you to actually mean "design" and have your statement be sane.
the whole usability of tagging [completely unnecessarily] changed. their own bookmarklet (and functionality on their site) changed so that when you press the save button it saves right away, and then you have a option to add tags.
i'd find my self quickly adding and then having to find my link and editing it.
what is the benefit of these changes? why would you do that to all your users?
You see most of these services either have advertisements to bring home the much needed money to progress (see YouTube, Flickr) or are simply owned/backed by internet big shots which provide them visibility in the economy with these free services (Picasa, Delicious (until a while back)).
With still others, they have a business model based on paid and free services (see Skype and Grooveshark). The gaming sites, like Zynga, sell speed, better products; again some revenue model.
This is exactly the point the author wants to bring home. If somebody plans on providing a free web-service, you clone it, think of a business model (ads or user registration) and wait until you're the only one in business.
The article seems to be in response to the recent Gowalla acquisition. If Gowalla had been successful and still used, it may have continued on. Facebook isn't shutting it down because it was a free service. They're shutting it down because it's unpopular and unprofitable. To use the Gowalla acquisition as evidence that companies acquire other companies just to shut them down is silly. All it shows is that a company can be acquired even if they fail.
It's unprofitable, at least in part, because it wasn't a paid service. If it was a profitable service then it's far more likely it would have been kept alive when bought out (or maybe not bought out at all).
Not to nit-pick, but Facebook is not shutting anything down. They just hired the team, but did not acquire the users, IP, or really anything from Gowalla. Gowalla is shuttering Gowalla and joining Facebook. The fact that the founders are shuttering it and cashing out still proves your point, and I generally agree with it.
[the citation on this is an AllThingsD post - I just dont have it in front of me anymore]
I don't presume that all free services disappear, nor that all paid services succeed. That said I'm very hesitant to make myself or my business reliant on any service with a business model I don't understand.
"""This article operates under the very incorrect assumption that paid services never shut down and free services are never carried on by their purchasers."""
No, it operates under the very correct assumption that paid services are MUCH LESS common to shut down.
(I shudder every f&%&^n time someone doesn't understand a generalization, and thinks that a few counter arguments disprove a statistical rule).
"""See Flickr or YouTube or PayPal or Skype or Picnik or Grand Central or Picasa or Siri or mySpace or FriendFeed or FeedBurner or even pinboard's biggest competitor Delicious for examples of the latter."""
He is not saying that "free services are never carried on by their purchasers", he is saying that free services with no monetization model are in most cases not carried on by their purchasers.
Not familiar with all of them, but Flickr, Paypal and Skype, all have ways of making money and paid accounts. And Youtube has ads too (don't know about Picassa).
>No, it operates under the very correct assumption that paid services are MUCH LESS common to shut down.
Yep. Not to mention that, in paying for the service, you become the service's customer. The relationship with a free service is much murkier; instead, you are often its product, and the company has an incentive to manipulate you and breach your trust.
Flickr, YouTube, FeedBurner, etc. were obviously not charging enough money to sustain themselves. $25 a year vs free doesn't make that big a difference when costs are $100+/year per user.
I pulled the $100+/year cost per user figure out of my ass. It's probably much higher for Flickr.
I have it on good authority from people very close to the project that Flickr was never once in the black. Ditto for Skype.
Your whole comment, in fact, supports the idea that "if a startup loses more money than it brings in (whether it brings in $0 or $toolittle), it is extremely vulnerable to being bought and screwed over."
Anti-free software? I don't think free software is antithetical to the movement for charging a leg and an arm.
The hard part is figuring out how to charge an arm and a leg for open source software. However, everyone take the easy way out by closing down on mission critical and open source the rest.
I thought of a possible solution that allow everyone to charge an arm and leg while still being open source, or even public domain. Mainly, I am inspired by the kickstarter idea, but I am less interested in curating projects for one time event and more interested in business model automation.
Here how it would works:
You have a webcomic and you have an ever expanding archive of past comic strips. However, the next comic strip, already finished, is not available. To make the comic strip available, you ask for a collective donation of 100 dollars. Some donate 1 dollars, others 20 dollars, until the money is raised. This ensure that you will get paid every step of the way while your comic archive acts as advertising.
The value for my users is the automation of numerous drudgery involved with the business model. That included tracking who donate what, tracking the deadline, the release, and so on. With an API for the service, people can get especially creative with how they release, or how they incentivize their customers.
Another twist to this idea is sponsorship by advertisers and allowing advertisers getting involved with the fundraising process. They can aid the fundraising in either matching user donations or offering discounts.
Of course, this will be just another idea if nobody took any effort in building the service and nobody will attempt this business model, easily. I am working on it, but it's more of a half-baked project on some private repos somewhere rather than a serious startup.
So... er how exactly would you bootstrap this business model? Yeah, this might (with a very small probability) work if you're already an established, successful webcomics author. If you're starting out, though, you have no chances of success. Who's going to chip in for a comic that may or may not be good when it is finished?
In my experience with this business model, I started with a free archive of the magazine with previous essays for people to look at. Then I use a formula to determine the ransom price.
All my ransom are met, because I didn't have an extreme expectation that I was going to raise hundred of dollars at the beginning of the publication.
Compared to advertising, it performs far better in term of revenues. More importantly, it doesn't uglify your site or make your site worse unlike what advertising usually does.
How much better? I would need to perform manual collection to get these figures. With automation, I would be able to tell you, right down to 8 digit place.
The problem with this business model is that people doesn't do the work that allows them to reach their goal, or they have an extreme expectation of how much money they are going to raise. If you don't have the fanbase, you ain't going to raise much money.
It's not that it might work with a very small probability. It will works, to varying degree of success, depending on the popularity, how loyal your fans are, and so on.
I seen a writer who done the exact same thing, but I don't have the link handy. So, I know it works.
The more interesting question is how it will perform compared to other business models such as advertising, selling in dead tree format, merchandising, live performance, and so on, depending on the relevancy of each business model for particular industries. Like I said, advertising earn me money, but it perform terribly to how much money I can get by ransoming contents.
I don't think he meant to say "anti-free-software" in that case, but rather "anti-free-software-as-a-service". Specifically it's the "service" part that shouldn't be free, primarily because it's an ongoing cost to keep it running, where as the development of the software is a sunk cost.
its a big cycle, the service will sell everyone cashes out, some other team picks up where the last service left off.
Delicious -> pinboard anyone ?
I think theres a pattern of products deteriorating after purchase for one reason or another, either not enough attention or founders leave or consumers find another product from a hot startup thats in the same space. While having a paid option should be encouraged, no service yet is something that I can't absolutely live without where theres a free alternative, and if theres something worth paying for, someone will build a free service.
I'd rather encourage users to turn off ad block on sites they like, and click on links that are relevant.
Google and Facebook are counter examples of how free can be resilient. I guess it depends on the vertical. If you are aiming to scale up to world scale being free is almost essential.
Google and Facebook are free because you are the product. They make craptons of money off of you using their service, selling your usage data, showing ads. That's completely different than Pinboard.
I love Pinboard, but it's a one man operation. Maciej is extremely susceptible to get hit by a bus tomorrow, leaving me without my $9.23 and all of my bookmarks.
You're telling me that if someone offered you $1-5 mil to lead a team at insert huge tech company here you'd turn it down? Bitch, please.
That chart is overall correct, but it's not like paying is suddenly going to be a panacea. I give flickr $25 a year, but I'm actively looking for replacements because it's obvious Yahoo!'s not gonna keep running it forever.
I love Maciej and all of his body of work and I aim to give him many of my dollars in the future - but this is something I'm going to nitpick on.
The reason why I feel comfortable using Pinboard on a day to day has nothing to do with the fact that I've paid for it because it's just as fragile and likely to suddenly disappear. It has a high "hit-by-a-bus" factor.
It's because Maciej loudly proclaims his love for letting people export their data. That's it.
This actually occurred to me and kinda bothered me as well. I saw an example during the FBI raid outage when the site was down in the morning on the east coast and there were no updates because he was still asleep on the west coast.
I just saw a post on Twitter from him about this: http://twitter.com/Pinboard/status/144174085629427714: "pals of mine have agreed to wind down the site in an orderly way and open-source the code if something happens to me"
That being said, I would still keep fairly regularly back-ups. With export this great, there's no excuse (short of maybe getting monthly back-up dumps delivered by email).
My conspiracy theory is that "get hit by a bus" theme was invented by the huge IT corporations so that they can sell two consultants instead of one to other corporations.
Recently we fielded an acquisition offer for Freckle. Just the app - no strings, no nasty jump back to being an employee, etc. It was for half a million dollars.
This gave us a lot to think about. Half a million wasn't enough. Was a million? Two?
And the conclusion we came to was: no. Not worth it. A good little SaaS like ours is a kind of a sinecure. We don't have to work much on Freckle at all and it keeps chugging along earning more and more every month. (And the more we work on it, the faster it grows. It's a choice we can make on a month by month basis.)
It would be damn foolish to sell it.
It was fun to think about. What would we do with a million dollars? But the fact is, within 3.5 or so years, Freckle would have brought in that much revenue anyway. And then it would KEEP bringing in more, forever.
I would definitely NOT take a $5 million offer if I had to be an employee.
>But the fact is, within 3.5 or so years, Freckle would have brought in that much revenue anyway. And then it would KEEP bringing in more, forever.
So… straight up your expected value was higher than the offered acquisition price ;).
If they offered you more revenue than you expected to make in 10 years, instead of 3.5, you might rethink the offer. Different strokes for different folks. Maybe in 3.5 years you'll be tired of that product in particular and you'll be looking for a better exit, etc, etc.
Maybe the employee position is really sweet. You never know how your own life changes.
At its current run rate, 10 years would be $2.5 mil. Except it's growing. I expect it to be earning $500k/yr run rate within 24 mos.
And like I said, we could leave it alone and it would still continue to grow. There have been times, while we were still consulting, where we completely abandoned it for months (didn't even answer support emails) and it just chugged along.
These days when we're not adding features, we spend maybe 1 day a week on it, max. And we're adding features because I have big ambitions. We could just let it be and it would still earn very nicely.
When you get to the point of looking at $500k/yr of gross revenue forever, when would it make sense to give that up?
We could hire a full-time support person and let them handle it and still have about $400k net (taxable) left over after other expenses, basically forever. Doing nothing.
We could take $5 million but there's pretty much no way we'd get $400k of interest off it each year.
As for the employment offer being really sweet… there couldn't possibly be a job sweeter than what I've already got.
>We could hire a full-time support person and let them handle it and still have about $400k net (taxable) left over after other expenses, basically forever. Doing nothing.
WELL… if you ain't busy growing, you're busy dying. It's not going to be Forever. Once your current customer acquisition rate drops, you'll start to lose revenue by just normal attrition.
Good luck to you, though! Sounds like an amazingly sweet gig you two have built and I wish you the best.
Thing is, you're right about attrition except for one thing: Freckle gains customers even when we neglect it entirely, through word of mouth. So it holds pretty steady even with total neglect.
Clearly Google is going to get bought out by somebody any day now and we can kiss those searching, mapping, and mail services goodbye. As are Facebook and Twitter--better find someone that you can pay for your social networking, stat!
And obviously Hacker News isn't going to be around for long...
I think that's an important distinction. I'd have been much less grumpy about the article if he'd said "avoid using services that someone is providing for free off of investor capital with no plan for monetization."
I don't disagree with OP's point, but I don't think he does a good job at making it. He name-drops several popular startups that were bought out then implies they wouldn't be bought if they were making more money.
Etherpad, for example, charged for it's product. You could use it for free, but if you wanted private pads and custom domains/urls you could upgrade to Pro. I don't see how "doesn't have a business model" applies to that.
The reactions I'm seeing are mostly people zeroing in on the "paid services sometimes shut down" counterargument. And, yeah, that's true.
But I don't think charging your customers for your service means that you will never consider being acquired; I think it means that your exit strategy is to serve your customers with this great service you've built. It's the difference between a long-term strategy of "God I hope we get acquired" versus one of sustainability.
Sites that don't charge are floating on investor money, and investor money would really like to get oodles of money back eventually, instead of slowly growing a modest business that comfortably supports one or two people.
I don't have the link anymore, but there's an excellent essay that says exactly this using a metaphor about strip mining versus farming.
What I dislike are companies that don't start with a business model and still don't have one after some time of operation. Makes it feel like hey are being built to flip or are trying to be the next Twitter and not many have been able to pull that off.
Sure ads don't always look the best but put say one small one and get some revenue started. Offer a premium account, even if the value proposition isn't great, even if it's just a cool badge for your use to say they are supporting the product, the users who love your product will probably take it up.
Based on their signup help page (https://pinboard.in/help/fee/) the price is "number of users * $0.001". Now there is no telling when they started with that pricing but assuming it was from the beginning they have made around $50k. Since it was created 3 years ago that is an average of around $17k/year.
I realize the archival accounts are $25/year and I have no way of knowing how many they have but assuming it doubles their profits which I doubt they are still making less than $40k/year minus expenses.
I'm not huge on selling out but I would rather build a large app and flip it vs run a company that profits less than $40k/yr
(I did not double check my math so please forgive me if I rushed through this too fast)
As far as I remember, this multiplier is not valid anymore. When it comes to estimating the number of users, another post[1] on a Pinboard blog sheds some light on that.
As far as I remember, this multiplier is not valid anymore. When it comes to estimating the number of users, another post[1] on the Pinboard blog sheds some light on that.
"Today, Pinboard is Ceglowski's fulltime job, pulling in $250,000 in revenue over the past two years. He says the site has 25,000 registered users with about 18,000 active ones each month. Ceglowski's only costs are paying for server space, and Pinboard makes money by charging customers a one-time fee of $9.50. (The fee started at $2 and goes up a penny with every 400 people who sign up.) There's also a $25 a year archiving fee for people who want personal copies of links."
No, the way it's done is that you offer everything for free and get a large userbase. Once you have the userbase, then you start ruining it with advertising or sell it to a company to will slowly kill it, like Yahoo or AOL.
I'd suggest the nature of free and paid services biases how many of each we think gets "shut down" post-acquisition. Free / freemium services will tend to have tens or hundreds of times as many "users" versus a paid service of the same value.
So when one gets shut down, we all notice because so many of us had an account (even if we weren't using it.) Whereas when a paid service closes, it impacts only a tiny fraction of us in comparison, so we don't hear the same hue and cry.
The fact is that for a large company like Google or Amazon, the $$$ income from most small startup acquisitions (ads or paid) isn't large enough to be a factor in the decision to continue running that product. Either they believe that it's going to turn into a business that does tens to hundreds of millions of dollars in sales a year, or they don't and it's better to move those developers and resources off to a project that might.
I've seen this firsthand - I've had to fight to maintain services that were making lots of money with a few staffers, because a large company just didn't think they were worth the hassle of supporting from a legal and administrative perspective. And I understood that point of view from a management perspective, in many cases.
176 comments
[ 0.16 ms ] story [ 289 ms ] threadBut I mostly agree with him anyway.
I paid for and love pinboard. I will probably start paying for his page archival service within the next month. I'm more comfortable with it not only because of his track record so far, but because I know I am his customer. If it were a free service, I'd be far more concerned about how many concessions he'd be willing to make for his real customers -- advertisers or metrics companies or who-knows.
As the old saying goes, "If you're not paying, you're not the customer. You're the product." Kudos to Pinboard for asking you to become a customer, rather than settle in and be sold like a product.
Here's the original: http://www.metafilter.com/95152/Userdriven-discontent#325604...
A self-sustaining product may still be sold. But if a product CAN'T sustain itself, it MUST either be sold, or shut down, eventually.
Great post, and glad to see a lot of other Hacker Newser following suit.
Using google to search doesn't make me a "product". They just happen to be able to make a ton of money showing adverts, which are useful for me also.
Ignore advertising revenue at your own cost.
But OTOH, this is hackernews, so continue hating advertising lead business models as usual...
No one is ignoring advertising revenue, harvesting millions of users in order to bring in said advertising revenue is the problem.
Why is it a problem? So they show me a few adverts... big whoop. I can just ignore them.
The issue is, the vast majority of people will never pay for access to online websites/apps (Me included). If you restrict yourself to the business model "charge users", then you've just got rid of 99% of the online population.
Advertising means that everyone gets what they want (Apart from the very very small but overly vocal minority that don't like adverts or have privacy concerns).
Only if you block them. Advertising is not informative, it's coaxing you, and just because you don't consciously decide you're going to read an ad now doesn't mean you get to ignore it.
Walk down a city street. It's full of adverts for shops you might want to go in.
On the other hand, while you claim my previous statement was BS, I claim your statement displays denial.
With many magazines, the only reason they even bother to charge is to prove to advertisers that you're a "serious" reader: they don't care about your subscription fee, but about what it says about your value as a product. This has even led to a weird cat-and-mouse game where magazines try to give away free promotional subscriptions while pretending they charged you, and advertisers respond by demanding that subscription numbers be audited by third parties so magazines have to prove that you "really" paid (and this produces complex legalistic rules about things like whether paying with frequent-flyer miles counts as paying). That's because they really want the "paid subscriber" bit to sell to their advertisers, but don't particularly care about your measly $20.
And yet every month, I get another issue, and another notice. I've longed chalked it up to trying to count me as a subscriber, and it must be working.
The kicker is, I've never once paid for this magazine.
However, the premise that this only happens because the startup in question was "free" doesn't hold weight. Call me a cynic but the recommendation to use "paid-for" services only to avoid this outcome just seems a little too self-serving to paid-for-only service PinBoard (as excellent as it is).
I don't have an exhaustive list of startup acquisitions that were then shut down, but here's a few just from a Google acquisition list I found:
* PostRank was a paid-for blog data service Google acquired, shut down
* Jambool was a virtual gold payment processing system Google acquired, shut down
* Gizmo5 was a VOIP service Google acquired and shut down.
In some cases even if a company is taking money that alone still doesn't make it viable. In other cases, like PostRank and Jambool where the $$$ being paid by customers was probably significant, acquirers like Google have other circumstances where they'll shut a profitable businesses for a 'higher goal' in a bigger project.
I doubt Friendfeed makes Facebook any money, and was clearly a talent acquisition (Bret is their CTO now) but they still keep it running.
You're right that anyone using any tool/service with an unsustainable model needs to be cautious. But there's a lot more to it then is being proposed by the OP.
Bret Taylor (ex FF) is Facebook CTO, and clearly wants FF to keep running. Since it's cheap, who's going to tell him "no"?
no need for the user friendly, smart business models. no need to develop a new vision. this is the hack.
He means "free service", which is a radically different scenario from "free software" in either sense, and should be treated as such.
Whether we're talking about Free software or just freeware, the user's use of a normal piece of software on their computer doesn't suddenly disappear when the developer goes away.
But free web services are not like free software. If your free software project suddenly gets popular, you gain resources: testers, developers and people willing to pitch in. If your free website takes off, you lose resources.
Nahhh. That can't be it.
Maybe when NaCL gets better...
Java bytecode is excellent precedent for what is broadly possible. There are problems with it, but most of what's missing for the end user is a better degree of convenience and control.
I think this is backwards for what they're trying to achieve, and I think that's part of the reason their app review process is such a pain in the ass.
"Free website" often means "hugely profitable website"
I think the number of unprofitable free websites vastly outnumber the "hugely profitable free websites".
Often in terms of websites that exist on the internet.
Rarely in terms of ones that are mentioned on hackernews.
See Flickr or YouTube or PayPal or Skype or Picnik or Grand Central or Picasa or Siri or mySpace or FriendFeed or FeedBurner or even pinboard's biggest competitor Delicious for examples of the latter.
As for the former, there's an unlimited number of examples (for a few, try http://techcrunch.com/tag/deadpool/)
Unfortunately, $7/month from a few people can't keep things afloat.
I was a Delicious user for years, with thousands of links tagged, and I continued using it for as long as I could stand under Avos, but the features that they cut and/or broke in the transition finally made me throw up my hands, give up, and switch...first to Trunk.ly, which Avos then bought and shut down (oops), and then to Pinboard.
I for one welcome my new Pinboard masters, especially if they're willing to fight to keep the service alive. :)
Maybe I'm missing some key feature here ?
Commas instead of spaces for tags breaks my muscle memory. It often saves my bookmarks with no tags at all because of it.
I am continually tempted to rewrite it (or, more likely, its predecessor, which did more for fewer users.)
Yahoo's one was slow and a dead-end but enough good remained that I could get by.
This one is incoherent and sloppy. It doesn't feel like the people developing it have much understanding of (or passion for) the space.
2. The tagging was completely broken in the plug-in; the plug-in, unlike the new interface, still accepted spaces to separate tags. The new site considered EVERY set of tags to be one big unique tag, so several MONTHS of tagging had to be fixed by hand. There are TONS of complaints about this change, and Avos has ignored them all.
3. The secure RSS feeds were limited to 10 items. I use these as feeds for common links (news, comics, what have you) and several of my link folders were truncated by the arbitrary limit. They kept trying to fix this, but seemed to be incapable. When I realized I'd missed nearly a month of one of my favorite comics, I was quite annoyed.
4. Links were just lost several times; I would bookmark something, and two days later look for the bookmark and it would be gone.
I rarely went to the site, so the design changes were irrelevant to me. It looked like they were trying to make it into a Reddit or Digg or equivalent, though, and having the site move further in that direction and away from how I wanted to use it just seemed like a terrible idea.
But the core problem was that they broke their own API and the core functionality that caused me to want to be there to begin with.
Now in Pinboard I don't get to use the Delicious plug-in any more, but everything else Just Works. The site is clean and easy to use. Pinboard also offers an "archive everything" option that's awesome; so many old links eventually go bad, and having an archive of everything you care enough about to link is just cool.
I used it as a kind of lo-fi Hacker News. I was following the bookmarks of a bunch of interesting people. It would aggregate all the bookmarks of the people I follow into one list.
I found that it was a great way to find interesting stuff on a variety of topics. It was a fantastic complement to HN, so I'm really bummed that they killed it. :-(
I'd love to see pinboard implement this (if they haven't already).
You can take a look at the previous HN discussion about the relaunch: http://news.ycombinator.com/item?id=3042207
This is exactly the point the author wants to bring home. If somebody plans on providing a free web-service, you clone it, think of a business model (ads or user registration) and wait until you're the only one in business.
[the citation on this is an AllThingsD post - I just dont have it in front of me anymore]
No, it operates under the very correct assumption that paid services are MUCH LESS common to shut down.
(I shudder every f&%&^n time someone doesn't understand a generalization, and thinks that a few counter arguments disprove a statistical rule).
"""See Flickr or YouTube or PayPal or Skype or Picnik or Grand Central or Picasa or Siri or mySpace or FriendFeed or FeedBurner or even pinboard's biggest competitor Delicious for examples of the latter."""
He is not saying that "free services are never carried on by their purchasers", he is saying that free services with no monetization model are in most cases not carried on by their purchasers.
Not familiar with all of them, but Flickr, Paypal and Skype, all have ways of making money and paid accounts. And Youtube has ads too (don't know about Picassa).
Yep. Not to mention that, in paying for the service, you become the service's customer. The relationship with a free service is much murkier; instead, you are often its product, and the company has an incentive to manipulate you and breach your trust.
I pulled the $100+/year cost per user figure out of my ass. It's probably much higher for Flickr.
I have it on good authority from people very close to the project that Flickr was never once in the black. Ditto for Skype.
Your whole comment, in fact, supports the idea that "if a startup loses more money than it brings in (whether it brings in $0 or $toolittle), it is extremely vulnerable to being bought and screwed over."
The hard part is figuring out how to charge an arm and a leg for open source software. However, everyone take the easy way out by closing down on mission critical and open source the rest.
I thought of a possible solution that allow everyone to charge an arm and leg while still being open source, or even public domain. Mainly, I am inspired by the kickstarter idea, but I am less interested in curating projects for one time event and more interested in business model automation.
Here how it would works:
You have a webcomic and you have an ever expanding archive of past comic strips. However, the next comic strip, already finished, is not available. To make the comic strip available, you ask for a collective donation of 100 dollars. Some donate 1 dollars, others 20 dollars, until the money is raised. This ensure that you will get paid every step of the way while your comic archive acts as advertising.
The value for my users is the automation of numerous drudgery involved with the business model. That included tracking who donate what, tracking the deadline, the release, and so on. With an API for the service, people can get especially creative with how they release, or how they incentivize their customers.
Another twist to this idea is sponsorship by advertisers and allowing advertisers getting involved with the fundraising process. They can aid the fundraising in either matching user donations or offering discounts.
Of course, this will be just another idea if nobody took any effort in building the service and nobody will attempt this business model, easily. I am working on it, but it's more of a half-baked project on some private repos somewhere rather than a serious startup.
All my ransom are met, because I didn't have an extreme expectation that I was going to raise hundred of dollars at the beginning of the publication.
Compared to advertising, it performs far better in term of revenues. More importantly, it doesn't uglify your site or make your site worse unlike what advertising usually does.
How much better? I would need to perform manual collection to get these figures. With automation, I would be able to tell you, right down to 8 digit place.
The problem with this business model is that people doesn't do the work that allows them to reach their goal, or they have an extreme expectation of how much money they are going to raise. If you don't have the fanbase, you ain't going to raise much money.
It's not that it might work with a very small probability. It will works, to varying degree of success, depending on the popularity, how loyal your fans are, and so on.
I seen a writer who done the exact same thing, but I don't have the link handy. So, I know it works.
The more interesting question is how it will perform compared to other business models such as advertising, selling in dead tree format, merchandising, live performance, and so on, depending on the relevancy of each business model for particular industries. Like I said, advertising earn me money, but it perform terribly to how much money I can get by ransoming contents.
I think he meant "free as in beer", not "free as in speech".
Delicious -> pinboard anyone ?
I think theres a pattern of products deteriorating after purchase for one reason or another, either not enough attention or founders leave or consumers find another product from a hot startup thats in the same space. While having a paid option should be encouraged, no service yet is something that I can't absolutely live without where theres a free alternative, and if theres something worth paying for, someone will build a free service.
I'd rather encourage users to turn off ad block on sites they like, and click on links that are relevant.
You're telling me that if someone offered you $1-5 mil to lead a team at insert huge tech company here you'd turn it down? Bitch, please.
That chart is overall correct, but it's not like paying is suddenly going to be a panacea. I give flickr $25 a year, but I'm actively looking for replacements because it's obvious Yahoo!'s not gonna keep running it forever.
Do you get what I'm trying to say?
You might also want to tone down the snark.
I love Maciej and all of his body of work and I aim to give him many of my dollars in the future - but this is something I'm going to nitpick on.
The reason why I feel comfortable using Pinboard on a day to day has nothing to do with the fact that I've paid for it because it's just as fragile and likely to suddenly disappear. It has a high "hit-by-a-bus" factor.
It's because Maciej loudly proclaims his love for letting people export their data. That's it.
I just saw a post on Twitter from him about this: http://twitter.com/Pinboard/status/144174085629427714: "pals of mine have agreed to wind down the site in an orderly way and open-source the code if something happens to me"
That being said, I would still keep fairly regularly back-ups. With export this great, there's no excuse (short of maybe getting monthly back-up dumps delivered by email).
Recently we fielded an acquisition offer for Freckle. Just the app - no strings, no nasty jump back to being an employee, etc. It was for half a million dollars.
This gave us a lot to think about. Half a million wasn't enough. Was a million? Two?
And the conclusion we came to was: no. Not worth it. A good little SaaS like ours is a kind of a sinecure. We don't have to work much on Freckle at all and it keeps chugging along earning more and more every month. (And the more we work on it, the faster it grows. It's a choice we can make on a month by month basis.)
It would be damn foolish to sell it.
It was fun to think about. What would we do with a million dollars? But the fact is, within 3.5 or so years, Freckle would have brought in that much revenue anyway. And then it would KEEP bringing in more, forever.
I would definitely NOT take a $5 million offer if I had to be an employee.
I bet Maciej wouldn't either.
So… straight up your expected value was higher than the offered acquisition price ;).
If they offered you more revenue than you expected to make in 10 years, instead of 3.5, you might rethink the offer. Different strokes for different folks. Maybe in 3.5 years you'll be tired of that product in particular and you'll be looking for a better exit, etc, etc.
Maybe the employee position is really sweet. You never know how your own life changes.
And like I said, we could leave it alone and it would still continue to grow. There have been times, while we were still consulting, where we completely abandoned it for months (didn't even answer support emails) and it just chugged along.
These days when we're not adding features, we spend maybe 1 day a week on it, max. And we're adding features because I have big ambitions. We could just let it be and it would still earn very nicely.
When you get to the point of looking at $500k/yr of gross revenue forever, when would it make sense to give that up?
We could hire a full-time support person and let them handle it and still have about $400k net (taxable) left over after other expenses, basically forever. Doing nothing.
We could take $5 million but there's pretty much no way we'd get $400k of interest off it each year.
As for the employment offer being really sweet… there couldn't possibly be a job sweeter than what I've already got.
WELL… if you ain't busy growing, you're busy dying. It's not going to be Forever. Once your current customer acquisition rate drops, you'll start to lose revenue by just normal attrition.
Good luck to you, though! Sounds like an amazingly sweet gig you two have built and I wish you the best.
Thing is, you're right about attrition except for one thing: Freckle gains customers even when we neglect it entirely, through word of mouth. So it holds pretty steady even with total neglect.
And obviously Hacker News isn't going to be around for long...
Etherpad, for example, charged for it's product. You could use it for free, but if you wanted private pads and custom domains/urls you could upgrade to Pro. I don't see how "doesn't have a business model" applies to that.
But I don't think charging your customers for your service means that you will never consider being acquired; I think it means that your exit strategy is to serve your customers with this great service you've built. It's the difference between a long-term strategy of "God I hope we get acquired" versus one of sustainability.
Sites that don't charge are floating on investor money, and investor money would really like to get oodles of money back eventually, instead of slowly growing a modest business that comfortably supports one or two people.
I don't have the link anymore, but there's an excellent essay that says exactly this using a metaphor about strip mining versus farming.
Sure ads don't always look the best but put say one small one and get some revenue started. Offer a premium account, even if the value proposition isn't great, even if it's just a cool badge for your use to say they are supporting the product, the users who love your product will probably take it up.
I realize the archival accounts are $25/year and I have no way of knowing how many they have but assuming it doubles their profits which I doubt they are still making less than $40k/year minus expenses.
I'm not huge on selling out but I would rather build a large app and flip it vs run a company that profits less than $40k/yr
(I did not double check my math so please forgive me if I rushed through this too fast)
[1] http://blog.pinboard.in/2011/10/spikes_logs_and_the_power_cl...
[1] http://blog.pinboard.in/2011/10/spikes_logs_and_the_power_cl...
If you are a moderator, feel free to delete the other comment (the one without any children).
"Today, Pinboard is Ceglowski's fulltime job, pulling in $250,000 in revenue over the past two years. He says the site has 25,000 registered users with about 18,000 active ones each month. Ceglowski's only costs are paying for server space, and Pinboard makes money by charging customers a one-time fee of $9.50. (The fee started at $2 and goes up a penny with every 400 people who sign up.) There's also a $25 a year archiving fee for people who want personal copies of links."
(http://www.time.com/time/specials/packages/article/0,28804,2...)
So when one gets shut down, we all notice because so many of us had an account (even if we weren't using it.) Whereas when a paid service closes, it impacts only a tiny fraction of us in comparison, so we don't hear the same hue and cry.
The fact is that for a large company like Google or Amazon, the $$$ income from most small startup acquisitions (ads or paid) isn't large enough to be a factor in the decision to continue running that product. Either they believe that it's going to turn into a business that does tens to hundreds of millions of dollars in sales a year, or they don't and it's better to move those developers and resources off to a project that might.
I've seen this firsthand - I've had to fight to maintain services that were making lots of money with a few staffers, because a large company just didn't think they were worth the hassle of supporting from a legal and administrative perspective. And I understood that point of view from a management perspective, in many cases.