Disclaimer: I'm the CEO of Licensario, a company who targets to build the ultimate solution for monetizing your application. The following cases are examples to where there is a need of finding a source of revenue. I wrote this post after attending a great meetup in order to start a discussion which companies in the same situation could learn from. This is not by any chance an attempt to market Licensario.
A few days ago I heard the CEOs of Viber and Soluto – 2 of the most promising Israeli startups – speak about their companies and how they got from 0 to millions of users. I put millions of users in bold in purpose. Not because it's surprising that such products are used by millions. That's not surprising at all. I think they got excellent products and great people are working on those products. It gets just one glance at Soluto's UX to understand that you want their creative department to work for you. The thing that amazes me the most is what these 2 companies share. Them and many other companies. Millions of users and no income. Zero. None. How can it be? How can such successful companies with brilliant people, millions of users (active users), VCs backing them are not making any money? Can we even call them successful if they're not making any money? Can a company with no clear notion on how it's going to make money should even exist? Should a company exist if the only revenue they can see in the future is an exit?
I know that some readers might raise an eyebrow at this point. They will definitely start quoting all the experts they read that said that in the beginning you shouldn't worry too much about how your product will make money. I partially agree. I won't get into why I don't totally agree. This deserves a whole post. I'll just say that businesses purpose is making money. More raised eyebrows here for sure. Let's just say I'm in the entrepreneurship business in order to change the world like any other entrepreneur but a business, as an entity, should make money. Anyway, I'm not talking about starting companies. I'm talking about established companies. With millions of users.
When these companies were asked the difficult question "how on earth are you going to make money?" the audience got answers like "sell extra features, charge enterprises for our service etc.". What can I say, I wasn't too pleased with the answers. I don't know if I could give better answers but I do have some suggestions.
Let's take Viber for a second. Viber offers free calls and text messaging. From what their CEO Talmon Marco told the audience they have 45M active users. Amazing number. I think that Viber exists 2 years. So, 45M active users after 2 years. Clearly a number every entrepreneur will love to see after 2 years of operation. It means they have a great product. A lot of people love it and remember to use it every month. I've got a revolutionary suggestion. Start taking money for your app. I know it's a big risk but let's imagine for a second. Let's say Viber will charge 10 cents for their app. Even for their existing users. No doubt, some people will stop using their app. Let's say they'll lose half of their users. this leaves them with 22.5M users which turns out to be $2.5M coming into the company. It sounds better than $0 but there is still a problem with that model. Viber wants a monthly revenue stream. What if Viber charged their users 10 cents per month? The immediate conclusion one makes out of this kind of decision is that they will lose a lot of users. How many? 80% of their users? 90% of their users? All of them? Viber was able to engage millions of users to use the app every month so it's reasonable to assume they will stay with at least 10% of their users. This means 4.5M active users, $450K per month, $5.4M per year. I think that's better than not making money at all. Another thing that might be reasonable to consider is that for a user to use Viber depends on if her friends are using it. So, if most of her friends were willing to give it a try the first month (it's only 10 cents per month!) she will also give it a try. And if her friends are using it, their friends' friends are using it and so on.
Surprisingly, my suggestion for Soluto is the same. Charge for your service. Why charge only enterprises? Soluto got a great product with an amazing user experience. With Soluto it's easy for you to be the only geek around (or virtually around) that knows about computers and how to fix them. Soluto's CEO Tomer Dvir's answer to how are they going to make money is that if you have up to 5 computers you help to in your network it's free because it means you are a personal user. If you have more than 5 then it's a company and they will charge for it. Why not charge personal users as well? What if Soluto decided that if someone wants remote access to her computer for fixing purposes she needs to pay 1$? I bet that most of the people will pay. Why not, it's much cheaper than calling a technician. They can even start a network of Soluto technicians that people will give access in order to fix their computers. Some of the money that the ones getting the help payed will go to the Soluto technician that helped and some to Soluto (30%, 70% is popular these days…).
Why do companies are so afraid charging for their products? Is it technological difficulties with dealing with charging users and offering them flexible pricing? Is it because people got used to free stuff when it comes to software? Is it piracy that became easier to people than paying? Are they afraid all their users will stop using their product? Maybe it's because the paying process really pisses users off (Apple did a great job easing this issue)?
I don't have a clear answer for this question yet and I'll be happy to hear what you think. Maybe the poll below will help…
Update (October 13th, 2013): I closed the poll. Following are the results. You can also view them in the following link as a chart: https://app.slik.io/charts/chart_ee004e2d518b36bc1cfa. Soon I'll write a blog post about the results and about the funny answers I got as 'other'…
Thanks for this post.
Indeed one of the biggest challenges B2C companies face.
I genrally agree with your argument that "a business, as an entity, should make money".
One crucial factor that you didn't mention in your post, is:
Viber competition, Skype, are giving a very similar service for FREE.
Why should users prefer paying money for a service that is all and all the same
(Hope this won't insult Talmon;) ).
I think that Viber's business model is forced by the business environment it works in.
And therefor their solution can't come from just starting to charge for their service.
They will have to reinvent.
That's the magic in our profession.
We always need to innovate and reinvent, even when we have 45M users.
Thanks for your comment. I actually thought about putting it as an option in the poll (competition – the fear of market leaders) but decided not to. I believe that eventually Viber and Skype are different in the way people use them. Because Skype began as a desktop application I think that users perception of it is exactly that. We use it to make long distance calls, business conference calls, etc. for free. Moreover, Skype do have a paying service. On the other hand I believe that Viber usage is more social (and of course mobile) – speak with your friends who are the contact list in your phone.
At the bottom line it's like you said, and I totally agree with it, they will have to reinvent in order to survive. I just think that a revolution should start somehow where people actually pay for software services (when there is no other creative way…) like they pay for any other service outside the virtual world. Someone will have to make the first move…
You started an important discussion. I think people are used to consuming free services just because they can. This is the atmosphere now and commercial and advertisers encourage that as well. People can't have free iphone or ipad, but after they have purchased one, they want to use free apps, so they can say they maximized the benefit.
The business model of collecting millions of free users and making money from advertisements or selling commodities, is an answer to piracy. Instead of chasing after piracy, we give some for free and create our revenues from another source.
Every business needs to supply value to its customers. So, if the app is only for private or social use, the assumption may be that the value these customers seek is to get it for free or very cheap price, but if the app use is for our business, than we are willing to pay and the value we seek is quality/service/innovation.
The options are: A. to change the atmosphere. B. to be creative in our product and business model and always check who are our customers and what value they seek.
Clearly, option A requires cooperation between all apps writers. Nevertheless, the discussion is very important.
SWR accounting & tax
Hi Sigal, thanks for your feedback.
There's no doubt business model creativity is needed in the current atmosphere. I don't think ads are the answer. Especially not to a mobile app. Mobile ads will barely cover your office rent not to mention running a company… Ads, as targeted as they can be, are problematic even in a website.
About piracy, that's a long issue that I'll cover in another blog post, but I'll just add an interesting fact taken from the BSA global software piracy study:
I guess that the numbers on mobile are quite the same. To make a long story short, it seems to me that companies that will offer flexible pricing models such as subscription and pay-per-use will be surprised about customers' willingness to pay. Of course that there are more issues that impacts a user's decision whether to pay or not regardless of the price.
Great discussion. it somewhat avoids an underlying question, especially relevant to our exit-driven startup culture, of whether the startup *wants* to make money from users. in an ideal world the question itself would be laughable. I don't think we live in one.
Hi Idan and thank you for your comment.
Well put. The question you ask is really important. I think that this mindset is starting to create a bubble of startups that just count on the fact that they will be able to get millions of users. A dangerous game in my opinion. If you're building something so great and addictive why not charge for it? Find the right pricing model. Learn what your users are willing to pay but yet again, charge. You have to eat at the end of the month and VC money may run out. Of course not every app can be charged for but still there are a lot that can be but decides not to in the sake of having millions of unmonetized users and a potential exit.
I came across this article just now as I thought to myself, "how does Soluto make money?"
It seems to me that today's current culture is "hacker" driven, where the belief is that everything should be free. However it does astound me that these seemingly intelligent hackers "fighting the man and the big corporations" seemingly miss the point that people need to eat. And to eat, they need to buy food… you see where I'm going.
I guess people look at start ups like Facebook, which was started by a hacker, and is free for its users, and then just do as you say – figure it out once they've got millions of users.
As a developer, I'm increasingly feeling like our skill sets are undervalued. Especially for the brilliant minds behind products like Soluto – who not only achieve technological brilliance, but also beautiful design redefining the boundaries of UX.
This culture will need to change, and I think it will. However someone has to make the first move. It's a potentially disastrous move, but can these businesses really afford not to?
Hi Rhys, I'm glad you found this post and found the time to comment. I'm also glad someone agrees that this is a dangerous culture we're building. This culture is most astonishing when you put it in the context of where the worlds is today. We live in the most technological era and yet developers are afraid to charge money for their services. It seems like that as more people use computers, mobiles, tablets etc. the more developers offer their services for free. I think that VCs encourage this culture because of their way of measuring traction. If VCs were to change their KPIs and say to a startup – I don't care if you got millions of users. Make them pay you. Find a model where you can make money out of these users and then we'll fund you. If you're building something that addictive people should be willing to pay for it like they pay for any other commodity. When you charge for your service be fair with your users. Offer flexible pricing to suit almost everyone. Make it dead simple to pay. Would you pay for Soluto if this was the case? I feel like I'm marketing my Company Licensario but this is exactly what we do.
I hope that this mindset of free or that only enterprises can be charged will change for the sake of technological innovation. Because this bubble will burst.
Let me echo what Idan and Rhys said: the goal is not to build a great, profitable service but to build something that gets of millions of users, largely because it's free, then sell to the greater fool. In the case of Myspace, it was NewsCorp, Skype -> Ebay and then Microsoft, Bebo -> AOL, Youtube -> Google. Note how all of these free services are bombs that still lose money or were written off at the cost of billions. As long as you have dummies at large corporations who will give you a billion-dollar "exit" when you flash millions of free users at them, why bother with monetization? There is ultimately only one "customer" for these free services: the moron biz-dev executives at the large corporations who buy them. The users are just chumps who are given a free ride, until the acquiring corporation inevitably realizes its mistake and kills off the acquired service.
That's another way to put it and I totally agree. Joakim, thanks for commenting.
HI, Im with you and your article. I think fopr me it's to difficult to pay for any apps. I am using android. Also, I don't have a credit card, for me my checque-card is enough. Im from Germany. The billing service in Google Play/Market is not good for me. I can't even pay for an app if I want. Apple did a great job with iTunes, but that's another point. That's apple :-) I prefer android as OS. :-)
Thanks for commenting. Soon Licensario will be the solution for you :).
" I’m also glad someone agrees that this is a dangerous culture we’re building. "
Really dangerous comment to human progress.
The Open Source model has released massive innovation, creativity and benefit to all, Money making is no obstacle with this model – through consultancy and support.
Please catch up with progress on the rest of the planet.
I miss one tiny detail here; is Viber making any money today ? If yes, how ?
I don't know if they're making money (I hope they do). I just know that the product is 100% free and without any ads.
Viber is not making money yet (as his CEO said)… I don't believe in pay for use solutions for such social tools… Viber is important for users because they can join their friends… If their friends aren't on Viber anymore, they won't care about it….
Do you also think Linux is a failure because personal users can use it for free?
The way of the future is free software, not forcing people to pay.
If people are going to try something out and they have a choice of a free option or a paid option or a pay-per-month option, they will go for the free option.
If they think that is good, they might go to a paid option if that option offers more services. The only benefit from viber is that it uses your phone's contact list, personally, I don't think that is worth it.
As someone pointed out, Skype is free. However they charge for premium services and have an obvious way to make money. Additionally, they are owned by Microsoft giving them more credibility.
Viber however, comes from a 3rd world country and has bills to pay for services and the like, yet no source of income. This is a very big red flag. In order for them to stay afloat they would have to have money from somewhere, such as selling your personal information, perhaps even entire phone calls, or being funded by their government for some unknown reason (perhaps to try and spy on everyone).
This could destroy their reputation forever (I will never use it because of this), as would forcing people to pay when it was originally free.
I've got so much to say but I'll try to make it short. First of all, thanks for taking the time to comment.
Second, I'll start from the end of your comment:
I would check the facts before writing such statement. Are you sure you're calling a country that's got the nickname "The Startup Nation" a 3rd world country? Are you sure you're calling a country that's ranked 3rd in university degrees per capita a 3rd world country? Israel has the highest rate of entrepreneurship among women in the world. Are you sure it's a third world country? Israel won the most Nobel prizes per capita. 3rd world country? I can go on and on but you got the message. Ohh, and I forgot to mention that Israel is the only liberal democracy in the Middle East. 3rd world country?? Really??? So, again, check the facts.
About paying for software, you kind of answered yourself when you write:
This is called freemium… So, you say it yourself, people should pay for software when they find it valuable.
Did you actually bother to read what I said?
I did not say freemium, where you get the product for free but then pay for heaps of things inside that product.
I said people would get a free product and if there is a paid option that offers more features (so not viber if it was a paid option) they might get it. Not that they should, nor that these paid features would be in the same product.
I suggest you brush up on your English skills.
If people find software valuable, they can pay for it, but the shouldn't need to.
As for Israel being a third world country, spending money on education and what you have listed doesn't make something no longer a 3rd world country.
You are also wrong about the Nobel prizes. It has 10 for a population of around 8 million, so 1 for every 800 thousand.
The UK has 117 for 63 million people, so 1 prize for every 540 thousand. So it has more.
And that is hardly a measure of how developed a country is.
Having a "liberal democracy" does not make it a 3rd world country. And what exactly is a "liberal democracy"?
A democracy is a system where the majority gets their way. A liberal system is where the minority cannot be oppressed by the majority, where just because the majority would oppose same sex marriage, they can't stop the minority from having same sex marriages. The 2 are contradictory. You either have a liberal system or a democratic system.
Israel also has religious courts with legal power. So no, not very 1st world like. Perhaps 2nd world.
Still, you ignore the main points and just focus on a few details. Are your arguments really that weak?
I don't really understand what you're saying about paying inside the product. Are you talking about selling physical goods like Angry Birds? You write:
Leaving Viber aside, isn't it what freemium is? I'll be happy for a clarification if you think I got you wrong.
About Israel, I'm not going to get into a battle of words with you but I'm interested on why you think that Israel is a 3rd world country? I agree that some parts in Israel remained religious but it's still far from being a 3rd world country. The majority of Israel's population is not religious.
BTW, what I wrote about Nobel prizes is right only for the 21st century and not all-time. My bad.
And another thing, even if we have our differences, thanks for taking the time to comment.
Just found this blog. Sorry for being so late. I was talking to my lawyer about the "freemium" model. His comments were something along the lines of; in today's world, a new company needs to have a "freemium" model for a few years in order to stay alive and build up its user base. Only then it can amortize the customer base for revenue. Because if it shows any sight of profitability in the beginning, the competitions will come and bury it.
It depends on the type of the company. Freemium comes with a math that needs to happen for the model to work. A simple example: let's say your target annual revenues are $100M. Your expected annual revenues per user is $100 and the conversion rate is 3%. The implied number of paying users is 1M. That means you'll need 33,333,333 free users in order to get there. Obviously, it will be really hard for a B2B company to get there.
Eventually, everyone wants to make money. The model should satisfy your product, users and competition.
As far as conversions go. Skype is doing a pretty good job. I remember they were saying 8% of their users pay. By the same token, their video chat service is a waste of effort as they can charge money with their current model.
Very Interesting. Viber has ALL the contacts of it's 44 Million users. For marketing purposes, surely that is worth a fortune ?
Yes it would be.
What is worth even more is the ability to snoop on their conversations, reading every message that is sent and listening to every word spoken or sound made.
While there isn't solid proof, there is some evidence for it.
They are hosting a service. This requires money as it requires hosting of various things
They are not charging money for their service. They do not have ads, and thus don't get revenue from that source either. The only legitimate source they could have is if the guy who made it is rich or people are hosting it for them for free, which I doubt.
When I have asked them before, all I got was the typical reply of avoiding the question saying they are interested in making a userbase.
When I pushed further, I get no reply. This leads to the conclusion that they are not funding it in an honest way, which makes me conclude that either:
1- They are going in debt to build a userbase and then will start charging for it – this is very risky.
2- They are selling information such as contact details or perhaps entire conversations or snippets of conversations to make there money.
3- They are sponsored by their government or some organisation that wants to be able to access the data whenever they please (and likely will be able to).
The first option is a very stupid strategy and requires going into significant debt before getting any return.
So the 2nd and 3rd are most likely.
Regardless of what option, I have every reason to believe that whatever they are doing is dishonest.
Does anyone know how to set up a log for a wireless router to see what data goes where?
The first option (free and then paid) is being implemented now by a competitor of Viber, Whatsapp. So it's risky but still happening all the time. About the other 2 options, could be. I agree that something weird is going on there but it still doesn't mean they are selling your data.
Today I read an article about Viber in the Israeli press (it's in Hebrew so I won't share it. TechCrunch wrote about it as well here http://techcrunch.com/2013/02/26/skype-competitor-viber-hits-175-million-users-up-from-140-million-in-december/). Their CEO claims they will start making money soon from partnerships with carriers. Let's see.
Has Whatsapp always had its current pricing plan, or was it originally completely free?
Also, how long has it been around for, and how long were people able to have it for free?
And sure, soon they will start making money, but that doesn't explain how they have been able to operate for free for several years.
Whatsapp was founded in 2009 and was always completely free (I think…). This is interesting to read about Whatsapp: http://blog.whatsapp.com/index.php/2012/06/why-we-dont-sell-ads/.
When you have investors' money (a lot of it), you can operate for free for years. Some well funded companies choose this path – growth over revenues. Facebook/Twitter/YouTube etc. were around for years before they started to make money.
I dunno, but does it sound dumb to have like "Viber for Enterprise" as their source of revenue?
It's not dumb at all I just don't see it happen. What will be in the enterprise version?
Might be he is selling the content to security agency. Afterall viber boss is having a military background
Very interesting topic….really love the idea behind the service they're offering, especially with the new desktop client, but at the same time, I'm disturbed by the fact that they're aren't making a cent from this service :|
As Jack stated, there's a high potential of them being some kinda global spy…perhaps they are part of the illuminati's plan to take control of the world? I, like several others (including young teenagers) would gladly pay $1.00 per year for such wonderful service; that's at least $40 million in revenue every year for such WONDERFUL service. That's a lot of money.
come into the parlour said the spider to …
The first thing you can charge without losing any user is to make an ad spot, charge high since there is alot of users and usage. Better than 0