One point the article doesn't stress is that charging money removes a whole slew of problems, chief among them spam and ghost accounts. This frees up a lot of development time, since you don't have to make the system resilient to waves of signups by people you'll never see again, or spend a lot of time on abuse prevention.
That's the good part. The bad part is, you then use all that spare development time on getting your payment system working smoothly. Since you are taking someone's money at the very outset, making a decent first impression becomes especially important. I suggest setting up payments so if something goes wrong, the account gets activated anyway, and you settle up later by personal contact with the customer.
very good point about the spam/ghost accounts. we've seen that ring true for our free beta of Floxeee. Usually the people who are using your product for free are your worst customers.
Apps that rely on network effects to be successful need a free model, or an existing base with critical mass. The latter is nice if you have it.
Freemium is a great way to get some users to pay for value created out of the total network effect created by mostly free users.
I don't think Markus Frind was swinging for the fences when he created plentyoffish.com with a free model. I think he realized how hard it was going to be to get enough people on a dating site to make it interesting.
I couldn't agree more...there's no way Facebook or Twitter would have gotten as many users as they have now if they charged for their services on day 1. They might be able to get away with it now.
But for other apps that provide a more tangible service and don't rely on the "network effect" (say, Evernote or Freshbooks), there is a compelling case to charge from the beginning.
The article argues that all such apps are "swinging for the fences" and I don't completely agree with that. You can plateau a lot smaller than twitter and still benefit from delayed revenue, or alternative revenue models.
it's an obvious generalization... every app is going to be different depending on it's purpose and target customers/users. Your example of plentyoffish is perfect. A site/app like that DEPENDS on having tons of active users, in which case the fastest route to that is free.
One question not asked enough is "why do you want to make a web app?" if it's to do what you love and get paid for it... Then do what you love (make apps) and get paid for it(charge money).
Mark z's goal on facebook was probably not to make millions upfront. He had different motivations and because that came through in his work, the money was merely a side effect.
The mistake some entreprenuers may make is they are driven by what they love as an independent vehicle to monetary success, then choose to make something people won't want to pay for.
(to paraphrase:) "Do you want 10,000 users paying nothing or 1,000 users paying something"
This is the key take-away for me. I know a lot of founders who, frankly, are building startups for megalomaniac reasons.
I think there is some "look at all these users who like my product (and thus me) so now I'm a rock star" philosophy in there, which isn't helped by people like Ashton Kutcher and MC Hammer coming into the scene.
We're about to complete a pretty tasty angel round for an SaaS app that has a healthy monthly recurring subscription on it from Day 1. I'm pretty psyched.
However, because its b2b it's never going to achieve me the 'rockstar appeal' that running a startup with millions of free accounts on it will would. I don't mind, but I know that frankly that's what dis-interests a lot of founders.
False dichotomy FTW. There are tons of businesses that can extract tons of value from free users. Freemium, lead gen businesses (Mint), and (yes) advertising.
Getting paid in ego is pretty stupid, but amassing free users isn't necessarily so. No reason to throw out the baby with the bathwater just because of Ashton Kutcher, etc.
"Freemium" makes sense, cos there is a revenue stream in there somewhere. I'm talking about startups that don't have any business model.
Secondly, for every Mint I can show you a ton of startups that have got no where. In fact Mint is fairly unique because it uses the data for lead gen, as you say -- but most free startups aren't smart enough and/or not hoarding the right type of data to get into that business.
There is a business where you can go to the web site and request a quote from 3 car dealerships for a specific year/make/model of a car. They sell these leads to 3 car dealerships at $20 per. Last I heard, they were doing millions in revenue a month. I also know a senior housing directory startup that's selling customers on a per-lead basis and doing quite well.
I'm all for obvious and immediate business models. I think it's a lower risk path (and it's the one I've chosen), but the go-free-and-get-popular is a pretty tried and true path that's worked for plenty of folks. But it DOES require that you get popular, which is really hard to do. SaaS stuff can be lucrative if you don't manage to be super popular.
what's your argument here... don't charge because of the potential for fraud?? That's crazy. If we all took that stance there would be no such thing as business.
with spreedly plus processing through paypal, there is a high level of fraud detection. We've actually rejected a number of payments because of high fraud potential.
The rest is just business and the risks associated with it.
paid system definitely has its benefits, while you are debating free vs monthly charges, how about one time nominal sign-up fee till the site is in business? Similar model as iPhone Apps, where for some odd reason, people are more inclined to pay than for web apps. I wonder if anyone has had serious success with such a model on the web ?
I see your point, but 90% is just an arbitrary number I am guessing you have made. But number is going to be up there, so 90% might be a good guess. I probably won't pay monthly for facebook if a day like that comes. Unless you provide a service that provides constantly changing information of sorts, it is hard to charge customers monthly, I would have a hard time paying for the game scramble that I play on facebook. I might be tempted to pay them $5 once after trying the game for a month,
I might be wrong, but this might be worth exploring as a revenue stream for simple applications. Donations probably still do better than this.
That's the good part. The bad part is, you then use all that spare development time on getting your payment system working smoothly. Since you are taking someone's money at the very outset, making a decent first impression becomes especially important. I suggest setting up payments so if something goes wrong, the account gets activated anyway, and you settle up later by personal contact with the customer.