Best quote: "If you're not working on your best idea right now, you're doing it wrong." ~DHH
The difference is between "I want to build something great that makes the world better" and "I want to build something that makes money." And really, when comparing 37signals to Mahalo, the mentality the leadership has is what inspires the community opinion and quality of product coming from those companies.
Note: I don't mean this as a all-too-common-on-HN cheap shot against Jason Calacanis. My point is that when people talk about Calacanis' camp, they talk about the quality of the business. When people talk about 37Signals, they talk about the quality of the product. Neither is wrong - they're just different.
I think both of them are making decent points. I don't understand the community's desire to have one of them win or "rip apart" the other. Seems just like a well balanced debate to me.
Calacanis seems focused on DHH's interest in having complete control over a smaller business with continuous revenue. He keeps pushing DHH with scenarios where DHH has a huge payday, DHH says he wouldn't do it and Calacanis acts surprised. I totally understand DHH's perspective. I can't imagine not working, that sounds so boring, so DHH has found what he loves to do and is doing it. Why is it surprising that you'd choose valuable, profitable and rewarding work over one big pile of cash?
You're making a false dichotomy; you can sell your business for a lot of money and still have valuable, profitable and rewarding work plus a big pile of cash.
How many people acquire businesses just to push their founders out? Most aren't interested in that; they obviously respect or at least fear what the founder(s) were doing, or they wouldn't have bought their company. It's perfectly likely that DHH could keep on at 37signals after an acquisition.
However, in the case where the buyer just boarded the place up or pushed out the staff or whatever, who cares? DHH can go start 38signals and keep doing "valuable, profitable and rewarding" work.
Good work and good money aren't necessarily mutually exclusive.
Most acquisitions fail. Most founders end up leaving the bigger company once their golden handcuffs are off. There's a reason for that. The company they loved working at changed to be undesirable once consumed by the incumbent.
A huge part of what I love about working at 37signals is freedom. Freedom to say what I want and swear when I will. Freedom to pick any course I see fit. Freedom to try crazy things. Invariably, those freedoms would be curbed if we were owned by some big company.
If the whole goal is to just sell the thing I already have and love to start exactly the same thing again, then it doesn't make any sense to me. Why not just earn my way to prosperity rather than depending on a single golden benefactor to anoint me wealth?
Jason and I are already at the point where we don't have to work, we choose to work. The joy I derive from working at 37signals much surpass the expected joy of being able to afford a private jet or any other 10-digit luxury.
"Most acquisitions fail. Most founders end up leaving the bigger company once their golden handcuffs are off."
I don't know about that. It's not necessarily a sign of failure when the founders leave, and it may actually be a good thing in the long run. You want the founders around long enough to ensure that the business you bought gets integrated into your operations and company culture, and once that is done the founders should be free to leave if they choose. It may be a less desirable situation for the founders, but that may be due more to them being founder types (plus suddenly having a lot of cash ) rather than employee types. The other approach is to buy the company but have the founders run it as they did before with little interference from the acquiring company (e.g. Berkshire Hathaway).
If your goal as a founder with an acquired business was to keep working at your baby, and being as happy with it as you were before, and you end up leaving, one can only assume that your goals were no longer being fulfilled -- ergo, failure.
That's why if I ever sell my business, I won't be part of the package. I never want to work for anyone else, ever again.
I make no effort to argue that there is a dichotomy of either "continuous rewarding work" or "big pile of cash". I don't even imply that. In fact I think it would be hard to argue that DHH doesn't have a big pile of cash, at least when put into perspective with my bank account.
What I do state is that I understand DHH's perspective of wanting continuous rewarding work with total control of his business over a single pay day and subsequent buyout, even if that buyout is for a value greater than the business' current profits. In other words, his business is literally priceless in his mind because it gives his life meaning, something a pile of cash and no control over his creative work (which he clearly seems to believe is the best idea he's had and may ever have, in his life) does not.
I think we're looking at the hypothetical scenario from two different perspectives. Your's is arguably more realistic, in that you're right, if 37signals was bought out it's unlikely that DHH would be out of a job. And even if he was he could go on to create "38signals". My hypothetical scenario is based more on the idea of "sell to go sit on a beach for the rest of your life". That's to say, you would sell the business for a big pay day explicitly so you would not have to work anymore.
If that's the case it's quite sad. I hope that no one stakes the meaningfulness of his life on his business.
It's silly to make this particular business so central. As stated, he can sell it off and just start another shop that does the same thing. There is a lot of great work available for rich people -- they can start any business they want, they can become philanthropists and spend all day giving their money away.
If DHH sold 37s in a good deal, he'd have a lot more options for not only himself, but the future of his companies and all of their employees, and almost no meaningful restrictions not directly related to the properties associated with 37s.
It's really hard to convince people that that's a bad deal, because frankly it's not. Sell 37s and make something new; it can even do the same stuff, just has to be named differently.
I'm really not seeing how this would be a loss if it was done right.
I don't understand why you interpret my statements as absolutes. For example I said:
"In other words, his business is literally priceless in his mind because it gives his life meaning..."
I did not say "...it is the only thing in DHH's life that gives his life meaning..." I seriously doubt that 37signals is so central to DHH's existence (or any member of 37signals) that removing it from their life would prevent them from moving on.
I just responded to Calacanis with a similar point, but essentially I believe you are looking at business as a method to maximize _money_. My point is that perhaps when we talk about maximizing _profit_, profit can be defined as more than money.
Note: as an interviewer trying to get information to my audience by asking probing questions--but not necessarily endorsing a position.
I can totally see the value and virtue in owning a sustainable business that throws off a LOT of cash and that you love. What I was trying to do with this line of questioning was to see if DHH's position on selling was based on a) a religious point of view (if you will) or b) just having a really big number to get him to walk away from a company he obviously loves. Also, wanted to see if maybe he was afraid of being really wealthy--which is a hangup many folks have when offered large sums of money. in fact, many times entrepreneurs are offered sums of money that are disproportionate to the amount of time they have put in (think Bebo, and frankly, Weblogs Inc.).
when that happens it is a very, very hard thing for some folks to understand... at least intelligent, considered people.
I actually think it was a fair point and an interesting one worth pressing on.
It's an compelling question to me because it asks what it means to maximize profit, which is typically given as the foundation of business (I believe DHH actually uses this definition in your interview). Is profit strictly money? Can it also be measured in happiness or other metrics? Objectively speaking, if you were to take a purely capitalist perspective I would assume you would be interested in maximizing money, and thus DHH's perspective could be viewed as you put it, religious. Assuming that profit can include more than just accumulation of money but also intangible assets (prestige, recognition, etc) than perhaps it's not simply a decision of a man standing by his ideals, but actually of one making the most sensible choice to maximize his profit.
I also thought DHH was bluffing potential buyers the entire time he was turning down your hypothetical offers. I laughed when you actually accused him of that. I still don't understand why they wouldn't take 10x their revenues or whatever. DHH really does seem afraid of being ridiculously wealthy. He could get there if he wanted. He has the name, reputation, contacts, skills, etc. 37signals is like some indie band that swears they are in music for the "right reasons" and will never sell out, but in the end, they always do.
I thought the work ethic vs. work smart topic is worth digging into in the future. I'm convinced that working 10,000 hours on something without being smart about it will get you nowhere.
How are you making shit like "afraid of being ridiculously wealthy" up? I have no qualms with money -- neither earning it or spending it.
I believe that 37signals has legs to run for another 20 years. So selling for 10x todays revs seems like a poor, short-sighted investment to me.
I'd rather earn my way to "ridiculously wealthy" from profits than from some rich benefactor bestowing the wealth on me. To me that matters. I understand if others don't care, but I can afford to care.
In short, I think we'll get there. I think selling our company now would be a bad financial decision as well as a bad personal decision.
Building something from nothing and taking it to the moon has tremendous appeal. Letting some incumbent snatch up my rocket ship before it's even reached the stratosphere, just so I can build another one again with more bells and whistles doesn't make sense to me.
What I heard is 'I can't build a company better than we've built 37signals. And nobody else could run 37signals better than we can.' If you accept that premise as true, then why would anybody sell?
I'm skeptical about a lot of things you say. But this one strikes me as common sense.
That's true. I think it's unlikely that I'd build a better company than what I have with 37signals. If I had some great ideas for a better company, I would be busy implementing those ideas at 37signals.
And no, I certainly don't think any of the likely suspects for acquisitions could run 37signals better than we do. I consider _that_ common sense.
Don't feel like you have to justify anything to some random guy on an internet forum. You are the most qualified/informed to run your own business however you want. :)
From reading your comments on here, I better understand where you're coming from. I think it's cool that you love what you do, who you do it with, and how much money you make doing it enough to not be looking for an exit. You're basically living the dream that conventional thinking has come after the exit.
In my book you are living the dream man - doing what you love and not having to worry about paying the bills.
Stupid analogy: having your own precious Q3 server successfully running with a broadband connection back in the day and then selling it to somebody who eventually might be able to turn off the service in order to better serve to the CS crowd because of whatever reason.
You care about what you are doing - not surprisingly that is confusing to a lot of people who have been told to do the "right" thing instead of doing what they really want with their lives.
I would like to know more companies like 37signals, that are thinking more in product than in ridiculous company politics. Myspace & Rupert needs to learn the lesson, Newsorp destroyed Myspace, and wasted time forgetting to work in the product (the heart). All are bosses, don't forget that somebody needs to get the job done. Meetings everywhere, powerpoints, financial promises for what? bankrupcy? welcome to the beginning of the end of corporations.
37Signals will be the first milestone to change the new era of bussiness.
" DHH really does seem afraid of being ridiculously wealthy " ... dude 37signals - 4 or 6 million+ paying customer , they without doubt have their revenues and profits well over 1 billion+
Tho, I only watched 15 minutes 47-62, I did not find the interview very interesting. If anything it reflects the biases and cultures of the countries they were each raised in. The comment about having a steady job and income stream is exactly what you would hear from my father, who also bootstrapped his own construction consulting business in India from working during the evenings to owning it full time. America is a nation of excesses and trying to grow you wealth in excess of what you require is based in American cultural roots.
Digress: It is what makes American the richest nation in the world that cannot afford a health care policy for all its citizen while much poorer nations provide better health care for their citizens.
Yeah but I have the bad feeling that these glorious times are over - to me this is universal short sightedness. If the US want to stay #1 they need radical change especially in that regard. It might be hard to digest when you see the illusions fade and that party time is over but then again cutting back on a lot might lead to a much sturdier leadership.
Obviously DHH can't publicly say "sure we'd love to sell 37 signals for a nice profit." I don't see the profundity in latching on to this point. No customers of 37signals want to hear that it's being shopped around.
My point is only that are many reasons a business owner would deny ever taking a buyout. True dedication to not selling is just one reason. To me, this make JC's torturing DHH's adversity to selling not that interesting.
The no venture capital thing is getting to be a bit much for me. Some businesses and some situations require outside money, some don't.
In the hypothetical situation described where Basecamp grew as fast as Youtube or Facebook DHH says he wouldn't raise external financing. I call BS.
Businesses with recurring revenues and upfront capital costs that grow fast enough will need to raise money. You need to convert the future cash flows from those customers into cash now to pay for the capital assets to serve those customer today.
Sure, a single customer may net you $150 in a year and only require $15 in capital investment. Unfortunately you need to spend the 15 dollars on day one and you only make 12.50 on day one (month one). If your growing slowly you can self finance it off previous customers or a small founder investment.
If your growing Youtube fast you get fucked to the tune of that 2.50 shortfall x however many million users you just signed up. The only way to do it is leverage or vc. Take your pick, your raising money.
What Jason C didn't mention was all the other people who'd been putting in 80 hour weeks that didn't make it. You think Google was the only one working long hours? Google had a better idea. They worked hard on their better idea, but it's the idea that won, not the hour count.
The tech graveyard is full of overworked, tired, run-down, exhausted people who put in more hours than their bodies could handle. I run into people all the time who are putting in ridiculous hours and getting no where.
Hours don't make it. Good choices, the right focus, and intelligent decisions over a long period of time make it.
Jason C's point about practice is absolutely right though. But practice doesn't equal long hours. Practice equals practice. 3 hours of focused practice on the right thing is far better than 6 hours of practicing the wrong thing. Practice quantity isn't the secret, it's practice quality.
Here's a related post I wrote on "Making money takes practice like playing the piano takes practice":
That's interesting, because I remember David working like a dog on Rails both before and after it became popular while also working on your applications. Sounds workaholic to me, so why didn't you fire him?
The one thing that is constantly overlooked when it comes to the practice debate is the reason why they were working hard in the first place. It is rarely a case where two competing parties just put out x amount of hours on practice just for the sake of working hard. It is often the case that the person putting in long hours really love what they do and want to get better at it and hence they practice. The long hours is just an after thought.
And the Google had the better idea argument makes very little sense. In hindsight of course their idea was brilliant but in the beginning they were the only ones that believed it and as a result worked hard for it.
Lets find some people in the tech graveyard that felt they were working on a bad idea for 80 hours a week.
But then I'd say "fire the workaholics" is still silly. Fire the unproductive workaholics.
Sure, there are workaholics who don't get anywhere, but that's a minority. Maybe it's common in SV though :/
>> "I run into people all the time who are putting in ridiculous hours and getting no where."
Were they not productive, or did their idea stink? A ton of the startups that get investment are just really bad ideas IMHO. Why didn't they recognize they weren't getting anywhere earlier, and make better decisions? Why didn't they change their idea, or the things they were focusing on?
Building stuff takes hard work, and sometimes crazy hours. If you're not being productive, then stop wasting time, but if you are able to put in more hours than the competition to beat them, it's going to pay off. Be a productive workaholic.
Google/Yahoo/Apple/etc just wouldn't have been built if people hadn't put in crazy hours. Same is true for most large companies.
I would say that yes, Google had a good idea, but they would not have succeeded without crazy hours. You need both.
But I also think Jasons point about "simple software" was valid. 37Signals is all about simple 'lite' software that solves the basic need, rather than taking on the massive hard problems, and that seems to be more why there's the 'do less' stance.
"Sure, there are workaholics who don't get anywhere, but that's a minority."
I don't agree that the majority of workaholics are successful. My experience has revealed that the majority are tired, frustrated, and stressed out. And those who work with them feel the effects too. Workaholism isn't a smartbomb, it's a dirty bomb - the fallout is often widespread.
While everyone's definition of successful varies, burnout, frustration, and stress are easier to spot. Just ask the people around the sustained workaholics - they have the clear picture.
And just like any addiction, it catches up with you and destroys you or those around you. Maybe not right now, and maybe not in short spurts, but sustained workaholism will do its damage.
"But I also think Jasons point about "simple software" was valid. 37Signals is all about simple 'lite' software that solves the basic need, rather than taking on the massive hard problems, and that seems to be more why there's the 'do less' stance."
It is true. We solve problems with simple solutions. That is a conscious decision. It's not because we can't solve hard problems, it's because 1. we believe most of the problems people have are simple problems, and 2. we're not interested in solving really hard problems. We'd rather solve simple problems really well, profit handsomely, and get a good nights sleep.
Lastly, I don't believe there's more glory in solving hard problems than solving simple problems. The glory comes from solving real problems. Simple problems are just as real as hard problems.
I would post an insightful comment on this debate, but I think you summarized it perfectly.
Workaholics can take it too far, and often do. Solving real problems--small or large--is virtuous. 37signals has an amazing approach, as do companies which are in dogfights with competitors and need to burn the midnight oil for a sustained period of time.
different situations call for different strategies. This debate is long overdue and I'm glad we are all having it.
That's the point, isn't it? You tried to make it in the interview but you didn't do it as successfully as you did right there.
If you're in a dogfight with a company that's A) taking funding in exchange for a minority stake or B) willing to have a whatever-it-takes development cycle, and they're executing as smartly as you are, then you have no choice.
If you want your product to succeed in the marketplace and you can't outsmart them, then you need to decide if you'll let them win just because they're using more horsepower.
Good call there Jason. Because you don't always get the choice about the dogfight. Sometimes the fight finds you.
I agree with you on many things, but your stance on "workaholics" is not one of them. Often "working a lot" = "workaholic". I'm not talking about people that are addicted to work and follow the same patterns of other addictions. That's rarely the case. I'm talking about the people that enjoy working because it isn't like "work". Why should they be made to feel bad about it? The workaholics you speak of (that get burnt out) generally have motivations beyond enjoying the work. They are trying to "get ahead" or make more money. What if you actually like your "work"?
Some people like to knit in their spare time. I like to code and do things that resemble work to many people. Maybe I'm not in the majority, but I refuse to believe that I would be happier or healthier if I went on a hike instead.
I read quite a lot of autobiographies (business people, media), and pretty much all of them involve obsessive hard work. That's kinda why they're successful.
Not that I'm putting a stake into either side of this debate, but workaholism is clearly also extremely detrimental to your health; there are ways to abuse drugs while being careful about your health just like there are ways to work 70 hours a week and still take care of yourself --- it's just that in both cases people rarely pull it off.
The tech graveyard is full of overworked, tired, run-down, exhausted people who put in more hours than their bodies could handle. I run into people all the time who are putting in ridiculous hours and getting no where.
ripped him to shreds? to me that came across as some of the most patronising slimiest interviewing I've seen in ages. I've not seen much of Jason C prior to this, but god he's annoying.
[Edit: I've been trying to pin down why he's so annoying and I think I've figured it: He's 'that guy'; the one who knows everything about everything and is never wrong.]
But he seems to imply that all other startups or majority of them do not get this basic point. He also thinks that 37 signals would be making the same kind of profits 20yrs later. These points do not fit in with how insightful and bang on he is with his business sense.
What a great interview. I find myself going back and forth agreeing with both of them. Calacanis makes a reasonable argument. DHH says something crazy-sounding and unexpected. Then, DHH goes on to explain it in more detail and sounds perfectly reasonable.
I'm not sure why JC keeps harping on the unique visitors number. More uniques = less commitment to the product. Unique visitors are people who search, click, leave. How are you going to build revenue off people who don't care about your product?
How long do those unique visitors visit? When I accidentally click a mahalo link, my instant reaction is to hit the back button, yet, I'm one of those numbers he's using to justify his business model.
Unique visitors is essentially irrelevant. If a unique doesn't stick around long enough to see or click on an ad, what's it matter?
Okay, that makes more sense, but it's not admirable in anyway and it's not something I would invest in. 37s has a tiny fraction of mahalo's uniques, but I can imagine it having more revenue and more potential.
I think it's a grey area :/ It's all about how much value/content you're adding, and whether those users would have been able to find those adverts without your help.
Funny how Calacanis is analyzing DHH's psychological (e.g. is DHH afraid of money?) reasons for not wanting to sell 37signals implicitly assuming that it's stupid & insane.
note: as the interviewer i ask probing questions, but it would be a mistake to assume I endorse the positions contained within those questions.
getting into the psychology of entrepreneurs is fascinating as the feedback to the interview clearly shows. i don't assuming it's stupid or insane to not sell a business you love. however, it is curious and perplexing when faced with someone who wouldn't sell a business for an absurd return wouldn't you say? If someone offered 10, 20 or 30x the revenue of 37signals I actually think they would take it. however, those type of deals happen very rarely and i don't think 37signals--as great as it is--would get an offer like that.
assuming 37signals makes ~$10m a year (~20,000 customers x ~$50 a month on average), $100-300M for 37signals would be such an absurd price that I think you would have to be VERY "unique" in your approach to not take that deal.
That being said, there are unique folks in the world.
When people are talking hypothetical money they think it will take more to get them to sell than when you are talking real money. The research on this was based on surveying one group of hunters and asking them how much they would have to be paid to sell their hunting license versus giving another group of hunters concrete offers to buy back their hunting licenses. The median price the survey revealed was something like double the median price that hunters actually sold it.
Financially it would be stupid not to sell. But for DHH this isn't about finances. Would an extra $50M (or whatever he'd get) make him happier? A little bit maybe. On the other hand he'd lose what he helped create and is proud of. He'd lose the happiness he gets from working at 37s. If he thinks of a new big idea would the $50M help him to implement more than having a 37signals dream team would? You are very much focused on the dollar amount and whether it would be a good deal from a business perspective. He is focused on happiness.
Maybe he would sell for 100 billion, because you could really change the world with that kind of money. An extra 50 million if you're already a millionaire? Meh.
There are lots of things people won't do for any price. That doesn't make them stupid or insane.
I wouldn't separate from my wife for $2bn. I wouldn't cut off my fingers for $2bn. I wouldn't murder someone for $2bn. A religious person may not denounce God for $2bn.
Certain things are more valuable than money; but what those are differ from person to person. DHH seems to value his work at 37signals more than money, which seems to be working out great for him.
I think it's easier to build 'another company you love working at', than replacing a wife or your fingers.
If creating a company is so easy if you follow the rules in their book ;) why don't they rise to the challenge, and create a new one from scratch? (For extra points they'd do it stealthy so no one knew it was them).
I think it's easier to build 'another company you love working at', than replacing a wife or your fingers.
Surgery can reattach fingers.
With $1b in your pocket (assuming your ex-wife gets the rest in the divorce settlement), lots of women will volunteer to be your next wife. (Of course constructing a successful marriage takes more work.)
Creating a new company takes a lot of work. No shortcuts available.
But the thing is that there'd be no material detriment in taking the deal. DHH would just have a ton of money, and he could keep working on Rails apps and whatever else to his heart's content.
The kind of emotional connection to what is ultimately a meaningless, lifeless brand where you refuse to sell for any amount of money is surely foolish.
Of course there's a detrimental effect of selling the company that I've invested the last decade into. The investment is much deeper than purely financial. It's the pride of getting there, the satisfaction of staying there, and the joy of coming to work with the best people I've ever worked with.
What a shallow perspective to think all this meaningless just for another zero or two on the bank account.
I guess I don't understand what you mean by "there". Selling the company would only cause further progress. Your employees don't have to stay there, and you don't have to quit. You can sell the company, keep doing the same things, either at 37Signals or some other place, and just be a lot richer at the same time.
I really am not seeing a detriment still. You just seem to value the brand 37Signals so much that you're not willing to let another control it. This is silly in my mind, because it's just a brand, and there's no reason to believe you'd lose a lot of control in a potential acquisition anyway, or that even if you did, you couldn't go and start something else and keeping develop Rails apps.
This all presumes a good deal. I'm not saying you should just sell to anybody, because you shouldn't, and I wouldn't. But it is a little overboard to claim that you'll never sell, not even for 10 or 20 times your annual revenue even if everything else about the deal was good.
I understand not wanting to let someone else run your product into the ground. I know how painful that is, because it's happened to me before. But not every potential buyer is like that.
No one is going to pay 10-20x to enjoy your business the way you do. Big multiples come with big intentions... usually to realize "untapped potential" or "synergize" your business into a greater whole.
Problem is with many of the replies up here, how many have been part of an IPO or buyout?
If you're bought, depending on the terms, you may not be able to "do as you please". They may give you a VP title with some guarantee of 5 years or so. After which they (their board, shareholders, etc) may vote you out, or you may want to quit yourself after seeing your baby run into the ground.
Especially if the company (or VC) wants to take your company public. I've seen founding finance and marketing guys pushed aside with new faces that are what "the [wall] street want to see". How's that for a thanks?
Further, if you are lucky enough to get bought out/funded for huge sums, its even rarer that lightening strikes twice with your next startup.
You don't think you'd be able to create the circumstances to be happy again with $2bn?
I'm also extremely happy working on what I work on day to day, but I'm also extremely confident that I'd be able to come up with other stuff that'd make me just as happy if not happier in the future :/
I realize this is OT, and I apologize, but I have to ask: is anyone else having a problem where HN has recently begun swallowing all italicized words, making them invisible? The first part of the above comment reads, to me, "not wanting to sell your business for price seem stupid and insane". I can still highlight and copy/paste "ask" and "does", but they're getting hidden in the actual page display. That's Firefox 3.6 on OS X.
Worse, any page with italics does not show up at all in Safari or Chrome (again, on OS X) - in Safari, it starts to load and render, but the moment one of the <i> tags gets hit, boom!, the whole page disappears.
...or is there just something majorly borked with my system? I'm not having trouble on any other sites...
Because when someone pays you directly, you're offering them something they value and would pay for rather than invading their brain with ads that they don't want to see?
There's no good fundamental reason why it wouldn't work. The only reasons are cultural (people like getting things for "free", especially on the internet) and technical (you have to dig out your credit card, sign up with it, and trust Facebook not to screw you, in order to pay them a dollar a month.)
Charging for things works best in areas where there are weak or no network effects. In something like facebook, having half of the customer base drop out would be disasterous, because those remaining are left with a worse product - having all of their friends on it is one of the strongest features.
In small business software a la 37 signals, you don't care how many other customers are there except for the vetting it provides.
In landgrabs in a high network-effect area, you can't afford to charge more than one's competitors. Hence, advertising.
I disagree. The reasons are more straightforward. If there's a choice between a paid website, and a free website, the free one will win out. And advertising means you can offer users something for 'free'.
So lets say google switched to charging users for access to their search engine, a competitor would just popup that was 'free', and everyone would use that instead.
Well, I agree. That's what I meant to say when I referred to the cultural reason; since free alternatives always appear, people always expect a good free version to be available, and are even more hesitant to pay. However, I don't think that's a good place for us to be.
Firstly, it remains to be seen whether it's technically sustainable; if ad blockers continue to become more mainstream and more sophisticated, ads will start bringing in less and less money. Secondly, I think that many non-ad-blocking users are making a poor choice when they choose an ad-supported free version, because it's very hard to evaluate the costs to you of having ads on content. It puts a mental burden on you, wastes your time, and may (invisibly to you) cause you to make poor purchasing decisions later. Those are all real costs, but it's impossible for you to put a dollar value on them.
>> "Firstly, it remains to be seen whether it's technically sustainable; if ad blockers continue to become more mainstream and more sophisticated, ads will start bringing in less and less money."
It's been rising steadily for 10+ years :/
Advertising in general has been pretty strong for 100+ years.
I doubt that'll change in our lifetimes. Advertisers always want to get their message to audiences, audiences always want to hear about new products. It's a pretty safe bet.
Whether we think that's a good place to be or not does not really matter. What matters are the underlying economics, which seem to pretty much continuously push in the direction of free services.
When you introducing advertising, you have two sets of users, the advertisers who are your income stream, and the users who you need to keep around to make the advertisers happy. If you have directly paying users, you only have to worry about making those users happy, and you know you have something people really can't do without easily, because they are willing to pay their hard earned money for it, since many people value money more than time, or so it appears based on the popularity of free services.
Well, that's just not true. When I don't have an ad blocker, I click on ads just by accident once in a while, since many are so intrusive. Also, ads are often tremendously misleading, and will try their hardest to fool you into imagining that they are useful without actually being useful; that's how they make money.
Lets say for the sake of argument that people only clicked on ads by accident. Then no clicks would convert, advertisers would pull the ads, or drastically reduce payouts.
Advertisers only pay, when advertising works - eg converts to a sale/signup/etc
It really is my strong suspicion that the majority of conversions are due to misleading users, though. Let's divide ads into two categories:
- "Punch the monkey for herbal supplements." There are a lot of ads for gimmick products or products that simply don't work well at all. (Some are pure scams, and some just advertise terrible things, but we might as well lump them all together.) People still buy them, because people are credulous.
- Targeted ads for useful products. On Stack Overflow right now I see an ad for some tool that analyzes log files and spits out metrics and data. That sounds pretty useful, but the ad is not helping me make an informed decision. If I decided right now to buy that product, even if it worked for me, the ad would not have served me well. The better way to buy things is to decide what you need, make an independent survey of the products available to you, and figure out which one is best via reviews, experts, comments, specs. Successful ads encourage you to short-circuit this process and just pick something, which I don't think is a positive thing.
You seem to have ignored a key part of the parent's argument: ads often mislead people. So the fact that they make a sale doesn't show that they are 'useful' for a reasonable definition of useful.
Our worldviews seem so completely different that we're probably talking past each other.
Case in point: I don't know how to respond to someone who requests data to establish that advertising is based on manipulation. You may as well be speaking Martian to me. (My immediate response - after sputtering - is, more or less, "It's advertising. Look at some.")
Let me stress, I'm not saying this as a put-down or any kind of argument in proof of anything. I'm simply trying to express in words my jaw dropping when I read your response.
Advertising is just "information". :/ and information 'manipulates' people who consume it. But I'm not sure why you consider that a bad thing.
Probably about half the posts on HN are 'adverts'. They are posts that have a message, urging us, the readers, to consider this information and possibly act on it. That's an advert.
Your previous point "Ads often mislead people"...
News often misleads people. People often mislead other people. It's not unique to advertising by any means.
DHH has talked before about his opposition to ad-based businesses. It is bread crumbs on a per user basis. That means you need a huge number of eyeballs to profit. Building a system so large and popular that it gets that many users is difficult and there is a lottery factor.
On the moral side, people don't like advertising. That's the seamy underbelly of Google; they are constantly playing this game of how much advertising pain will people endure for their free services. You know, maybe stoplights could flash some adsense ads relevant to the types of passing vehicles to cover infrastructure costs. I don't want to live in adsense world.
It's a niche viewpoint. I do want to live in an adsense world, as do most users. They find adverts useful.
>> "DHH has talked before about his opposition to ad-based businesses. It is bread crumbs on a per user basis. That means you need a huge number of eyeballs to profit. Building a system so large and popular that it gets that many users is difficult and there is a lottery factor."
I think basically, it's 'harder'. It's a harder problem to solve. But really, you can setup a profitable website in the right niche earning good money from advertising easily without requiring large number of eyeballs.
People don't like advertising? I think it is an unfair generalization. People love free stuff and are willing to endure advertising because they love free stuff.
The charge upfront idea is great for some business but let's be honest: if every website did that and the whole internet was behind a paywall the web would die.
I loved the interview, and I agree with most of DHH's comments, but I think that being absolute on the correctness of a number of opinions (like, "all VC powered companies are flawed" etc) is fundamentally wrong, absoluteness is not the case when you talk about people and their actions.
What is interesting here between JC's style/outlook and DHH's style/outlook is:
1. World recession is decreasing capital exits, investments, etc..DHH's outlook wins
2. Increasing amount of college graduates have college loan debt loads..DHH's outlook again wins
3 SV in recent years has been more focused on get there fast(money) but screw the product quality or customer quality..
I see JC and DHH representing both what VC/angels have in the past make possible represented by JC as opposed to the new way DHH's.
I think in the long term, 10 years out, that VC/angels will be gravitating towards DHH's way rather than the old way that from 1980s until now led the VC industry.
I agree, that is well laid out. The VC sphere will start to rotate towards "real businesses", not companies that will 'hopefully' make money some day by turning a magic key.
The difference is between "I want to build something great that makes the world better" and "I want to build something that makes money." And really, when comparing 37signals to Mahalo, the mentality the leadership has is what inspires the community opinion and quality of product coming from those companies.
Note: I don't mean this as a all-too-common-on-HN cheap shot against Jason Calacanis. My point is that when people talk about Calacanis' camp, they talk about the quality of the business. When people talk about 37Signals, they talk about the quality of the product. Neither is wrong - they're just different.