Building a profitable business (7)
I’ve just read a post by Mark MacLeod who tells how business models for web-based companies have evolved during the past few years.
Once upon a time, technology companies built products and sold them…
How times have changed. First, vendors started getting SaaSy…
Then we stopped making users pay. At least not everyone. Freemium has emerged as a powerful way for startups to acquire bucket loads of users…
Now, we’ve gone off the deep end - where everything is free, all the time
You’ve got to relate this to Chris Anderson’s theories who came up in late 2004 with the long tail theory, and then topped it with another provocative thought, the $0.00 business.
Mark’s post is very interesting, since he addresses a current issue that every entrepreneur faces, which is pricing of its product and service, amidst an ever-changing market and relentless competition. I invite you to read it. I had then a personal reaction to the article but the comment took more than a few paragraphs so I am writing it here:
There’s a simple rule: if someone can do it for free, then it will be inevitably free. For instance, that’s why content-based businesses (say newspapers) are doomed because there’s always people like Mark, me or even the average guy willing to spend one hour in their day writing articles and take pictures of what’s up.
The rule outlined above is always true, even if you have superior marketing, even if you are backed by government laws (demise of music albums for instance), even if have millions of VC money…
People serious about business should then move to areas where people can’t replicated it easily, for instance by having unique technology, or by having unique knowledge, or by having access to networks, or just by the good old fact that the product / service needs a serious amount of human (not computer) effort to produce and be offered to the client.
Of course, as Mark MacLeod said, this is becoming more difficult for entrepreneurs, as access to technology is becoming easier.
So if you are building a business, if at one point you discover that your service could be replicated by a 14-year old kid during his spare weekend by using “shortcuts”, then you should either consider it as a pet project — or move along to something more ambitious, more original, and that requires more effort.
Image: free beer
I disagree with your use of newspapers as an example. Breaking stories is not free and cannot be done by just anyone. You need connections, time, perseverance, and experience; which are sufficient barriers to create profit. The editorial desk may get squeezed out by hypercompetitive free markets, but the news desk won’t for a long, long, time.
“For instance, that’s why content-based businesses (say newspapers) are doomed because there’s always people like Mark, me or even the average guy willing to spend one hour in their day writing articles and take pictures of what’s up.”
I see your point, but is it really correct to equate someone who writes a blog article and takes a couple of pictures with a professional news-gathering organization with sources, standards, experience in investigative techniques, etc.?
Hey Heri,
Thanks for posting on this. You’ve hit the nail on the head: If you’re not doing free, someone else will. The trick is do it in a sustainable way.
your readers seem to have an issue with newspapers being replaced by bloggers. This is happening now. Just check out Nowpublic (http://www.nowpublic.com/).
My point was less about this and more about tech businesses. I worry about sustainability. Some companies that have done a great job of using free while being sustainable include Freshbooks and 37 Signals. Note - that in both cases, they did not take VC$.
Mark
Newspapers have one competitive advantage: a large customer base. It is not that easy that you simply produce an equally good product (article) and you win. You have to attract new customers and convince them, that your offer is worth changing. You have to create a brand.
And when you have reached the size that your brand is of some worth, you are probably doing serious business and no more a 14 year old teenager that is spending some free hours on a pet project…
Nick Molnar,
There are many blogs started by industry profesionnals who have inside knowledge of what will come up next in their industry. This beats any journalist who might have many connections and even his neutrality to win confidence.
J.Liles take a look at ohmynews, techcrunch, gigaom or paidcontent.org
Benjamin, newspapers’ readership is shrinking. While I don’t see the NYT or the Washington Post disappearing overnight, they will see their reach cut because of media fragmentation and platforms avalaibility.
Also, as I mentionned earlier, there are profesionnals who get a blog up and write exhaustive and “serious” articles, because they get PR / marketing / networking thanks to their blogging. And they do it for free. So I don’t see yet why content should not be free.
Of course, all of what I’ve just said applies to the newspapers’s current business model. They can only stay in place if they change their business model
The discussion here shouldn’t be about newspapers at all. People are missing the point that Mark MacLeod and Heri are making. The idea that everything can be free on the Internet is a predominant one, but obviously problematic if you’re trying to run a business. And to rely exclusively on advertising - especially as Mark points out, when it’s inside an application - is even more troublesome and difficult.
I want to write some more thoughts on this soon, but I don’t want to fill up the comment box.
Nevertheless, this shouldn’t be a debate about newspapers…it should be a debate about which business models will work, where, and when. How they should be applied is equally important, and understanding why you want to implement one model over another.
Totally agree Ben. Glad you understand what I wanted to write about. It’s not about blogs, newspapers but business models on the Internet
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