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Internet entrepreneurs, is it really all about the money?

Written on 12th January 2008 9 COMMENTS
Ernst-Jan Pfauth, editor in chief

Money makes the world go round. Really! Even when it comes to Facebook, we don’t discuss privacy. No, we talk about monetization. Because THAT is the main issue, according to Dave McClure from Master of 500 hats:

While Facebook annual growth at 130%+ is impressive, as is pulling in $300M in cash for just 2% of equity, the fact that Facebook really hasn’t figured out where its core future revenue stream is coming from is a problem. It’s a problem for the company, for its growing developer community, for the advertisers it’s working so hard to get, and ultimately — if it doesn’t figure it out — for its users.

McClure writes that every platform monopolist has a money engine. Google for instance, has Adsense, Microsoft is earning big bucks with Windows & Office and Intel loves the chips.

Clearly, McClure is the expert here. He’s the one who has 20 years of experience and I’m just around for two years. Yet, I have the feeling that finding the ultimate money source shouldn’t be the number one priority for Facebook. If you asked me, I would say that loving your users is the smart thing to do. Treat them right, listen to their wishes and fulfill their needs. If they say that those damn Snowball, Super Wall and whatever application you can make up, is starting to irritate them, you give them an anti-clutter tool.

As McClure says: “Google took nearly 3-4 years to figure out its monetization engine (Adwords)”. Isn’t that because they were improving their services for the users, and while doing so, came up with a brilliant idea to make some money out of them? Let Facebook do they same. Improve their service, and with that, wipe out the competition. And of course, always keep your eyes open for that money engine. The traditional American business motto ‘be good for your customers’, is still valid in this new era.

More money talk: Mika from Dosh Dosh describes 16 types of websites you can create for profit. “Successful web entrepreneurs think like investors”, says Mika. So they build auction-, dating- and affiliate review websites…

However, I was once told by Scott Heiferman, CEO and co-founder of Meetup.com, that you shouldn’t start an Internet company with an advertise driven mind. During a seminar at New York University in 2006, he explained that his business statement is: “Are you gonna help people or not?”

Let’s all think about that for a while. Are we gonna serve users? Are we going to help them fixing their street, meeting people with the same hobby or protecting their children? Or are we’re just interested in making money out of them?

9 Comments »

About the author: Ernst-Jan is blogger and co-organizer of BLOG08, who previously worked in New York to cover news at the United Nations. Next to writing, he's also a singer in the band Christina Five. Follow him on Twitter or read his personal blog Dutchproblogger.com .

9 comments/trackbacks to “Internet entrepreneurs, is it really all about the money?”

Jan 24, 2008: Social networks making money through giving presents
[...] weeks ago we ran a story about the main problem of Facebook: monetization. Dave McClure, an internet expert from the Valley, [...]

By dave mcclure on Jan 13, 2008

thanks for the link & reference.

re: your comments above, i don’t think making money & “loving your users” are mutually exclusive. on the contrary if you really are creating something of value for your users, then there’s likely an avenue to making money, either directly via ecommerce or subscription, or indirectly via ads & sponsorship.

however, if you continue giving away a service that *never* monetizes it’s probably not sustainable.

“loving your users” could also be interpreted as being around for the long haul to provide a great service. doing that for free forever probably isn’t advisable.

fortunately I think you can find a happy medium between love & money ;)

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By Oliver Taco on Jan 13, 2008

As a grizzled and well whopped startup vet, I can tell you that anyone who doesn’t know where their revenue is coming from is either young (cough) or a d*mn fool. Or both sometimes.

Now, you don’t have to be right, but you had better be paying a lot of attention to how you’ll handle minor matters like salary and benefits when time comes to get out of the VC trough.

It’s why Amazon is still here and Boo ain’t. And why google and MS will be here when people are laughing about Facebook and MySpace in the 2010 issue of Wired.

-OT

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By Yaniv on Jan 13, 2008

The ultimate thing for a web startup is doing a great service that people will pay for.
Will someone pay $5/month for a Facebook account? I don’t think so…
But will you pay to backup your important images?(www.smugmug.com) Or to watch a a live football game (www.mediazone.com)?

The key is being able to provide a service that has a real value for its users and real value is measured by cash…

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By Steven Carroll on Jan 13, 2008

Great article, this is one of my problems with this climate we are in right now, muscle men, are taking over with the sole intention be to profit.

In my mind profit comes from value that you create. Thus the motto goes create something great and you will be rewarded. The problem however, at the moment is that there are so many competitors who have serious finical power trying to muscle their way in, they are given everything of value away, it’s who can give it away the quickest wins (they think), but in the stock markets that’s equivalent of a Bear market.

http://en.wikipedia.org/wiki/Bear_market

So while everyone is running around thinking how this is a boom, in fact it is very much the opposite, but in disguise because the revenue being pumped in is artificially distorting the real picture.

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By Jack on Jan 13, 2008

Interesting post, Ernst-Jan. I’d say that there are two main types of web entrepreneurs (there are probably loads of sub groups, but that complicates my argument) ;)

1.) The Entrepreneur whose primary motivation is making a ruck of cash.

For this entrepreneur the web is just a tool for making money. They might not need to do anything ground breaking to achieve this and instead will use the web to be financially successful by developing simple sites that turn a profit.

The adult sector would be a good example of this. The sites developed aren’t technically anything out of the ordinary – there are probably a hundred thousand that are almost identical. Instead for this entrepreneur, financial success comes from good SEO and SEM. There are loads of other examples of sites like this and entrepreneurs who have built their businesses this way.

Directory site offerings would also fall in this category. Most are nothing extraordinary, yet through aggressive telesales and intelligent SEO, these sites can make their founders financially successful.

2.) There is then the entrepreneur who wants cash, success and influence but who plans to achieve this by executing a ‘big idea’.

They’re the sort of people who are absolutely passionate about the power of the internet to change the status quo. I’m guessing that when they have an idea they get equally fired up about it and, rather than shelving it, take the punt of developing it.

This entrepreneur would still want the riches that comes with success but would expect to achieve these via the execution of their idea rather than by taking the more rational approach displayed by entrepreneur ‘1′ above.

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By Martha on Jan 13, 2008

Ernst-Jan,
You are vey correct that this should be about building a good product that makes your users happy, unfortunately reality is that the VC train ride is a tough and unpredictable. I agree with @Oliver, VCs want their targets hit and revenue streams established sooner than later, the employees want to be paid, and your users want reliable service. This all places the startup entrepreneur in the impossible position of spinning the achievements to suit the audience.
I don’t envy them the never ending stress of checking numbers and reformulating strategies, not to mention trying to figure out how to monetize their product.

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By Earning money. on Jan 14, 2008

Nice post. You have many points said in your post. But the fact is that successful entrepreneurs are only those who earn their money by executing good ideas and primarily by serving the users. Success achieved by deceiving the users is only temporary which ultimately will lead to the downfall of their own business.

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By FI on Jan 14, 2008

Your vision on this concept is absolutely perfect. I would vote for you.

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