YC Demo Day thus far: “recurring revenue growth” “recurring revenue growth” “recurring revenue growth”.there are worse things, I suppose.— MG Siegler (@parislemon) August 21, 2012
I’ve actually been noticing this transition in SV for the past year or so. More and more startups are focusing on revenue right out of the gate. The old way of trying to build gigantic user-bases and then sell their eyeballs to advertisers is falling by the wayside. There are certainly still exceptions, but right now they are just that - exceptions. Seeing a startup go after paying customers used to be like catching a glimpse of a unicorn. Now, it’s the status quo. But why?
For one, growing an enormous pool of users just isn’t that easy anymore. Even offering your service for free, you’re still competing with also-free tech giants like Facebook, Twitter and Google. There’s a feeling out there that even if your service begins to do well, all it takes is one of the big guys replicating what you’ve done, throwing their gigantic user base at it and annihilating your struggling product. We’re also seeing more and more promising startups (and their insanely talented founders and employees) get scooped up by these larger corporations with deals obviously too good to resist. If you want to grow a web-based business long-term, it actually seems in your best interest to charge right out of the gate so you at least have a fighting chance of surviving copycat or acquisition attempts.
Another thing I’ve been thinking about recently is the emergence of the niche web. For the longest time, the Internet felt like a singular destination, a place we all come to communicate and interact with one another. Maybe that’s because accessing “the Internet” has nearly always been done through a single icon on our desktops or docks. The most popular browser ever is even called Internet Explorer. With that in mind, it made sense that everyone latched onto social networking, creating the billion-user strong juggernauts we have today - it’s the personification of the globe-spanning connectivity we’ve felt from the beginning of the web.
Now, though, Facebook owns that global space. Users have settled into that community and, as in real life, have begun seeking out smaller groups. Groups filled with like-minded people. Groups that share individual values. Sure, this was possible before using forum and message board software. It’s just that having entrenched social networks makes finding those communities and individuals far simpler than ever before.
As a result, the web is becoming more localized, more niche. And what startups are beginning to realize is that they don’t need to be the next Facebook or Twitter or Google to achieve success and to grow a large, sustainable business. What they need to do is create products that connect with these small, but passionate groups of like-minded people. Instead of passionate users making up the minority of a product’s customers, the new goal is to make them the majority from the start. Because those passionate customers, it turns out, create even more passionate customers.
Want an example? Just take a look at Uber. Unlike most startups at the time, when they launched, their target wasn’t free. It wasn’t even cheap. They were after people who thought like they did - finding a cab in the city sucks and waiting for a cab you called sucks. It’s so bad, that it’s worth paying a bit more to not ever have to worry about finding or waiting on a cab ever again. Not surprisingly, a lot of people feel the same way. Actually, a lot of people feel very passionately about a service that can solve those problems. Time after time I’d hear stories about someone recommending that their cab driver quit their job and join Uber. Personally, I was stopped a few times on the street by people asking where they could best catch a cab. Without even thinking, I asked if they had an iPhone, then told them to just download the Uber app.
We’re discovering that you can’t create that sort of passion with free.
Most of the pioneering revenue-first startups were largely based in the physical world. Uber, Taskrabbit, Square - products that used the web and our phones as intermediaries to real world solutions. Get a car, get something done, accept a face-to-face payment. But as time has gone on, more and more startups are starting to pursue revenue by offering purely digital experiences.
Take App.net, for example. Whether they can build a service with longevity remains to be seen. But they’ve certainly tapped into a community that feels like they do. All told they made $800,000 from people who are sick of being sold to advertisers. At a more personal level, I’d contend that they’re tired of not being the customers of the services they use. They’re frustrated that products they love stop working in their interests. They’re willing to put up money (serious money) to feel like they have a stake in what happens with the apps they choose to patronize.
Free is losing it’s charm. It’s been slowly losing it since the first person complained about advertisement on Myspace only to be told, “What are you whining about? You don’t pay for Myspace.” It’s been losing it since we realized that, yeah, we aren’t paying for these services. Not only that, but we aren’t even allowed to pay for them. And so we’ve begun searching for and creating services that not only solve problems, but also solve them in a way that puts the customer first. In doing so we’re creating smaller, but more lasting and passionate communities of people that believe not only in the products, but in the vision and principles behind them.
The free web is dead. Good riddance.