Web 2.0 companies often focus on growing very aggressively, ignoring short term revenue. Part of this is due to the face that many Web 2.0 models offer free to use, ad-supported products, which inherently needs to get to an incredible scale before generating meaningful ad revenue.
However with the current economic environment, companies are being pushed to generate revenue and get to cash flow positive sooner than they previously expected. As a response, in the coming months I expect to see a lot more previously ad-only websites and services to begin moving to premium or freemium models.
37Signals has been preaching this philosophy all along, encouraging developers and entrepreneurs to create something valuable that people are willing to pay for. Despite looking prescient now, they have been mocked by the tech community, including a post from TechCrunch, who half-jokingly blamed them for driving a company to the deadPool. We’ll certainly see more companies headed to the deadpool, but as a result of having ad-only models, rather than following 37Signals’s advice.
The irony of this entire situation is that companies are trying to start charging customers as consumers are slowing spending faster than they have in decades. However, it’s still the right move, especially considering that Internet users are getting more comfortable paying for services they use, and that many internet services, even if they charged, would still be cheaper than their offline or other alternatives.
At YouCastr, we have always had a two pronged business model that relied on advertising and paid services. Reflecting the current economic state, we have focused our product development and marketing efforts towards accelerating our paid services. It’s a move we are all certainly excited about, and a decision that was easy to make.
On a fun closing note, I would characterize the previous attitude towards revenue for web startups as similar to Allen Iverson’s disdainful attitude towards practice in his infamous press conference. I can almost see it now, a Web 2.0 CEO at a board meeting saying:
“We’re talking about revenue. We’re talking about REVENUE! We’re not talking about the company. We’re talking about revenue. When you come to our offices, you see see us code, you see us getting users, you see us giving it everything we’ve got, but we’re talking about revenue right now.
Well those days are long gone, and the crop of companies that survives is going to be better for it.
(For a fun diversion, read the entire transcript of Iverson’s press conference, but replace “practice” with “revenue”, “Coach Brown” with “The Board”, and “game” with “company”.)