Can a Company Recover from a Lack of Business Model?
05/05/2008, 3 months 2 weeks ago
There's a lot of chatter about decentralizing Twitter, claiming it's now too valuable to rely on an often flaky service with an API so open that it's destroying the service. What no one seems to want to examine is that giant elephant in the corner: if Twitter is so valuable why isn't anyone willing to pay for it?
Regardless of whether or not Twitter will ever become mainstream, for early adopters, the 250, and the majority of the Web 2.0-addicted populace rely on Twitter. Even a brief outage sparks a bitchmeme and panicked IMs and emails to others asking if Twitter is down. If Twitter ever decides to monetize via subscription, they should offer a free bottle of Xanax as a sign-up bonus judging by the panic that ensues during an outage.
The biggest problem Twitter has right now isn't whether or not they should migrate to another platform from Rails, which is usually the scapegoat for their outages, but how Twitter can start making money without losing the userbase that has brought them this far.
I've pointed out before that one of the major problems with Web 2.0 apps is that they don't seem interested in figuring out how to make money. The modus operandi for achieving viral success has become "Make it free. Get people there. Figure out the money later." How, then, can a company go from offering services for free to charging their users for the services without creating a riot or losing those customers? Whether it's via subscription or the ubiquitous ad revenue model, the user is still being asked to give something up to continue using a service.
You can argue that many of these free apps and services have achieved the popularity they currently enjoy primarily because they were offered for free. A critical mass can be reached more easily this way, because it requires no investment on the part of the user to start using the app, and they can easily get their friends to join in as well. But how does a company come back from that? How can you subscribe to the "build something cool and worry about monetizing it later" idea without eventually tanking your company? How do you convince your users that they are devoted enough to stick with you even when you shift how things work?
good post cyndy - i’ve said all along twitter needed to come out of the gate with some biz model - now they are dealing with huge numbers of api apps and now people want it to be “generic” - i can’t picture fred wilson will let it go
Twitter has never given us the opportunity to pay for it. Pownce and Flickr do. Many do. It would be amazing to see what happened if they a) added features (that we probably should have had years ago) and b) had a PRO option.
Yeah yeah yeah people say ‘oh I wouldn’t pay for X’ but in reality, the ‘pay’ button will have someone pushing it. And that’s money earned point blank.
But. That’s not the case.
Calling Fred Wilson. Calling Fred Wilson.
Several well-known Internet companies have bounced back from not having viable business models to making money hand over fist — Google springs to mind — but I have to ask whether Twitter is really focused on business plans. Scalability seems to be their number #1 concern at the moment, and for good reason.
Long-term, even if there’s no revenue in the mix, which buzzed-up startup wouldn’t want to follow the common dream of getting bought out and letting someone else worry about pesky business plans?
The people that run Twitter could start making money tomorrow if they wanted to. They could introduce ads. Yes, some people would bitch and others would leave. But the vast majority of users would stay. Or Twitter could follow Eric’s advice and keep their current service free but add a PRO option with more features. Either approach would be a step in the right direction for Twitter or any number of these free apps that aim to turn a profit someday.
@Allen I’m actually surprised that Fred hasn’t cranked out a blog post on it yet. He does tend to get het up about his babies and no, I can’t see him letting Twitter run free on the Intarwebs.
@Eric I think there are a lot of people who might pay for it, but there are a lot who would balk at the proposition. Pownce still has way too small a user base from what I can see to really determine if it works, and Flickr still has the back-up of Yahoo if it’s not profitable. Of course some money is always better than no money, but would enough people pay for it to even cover costs? They have taken in a LOT of funding.
@Ian True, Google didn’t have a revenue stream, but I don’t think it’s true that they didn’t have a business plan. They also offered a seamless way to integrate the ad issue in what they were doing, which isn’t the case when you are shoehorning ads into an app. Search naturally lends itself to ads and featured results, which put Google in a unique position.
@Rob At some point, Web 2.0 is going to have to stop relying on ad revenue to support everything. I’m already immune to most ads, if I even see them since I use AdBlock. They are so ubiquitous that your eye passes right over them without even seeing them. Ads won’t solve everything, and I can’t imagine any way that Twitter could implement them without have them be completely invasive.
@Cyndy My only point about having the ability to pay, is the a huge difference between balking when there’s no ‘pay’ button and balking when there IS one.
It’s like when we say we don’t pay attention to ads until of course, that one awesome ad that makes the rounds.
@Ian I realize I forgot to address the part of your comment about scalability. I’m a wee bit concerned about their burn rate if they just did another round of funding, are running on AWS, and still can’t scale that thing. Do they have some Cordon Bleu Executive Chef or something?
@Eric Very true. However, any ads that are awesome that make the rounds are still television ads. I don’t think there are any companies who’ve really been able to make that jump to compelling Web ads that get that viral surge like television ads.
Cyndy - when Fred is ready, have him call me - I have plenty of business model ideas for Twitter.