Most of the major breakout tech products of the last year, including Instagram, Tumblr, and Snapchat, have struggled to answer an important question: Can they be profitable? There’s no question that these companies have incredibly engaging products. What we don’t know is whether they can turn those products into profitable companies.
We often read about these fast-growing companies with the mantra “product first, revenue later,” but there seem to be just as many companies that take a near polar opposite approach: revenue first, product never. In fact, the Internet has made it incredibly easy to build a company by taking advantage of customers, often with legally sound business practices. There’s an entire industry of exploitation that relies on fear and shame as motivators for business. Though we may not always agree with these companies in principle, their singular focus on revenue makes them interesting case studies for effectively monetizing a business.
In the beginning of 2010, when daily deals site Groupon was really hitting its stride and copycat businesses were popping up left and right, a small startup called Yipit was just getting off the ground. Yipit was involved in daily deals, too, but rather than creating the deals itself, Yipit simply aggregated the deals offered by the other companies to offer a nice tidy list in a daily email.
Like any startup, the Yipit team planned PR and marketing around their launch and hoped that the buzz would yield a nice base of users, who in turn would share with friends and create steady word-of-mouth growth. They managed to secure the spotlight from a major tech publication and then rode the wave. “After months of toiling away in obscurity, you feel like you’ve finally made it,” wrote Vinicius Vacanti, Yipit’s CEO, on his blog. “People know what you’re working on now. People all over the world are now using your product.”
I don’t mind putting my email address in a signup form, so I can take a peek at a new Web product or service. The downside, of course, is that all of these subscriptions add up quickly. There’s a fairly consistent barrage of emails in my inbox, as so many fledgling companies work to engage me with their products. Of all the marketing emails I regularly receive, I’m surprised to see so many “new features” announcements, nudging me each time a dev team launches a new release. They’re all too predictable:
I’m the CEO of Awesome Company that built the product that I’m assuming you love. We’ve been working very hard because we really want to make you happy. We’re so excited to share Features X, Y, and Z with you. Check them out and give us tons of feedback! Click here!
This is an incredibly lazy attempt at getting my attention. There’s nothing wrong with celebrating a milestone feature release as a company and letting users in on the backstory with a nice narrative blog post. But sending out an email proclamation to all users is a self-serving pat on the back for a mediocre accomplishment, under the guise of “helping” users. It won’t help you stand out against the veritable flood of emails in my inbox. There are better ways to engage users and drive traffic.
When it comes to my personal email address, I’m constantly oscillating between two conflicting notions. One part of me wants to sign up willy-nilly for every beta product that comes across my screen, completely disregarding the tidal wave of notifications and email marketing that will ensue as a result. I tend to sign up for new services, sites, and products not only because I’m eager to try them, but also as a grateful nod to all those who’ve struggled (like me) to acquire early users.
The other part of me cowers at the thought of overpopulating the web with my email address, making it too conspicuous, too insecure, and too likely to be a target for hacking. At least once or twice a week I receive the notorious one line email, with no subject and only an incoherent URL in the body, notifying that one of my contacts has been hacked. Not only do I not want to be the one sending out the embarrassing but mandatory “Sorry I got hacked” email, I also cringe at the exponentially worse damage that could be done after someone got a hold of my personal information.
I’m afraid that the incredible breadth and depth of free resources on the internet is gradually killing our collective sense of gratitude and appreciation. From Wikipedia to Craiglist, I can’t help feeling that we (and I’m including myself) are practically demanding that all internet products and services be free, while maintaining incredibly high expectations of quality. Of course, in many cases, the “free for consumers” works out well for businesses. Facebook and Twitter succeed through advertising, Linkedin and Evernote through a freemium subscription model, Spotify through a combination of both. But nothing lasts without revenue; even Wikipedia needs donations.
It feels incredibly obvious to say this, but on a fairly regular basis people seem to ignore that this is how businesses function.
The author Daniel Pink argues that “To Sell is Human,” and, while I haven’t read the book, I’ve been thinking a lot about that idea lately. Any time you ask another person for a favor, you’re selling something. The other person gives time, effort, and other resources essentially in exchange for only the value of your relationship. In arguing that everyone sells, it helps to try removing the negative connotation that accompanies “selling.” Not all selling is dishonest and manipulative; much of it is honest and fair. If everyone sells, then the following principle is important to everyone.
This is the principle: The difficulty of a sale does not depend on the “stakes”–dollar figure, number of people participating, amount of work required, etc.–of the transaction; difficulty of a sale is based on the motivation and ability of the buyer.
One of the most common stereotypes of the teenage years–along with stalwarts acne, poor driving, and relationship drama–is the quest for personal discovery. Some kids change the way they look, with clothing, piercings, and hairstyles like this; others pick up obscure hobbies, start using inane expressions, or find other ways to differentiate. In general, they expend much time and effort experimenting with personalities that they aren’t inherently suited for.
New companies, in many ways, are like teenagers. They explore potential paths to determine what seems to be the best long-term fit. Despite the stereotypes, that’s not all bad: good “teenage” companies eventually grow up. Unfortunately, some companies, like teenagers, become increasingly more obnoxious each time they fail to identify with a particular path. Desperate measures ensue, and we begin to see product features equivalent to teenage rebellious angst. This describes my experience with an app I tried earlier this week.
Speed is more than a feature; it’s a requirement.
- Fred Wilson, Union Square Ventures (video)
There is a McDonald’s on the corner of a busy intersection not far from my house. I have no idea what the national average is for “order” time at a McDonald’s, but I’m positive that this McDonald’s beats it. Once, when I ordered just a burger in the drive-through, they skipped the second window entirely, handing me my order when I paid at the first window. Healthiness of their food aside, I fully endorse this particular McDonald’s; they’ve won my heart with their speed.
What I find interesting about this McDonald’s is that with speed alone they’ve gained a competitive advantage and a loyal customer. While there are other restaurants in the vicinity–Arby’s, Taco Bell, and Carl’s Jr. are within a block–I almost always choose McDonald’s not because I prefer the food, but because I know it will be the fastest. Since all of the restaurants have the same general location, quality of food (in my opinion), and price range, speed of customer service is one of the few advantages to be had. Even more interesting is that, to my knowledge, there is no “secret sauce” that this McDonald’s uses to achieve its speed. Most fast-food places, even other McDonald’s locations, are much slower. Which leads me to believe that the management in this location recognizes that speed of customer service is a key advantage, giving it priority in their work culture with training, incentives, etc. The competing fast-food places locations could do the same; I might occasionally stop for a taco if I knew I could get it as quickly as a McDouble.