From an investment perspective it has always bothered my that some startups launch with the goal of first obtaining scale, and only later introducing advertising or other form(s) of monetization. However, this strategy has also bothered me from my perspective as user. It wasn’t until now that I knew why.
Fred Wilson over at Union Square Ventures and host of others have recently chimed in regarding Twitter’s lack of a business model. Twitter is perhaps the epitome of a startup lacking any clear money making direction and yet we all know it is coming.
Facebook is another example of a startup that has gone after scale (getting as many users as possible) prior to introducing monetization models. As a result, Facebook has introduced new types of money-making schemes along the way (Beacon) and will continue to do so on a trial and error basis.
Here is what bothers me. I now realize that said startups are essentially taking a â€œbuy now pay laterâ€� scheme. Ultimately I see this approach as self-defeating for the startup and horrendous for building long-term customer loyalty. In many ways the startup is creating unrealistic expectations.
Take Facebook as an example. It is my proposition that the best engineers and strategy folk at Facebook are no longer concerned about helping me stay connected to my friends and improving my personal user experience — for the sake of me as a user. Instead, these strategists are working on how to sucker me into spending gobs of time on the site and how to unobtrusively position ads that I will click. If they are truly brilliant perhaps they will mastermind a way to add monetization without pissing me off. Nevertheless, there is clear distinction in my mind between the two and it doesn’t leave me feeling good about Facebook. Juxtapose that with a startup that right out-of-the -gate charges a subscription fee or at least makes it obvious in the their copy and architecture that the site is not (or will not always be) free. It’s about setting expectations.
While my argument is decidedly pessimistic, I believe it is also realistic.
When a startup comes out with a great product, but does not initially monetize it, we as users we must realize that at some tipping point (maybe an investment by Microsoft?) the internal mission of the company shifts from putting users first to putting paying advertisers first. I think it’s a flawed model, but only time will tell.
Thanks to Ben Brown, it’s his post that got me thinking about this