But How Will They Make Money?

Entrepreneur, blogger and Angel investor Andrew Chen writes that “Business models are a commodity” and that we should stop asking how a service plans to make money. Because, argues Chen, “monetization is now a boring problem to solve because there’s a ton of different options to collect revenue that didn’t exist before.”

Let’s look at the examples Chen gives:

  1. There’s 200+ ad networks to plug into
  2. Payment providers like Paypal, Amazon, Stripe
  3. “Offer walls” like Trialpay
  4. Mobile payment solutions like Boku
  5. … and new services coming out all the time (Kickstarter)

Two out of five are advertising services (#1 and #3), except advertising is hardly a vector to great monetization unless you happen to be either Google, Facebook or an advertising network yourself. Two more are payment infrastructures (#2 and #4) which mainly just help to reduce cost and effort on your part, and friction on the user’s part, to accept transactions and sell goods; you still have to figure out how to actually convince people to give you money. And lastly, “new services” which could be anything (and many of which may well help indeed), but the example cited, Kickstarter, is hardly relevant to startups with a monetization problem. Kickstarter is profitable itself, but it has a lot of gotchas that come with it if you wish to launch your startup off it; a Twitter-like service, for instance, is (last I checked) not permitted.

Now, Chen makes various good points—our market of web– and mobile users is significantly greater than it used to be, and various services do help you to build a product faster and sell it more easily to more people—and it’s not that he’s dismissing business models themselves. They’re still “super important” as he notes in our Twitter discussion that inspired this post.

What I disagree with is the attitude and view that products are made quickly, grown to great size, and then “easily” monetized if not sold off to a bigger company, and the whole thing being something to aspire to. If you want to actually build a truly great product, you cannot treat it as a commodity, and your business model behind it should be part of what makes the product great; therefore, the business model itself is no commodity either.

Selling a product is hard. Selling a great product is a lot easier, but it’s still pretty damn hard. I see so many entrepreneurs spend a lot of time, money and energy into creating a product and trying to make it great, only to sell it off because they couldn’t figure out how to make money off it.

If this is to be considered a good trend, we should call the Tech startup scene a privatized R&D industry, one where users are guinea pigs. Because that’s what it is if all you do is create a startup with seed and/or VC funding and sell it off to the highest bidder. It makes you a researcher, a developer, a “prototyper”—not an entrepreneur. If you’re not willing to figure out how to sell your product and actually try to, you’re not creating a business, and you’re not being an entrepreneur.[1]

And that’s okay!

I have no problem with people spending VC money to create a great product to give away and eventually sell to (or cultivate at) a larger buyer; but if you think your business model is a commodity, you should perhaps refrain from calling your company a business altogether. Mark Zuckerberg is an entrepreneur who built a business; zero-revenue companies that Facebook bought were not businesses, they were the product all by themselves.

As a user, I’d like to know that the creators of a product or service are at least trying to make sure the product continues to exist, rather than invest my time and energy into it at the risk of being no more than a guinea pig to them.

I’m sure that as a startup founder, many consider what I said above as heresy or foolishness. If so, please leave a comment over at Hacker News on this item. Or, write a blog post in response!

  1. Calling yourself an entrepreneur in such circumstances is like a blogger calling him– or herself a journalist without doing any of the things that journalists do, save for writing.

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