Comments on: Ad-based versus direct monetization: Which one is better for you?

By: Rojer

Rojer — Mon, 17 Nov 2008 21:29:15 +0000

A recession is a worst period for start-ups. You don't get investment and as a result you don't grow

By: Rojer

Rojer — Mon, 17 Nov 2008 14:29:15 +0000

A recession is a worst period for start-ups. You don't get investment and as a result you don't grow

By: Rojer

Rojer — Mon, 17 Nov 2008 13:29:15 +0000

A recession is a worst period for start-ups. You don't get investment and as a result you don't grow

By: ryangraves

ryangraves — Tue, 04 Nov 2008 10:09:17 +0000

“Buy low, sell high” I'm a huge believer that those who are able to invest
and grow during this time will seriously benefit from their contrarian
actions…thoughts?

By: Taylor Davidson

Taylor Davidson — Tue, 04 Nov 2008 05:26:12 +0000

Solid point: that's two pretty big steps. There's a reason we do things the easy way first: it makes sense, and people (users, investors, seller, buyers, advertisers, entrepreneurs) are used to the model of activity.

Do the steps have to be sequential (instead of simultaneous)? Separating the two also leads to a lot of effort spent creating products and services that people don't really value (i.e. that they wouldn't pay for). Isn't the problem on hand to solve real people's problems? To create things they want?

Setting prices is like setting a bar for what you're creating: if someone wouldn't pay for it, is it really that valuable?

In any case, indirect monetization isn't a new business model, and it's been the base of huge industries for many, many years, and will continue to always be a valuable method for monetizing things people want. But it's not the only way.

By: Andrew Chen

Andrew Chen — Tue, 04 Nov 2008 04:21:34 +0000

I think your point on deferring price-setting is a HUGE one…

Generally, for startups, it's hard enough to get customers to come to your door, much less figure out how to make money. By separating out the problem into two steps: 1) get eyeballs, 2) make money, that lets you entertain indirect monetization methods and focus 100% on the immediate problem on hand.

Obviously, this strategy doesn't work for everyone. After all, there are plenty of businesses that NEED to charge to survive – pretending that everything can be free and subsidized by advertising neglects the fact that a health ad marketplace needs both buyers and sellers. Not everyone can be a seller and give their product away!

By: Andrew Chen

Andrew Chen — Tue, 04 Nov 2008 04:18:57 +0000

I think there are plenty of amazing companies that are direct monetization plays that serve audiences that are BIG ENOUGH to be venture returns-possible, and are also defensible enough that they won't get out-hustled on the user acquisition side.

You definitely need a defensible advantage, or a network effect in how you monetize, and then you can have a stable position as a direct monetizer. (Netflix and WoW are both great examples here)

By: Andrew Chen

Andrew Chen — Tue, 04 Nov 2008 04:17:10 +0000

The difficulty with indirect, of course, is that although you can grow a service during a recession, it may take too long to break even! And thus you need investment, but people seem to be squeamish these days.

By: Taylor Davidson

Taylor Davidson — Tue, 04 Nov 2008 04:08:53 +0000

I love how you point out how the monetization method really has to fit the product, audience and the company's goals. Talking about Facebook, Twitter et. al. really neglects the wide range of companies creating value for users in their own way, each trying to figure out the right way to provide services, sell products, gain users and make money in their own way.

I wonder if a big part of the attraction towards indirect monetization is that people are unsure how to set prices? Indirect monetization, especially advertising-based, comes through a largely passive acceptance of market rates, whereas direct monetization requires companies to set (and justify) the prices for their products and services. Are we scared to set prices?

By: kamal ravikant

kamal ravikant — Mon, 03 Nov 2008 23:23:44 +0000

I've been thinking about this issue. Working with an Angel fund, I get to see smaller deals pass by, and to tell you the truth, I'm quite drawn to cash internet businesses which just scale over time as their sector / niche / internet usage grows.

The WOW vs. MYSpace example is a very good one, btw, especially in showing initial costs. And the whole recession talk, well, that'll just get companies to be more creative in generating revenue, which I'm looking forward to.

By: ryangraves

ryangraves — Mon, 03 Nov 2008 16:50:57 +0000

The MySpace vs. WoW is an awesome visualization of this principle…

I think it is very important to note that although advertising might slow down into the recession, I don't believe internet use will, which means this is still a very good time to grow a service that will utilize that indirect method.