Shady webapp business practice. Opinions?

https://news.ycombinator.com/item?id=1774060

by skeevy • 16 years ago

9 4 16 years ago

news.ycombinator.com

Hi. I am a long time lurker. Just as my username states, my business strategy is shady and I need your opinion on the ethics and practicality of the situation. I am almost done creating a webbased service which is currently being offered by 1 major competitor (2 minor ones) at a licensing fee of ~$400/group. The functionality of this service can be easily replicated for ~$10,000 and maybe $5000/yr upkeep. It is catered to niche group. The major company is making ~4-5million in profits/yr.

My question: Is it ethical/practical for me to create the webapp and then contact the competitors in an attempt of being bought out. Do companies do that? Otherwise, I would offer the service as freemium and a premium mobile app with notifications. I would directly be taking away from the competitors since they haven't updated their product since 2001 and they charge money. This is my sideproject with only myself as an employee.

Do you contact the competition after creating the product or let the product speak for itself?

lmai• 16 years ago

If the product works and you start to take market share from the incumbents, then they will seek you out. Market share is your leverage. If you go straight to them with a product that isn't a huge step forward, you'll either get ignored, get a lowball offer, or get squeezed you out as the competitor injects money into the app. In general, I don't think it's a skeevy practice to form a company expecting to get acquired.

aspir• 16 years ago

Getting bought out by competition is how most startups exit. I wouldn't call it shady- unless you didn't want to do so (then you're just turning your back on your own beliefs). People do it all the time - its how entrepreneurs become serial entrepreneurs. In fact, VC's expect you to do so, often times within 5-7 years of investment.

http://www.google.com/search?sourceid=chrome&ie=UTF-8...

In fact, Google tried to sell to Ask.com early on, but they wouldn't buy.

http://www.techeye.net/business/google-wanted-to-sell-its-so...

Early on, the competitors probably wouldn't want to buy you, they'd probably just laugh and try to run you into the ground Microsoft style. The best way to get bought out is to have traction, existing customers, and a whole lot of potential for growth that you don't want to/can't deal with. That's when they'd buy you - when it's worth it to their bottom line in a very foreseeable way and when your product has been market tested.

In my opinion, I'd start selling and see what happens, if it's good enough you'll not only pay your bills, but the sale will be better if you can do so. Or, if you like it and you're talented/lucky, you could end up becoming the market leader and do really well for yourself. Like Google did.

tptacek• 16 years ago

What part of this strikes you as shady? Is there more to the story than this? Start here: where did you get your market research info from? Your numbers are very specific.

staunch• 16 years ago

Maybe I'm misreading but it sounds like you're saying they have >10,000 paying customers. Getting to even half that number of customers will probably take you years.

I wouldn't bother contacting the competition until you at least pose a credible threat to them. Even then you're better off if they contact you. As somebody said "companies are bought, not sold".

Shady webapp business practice. Opinions?

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