The ‘Gowalla Situation’

http://teamblog.supportbee.com/2011/12/20/the-gowalla-situation/

by prateekdayal • 15 years ago

66 28 15 years ago

teamblog.supportbee.com

I am generally wary of any company that isn't using a business model predicated on customers paying for a service.

If the business model is "Attract lots of people and then sell ads." then the service will be oriented towards whatever provides the most clicks.

If the business model is "Get big, and then get bought out." then the service will quite possibly vanish.

For throwaway services that I can switch to a new provider for, this is possibly acceptable. But for anything I might want to base my own business on, or store information I will care about in the future, doing so would be foolhardy.

andrewcross• 15 years ago

I'll second this. It doesn't mean that these others can't exist (Foursquare is a big example), but there seems to be a valley of death for these types. Either go massively big or fail.

At least with a pay for use pricing scheme a company can do well and grow slowly without having to hit that massive knockout.

drumdance• 15 years ago

As an entrepreneur, this is why I favor starting B2B businesses. Sure, I would love to create the next Internet/social phenomenon like YouTube, but those markets are largely winner take all.

In B2B, you can be #2, #5, #10 or even higher and still have a successful business. Back in the 90s I worked with an email marketing company that scaled way too fast. The thinking was "get big or go home." Even as it cratered during the dot-com crash, small players were emerging all the time, and many of them are thriving today.

JoeAltmaier2• 15 years ago

But even bigger, succesful companies can be acquired and disappear forever. I don't think its any guarantee of stability that they are charging money for service, not any more. Heck, Verizon may buy Netflix, then what?

nknight2• 15 years ago

It's a lot less likely that someone will spend $4+ billion on a company just to shut it down, than a few million.

chr15• 15 years ago

I found this to be the case when selling to any kind of medium to large business. One of the objections I repeatedly receive is that adopting a startup's product is risky because the startup may not be around in the next year.

ebaysucks• 15 years ago

Prateek, I think it would help SupportBee if you mention you already have another cash flow cow on autopilot.

prateekdayal2• 15 years ago

Thanks for the suggestion. Yes. We are going to redo the about us page and mention that.

Also, my question was more around ways of signaling to your potential customers that you have a solid roadmap and plan/ability to make it big and sustainable and not sell out half way.

boundlessdreamz2• 15 years ago

What is the other cash cow ? :)

mikegirouard• 15 years ago

I find it interesting that you bring up Balsamiq. It was my switch from Mockingbird to Balsamiq that triggered my weariness that AndrewDucker points out.

Free services are quite nice, and I make great use of them (Wave Accounting, and TeamLab for example) but I can't help to always wonder what their future is and if/when they'll spring the email on me announcing their free plans were just a customer acquisition strategy.

OoTheNigerian2• 15 years ago

I just saw wave accounting. Really well done! and also interesting business model. They now have a paid payroll service built on it.

OoTheNigerian2• 15 years ago

tester who sent the email here :)

For 'serious software' that is doing business, the first thing I now check is Plans and Pricing. if there is none, it is almost a guarantee I will not be using it seriously.

I will confess though, it was not always like this. I was once of the people that Googled "Free Basecamp Alternatives" but all that changed when I started understanding "if software owners do not make money, how can they survive?!"

We caused it by making people believe "delivering bits cost nothing" forgetting that money was needed to pay the bills. Of course I still believe services should have a free tier to allow non-power users test a service. But that in itself is pricing strategy which has the word 'pricing' in it.

A product/service that has a business model does not mean it will shut down but one that does not will certainly shut down.

Things things are turning around. The 37 Signal guys should get some sort of recognition for being in the front of this struggle.

PedroCandeias4• 15 years ago

I'm with you.

  the first thing I now check is Plans and Pricing

Same here. And it annoys the hell out of me when there's none in sight. I actually avoid apps which start their copy with the word "free".

  forgetting that money was needed to pay the bills.

And keeping the team motivated, let's not forget that. I understand why a startup with big funding can afford to give away their service as a land grab move, but two-man teams and solo founders with no cash in the bank? Often as not, they're gone in a couple of months.

thaumaturgy• 15 years ago

I interact with non-technical people almost every day, and I can relate that this is a concern that they have been far more vocal about lately. I don't really understand how it became a concern, since I'd expect that they don't follow startup news like I do, nor do they tend to be early adopters that would have been burned by a service closing.

Every single of the half-dozen or so times that I've recommended Quickbooks Online to someone, their major objection has been that they don't want to rely on it because they're concerned that Quickbooks will just up and cancel it one day. (Or break it.) Just a few days ago, one of my clients asked my opinion of online backup services, especially Carbonite. Her first question was what she would do if they didn't stick around. She's a pretty sharp individual, but not tech-savvy, and even though I explained that in that case she could just sign up for a different service, she still decided it was too risky to rely on.

For me, after reading HN for a while now, I've gotten a toin coss mentality towards whether or not a particular startup will still be around in a year.

My hunch is that several classes of web-based startups are headed for trouble and don't realize it yet. If you're building a game, if you're building a Facebook app, if you're building something that people don't feel like they have to rely on, you're fine. But, if you're trying to address a major business problem or build something that people will have to trust for the long term, I think your pool of available customers is shrinking, not growing.

The funny thing is that what the customers want is lifestyle businesses -- businesses that the founders are totally invested in and wanting to work on for a very long time -- and lifestyle businesses catch a lot of derision in startup circles.

happyfeet• 15 years ago

Excellent points. Interesting to note that most startup businesses that go through traditional investor route exit via acquisitions or getting acquired to get returns for investors (or IPO).

I had this conversation with an angel investor with our team, when we said we are interested in staying in business for a long time and build our user base & let them speak for us. The investor said you need to take a call whether you want a 'lifestyle' business or you want to take the other route to build scale fast. Haven't heard from him yet. :) We were not convinced that we should throw lot of advertisement money, get lot of eyeballs, convert 1 or 2% into sales & just grow.

So, the question is: what kind of commitment can we give to our customers to assure them that a B2B business here is to stay & serve them. The purpose is to "exist" not to get acquired.

Would love to hear examples & stories of businesses that have managed to do the balancing act.

jconley• 15 years ago

This is definitely a real concern with the SaaS model and one of the reasons big business has been reluctant to rely on it.

Source code escrow works really well to sell enterprise customers. Perhaps there should be something similar for SaaS companies. An agreement, paid for by the customer, that if the company fails or the service is no longer supported, the customer will be given the ability run it themselves.

anothermachine• 15 years ago

It's a nice idea, but has a fatal flaw:

Customers don't want to, and are not able to, operate a SAAS operation in house. That's why they go SAAS in the first place.

Here's a variation, though: The vendor should open source their core software and escrow some extensions (if they need an IP moat to stay in business), and license their technology to a reputatable small consultancies, something like Revolution Analytics (R language), Analytics Pros (Google Analytics) for use in resale/redploy

The ‘Gowalla Situation’

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