Tuesday, October 12, 2010

Money - How About Some?

Get rich by giving it away?

I've been reading the 37Signals' blog a long time.

They are a small company successful at creating and selling services across the web. They began and remain small, self-funded by the owners and also by sales.

A key element of their philosophy is that a business isn't a business unless it makes money.

They do have "free" options. But "free" isn't their entire business model.

Why not? Think it through.

Facebook's current value is $33 billion, but Facebook has never been sold, or bought, so that value is purely imaginary.

37Signals on the other hand makes money. How much? Don't know? Privately-held and all, so they don't have to say. The point is, they remain in business by exchanging services for money.

Quaint. Against the grain, philosophically speaking, according to trend monkeys. Who say to give away services, gain notoriety, and sell out.

There are three problems with that.

First, marketing. It costs, so no matter who you are, you have outgo no matter what.

Second, "free" is all about buzz and reputation. If something "goes viral" that is rated a success though there is no revenue and no profit.

Third, planning to sell out some day is a lottery. For any web business there are 10 or 100 or 1000 copycats, and some at least are better than you. Maybe all of them. Maybe you are the copycat.

So. Then. There you are. You have a cool idea, well executed. You have a lot of users, or followers, or fans, or whatever they are. And no income.

You have have created the the next pet rock without the rock, because you have a service. And services are only ideas. You can't wrap one up and mail it off only when someone pays for it.

Even worse, most web businesses are actually entertainment. As long as what you do is amusing and people are not bored yet, you get eyeballs looking your way. But no money. "Free". Remember that part?

Which is why most vanish. The surprise is that some hang on and money appears magically, somehow. No one knows how.

Seth Godin writes a popular blog, gives talks, sells books, makes lots of money. Because a lot of people believe in him and like him and and want to give him money. But mostly because he helps others to make money.

You are not Seth Godin.

He is famous. He is respected. He is magic. People want to be part of his team. You can't copy him so forget about that. Unless you are Seth Godin you are not Seth Godin. And never will be.

If you want his kind of success then invent something completely new.

Like what? Like something completely new. Go ahead. Do it. We'll wait for a few.

Tick.

Are you there yet?

On the other hand, suppose you have an idea and want to make a web application. Thousands will use it. Tens of thousands. Millions. Everyone.

OK, fine. Plan on giving it away and earning zero.

No, wait. Worse even.

Plan on each new user costing you, because they will cost. So there you are, gaining users, spending millions, having no income.

Pencil that one out. We'll wait.

Tock.

See, the secret is to find what you can sell, and then selling it. In case you want to be in business and stay in business and all.

And that, mostly, means dealing with other businesses.

Because about the only successful web businesses out there that do not sell physical products are those that serve other businesses so those other businesses can make money at whatever they do.

Dealing directly with individual fun seekers is not how to make money. They're only in it for fun, which excludes payment, to you, ever, because all that web stuff "wants to be free". And like that.

Right?

But if you can help another business make money, way more than it could without you, then you have a deal.

What kind of deal?

The real deal.

Actual money-making businesses will pay you because what you provide helps them to make more. More than they could without you. And they know that. And will pay for it.

So that's how that works.

From buznutt.

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