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Bad times ahead for most start-ups?
November 4th, 2008
The free model is very popular for startups. The idea is to get revenue from Google ads. The problem is that the model is already flawed as it barely pays for hosting fees and it seems like it will only get worse.
SitePoint has an interesting article on basic economics. When the economy goes bad (like now) companies cut on advertizing. Your revenue, following the logic, goes down. The average revenue per click has already been declining from 0.50$ (Q4 2007) to 0.27$ (Q3 2008). That is close to a 50% loss of revenues.
I believe that start ups must adapt to the upcoming hard times. Instead of offering a totally free model, perhaps a “freemium” model should be used. Having real revenue is vital in these hard days.
Posted in Finance, Startups | Comments (2)
November 4th, 2008 at 1:04 pm
It takes serious capital to build an ad-based business. And if your business depends on the general CPM rate (vs. a higher rate that comes from having a highly segmented and targeted audience) then you’re in for a World of hurt.
Companies should not be shy to get paid for offering value. I’m in a freemium business now. Free is important, but when we launch paid, we will pushing to build our paid user base.
November 4th, 2008 at 1:56 pm
You’re right Mark. Sure, Oracle might have ads on their web site but that’s probably 0.00001% (if not even less than that!) of their revenue.
End users are greedy and like free stuff but companies usually don’t mind paying for a quality product as long as it saves them money in the end. It all comes down to what pain you can relieve from the buyer. The bigger the pain, the bigger the cost?