The First Penny - getting your users to pay you anything at all

http://redeye.firstround.com/2007/03/the_first_penny.html

by semigeek • 19 years ago

34 16 19 years ago

redeye.firstround.com

drop19• 19 years ago

I've actually never read anyone discussing the elasticity of demand for web services. Here's a thank-you to my econ teacher in college!

Sobering quote: "The biggest gap in any venture is that between a service that is free and one that costs a penny."

Readmore3• 19 years ago

It may just be me but I didn't really get much from this article. The author states that it's hard to get users to pay for something, and then doesn't offer any advice as to how to fix the problem.

cnaclerio• 19 years ago

I think how you fix the problem is finding other means to make money rather than having users pay. I must admit, if I see a dollar sign on a website, I'm less likely to even try it out. And if I never try it, then I never get hooked, and everyone loses.

I think we're on the verge of a new form of web advertising. One that works, actually makes money, and isn't annoying (like flashing banners). Google's way is a good start, but we need something revolutionary, and once it happens I think the question of whether or not users pay becomes futile.

run4yourlives• 19 years ago

I think how you fix the problem is finding other means to make money rather than having users pay.

The one issue with this is that it smacks of dot-bomb "Build it and they will come" thinking.

Although a few leaders will emerge, I don't think it's a viable theory for most start-ups. You're better off lowering your expectations and sharing a piece of a smaller pie.

Of course, VC's don't like that thinking too much.

jwecker2• 19 years ago

It's kind of funny- I think about web apps constantly. After reading this, though, I decided to make a list of the web applications that I have actually paid for. I could only think of one- it was one of the ediet ones that lets you pick your diet (out of many popular ones) then emails you meal plans and shopping lists each week. I'm not even on a diet.

The fact that it saved me time and thought thinking through healthy meals was what got me to pay. And it made me realize also how few web apps actually end up saving me time in the end (which is the make-it or break-it factor for me, but I realize probably not for others).

So here's my question- what web apps have you other news.YC'ers ever actually paid money for? Any?

imp2• 19 years ago

That's a good point. I just now realized that I haven't paid for any web apps myself (unless you count Skype). Although recently I was looking at PayScale (http://www.payscale.com/), and thought that if I was looking for a job I would probably buy a premium report from them. In this case the $20 report could help negotiate a few extra thousand dollars in salary.

imp2• 19 years ago

Also, a friend of mine used one of the major dating sites like eHarmony, and I think it cost her about $20 for 3 months. As in your example, it seems like the money is worthwhile because it saves time.

Readmore3• 19 years ago

It is true that making your users pay to try your product is the best way to keep your userbase small. I think that offering a free version and then a pay version with extra features is the only real way to expect users to pay. The problem is what happens when someone else comes along and offers all of your features for free? Google was really smart with Gmail because they started out offering people 2 gig of space, which seemed insane. What was even better is that they then made it constantly 'increase' so it seems like you have as much space as you'll ever need. But if you actually watch that ticker it's increasing so slowly that it probably isn't costing them any more money, and in fact their cost probably goes down, to give each user that much space.I guess my point is that once you have a user offering them a better 'precieved' value, even if it's not better than someone else, will get them to stick with you, or get them to consider a pay account.

davidw• 19 years ago

"The problem is what happens when someone else comes along and offers all of your features for free?"

I created Stuff To Do (stufftodo.dedasys.com) as something we needed for work, but on my own time, so I decided to experiment with it a bit. I came up with what I thought was a pretty good separation of pay/free versions: the group-enabled version costs money because if you're working in a group, you're probably in a company, and companies have money...

However, it is also a space that's got a lot of people in it, and while I think I have a few compelling features (the time tracker is the easiest out there) free is tough to beat.

Not sure what I'll do with it, because it's not really the sort of application that lends itself well to advertising (I'd find it pretty annoying to have ads on my todo list).

semigeek• 19 years ago

"But if you actually watch that ticker it's increasing so slowly that it probably isn't costing them any more money"

Multiply the increase by the amount of users that receive it and the number doesn't seem so small - and can never be considered 'no cost'. The trade off is that with the more mail they can index per user, the more relevant advertisements they can display and the more people they can lure with their gimmick. Of course, they're also taking advantage of the 10% rule when it comes to offering that large amount of storage.

Readmore3• 19 years ago

Agreed. Storing more email helps to target their ads, and most users will never use the full amount of space. Also, at the rate that storage gets cheaper they are able to continually increase the limits. It's like the problem that Amazon had with excess servers, they had so much infrastructure that they needed something else to do with it, to fix the problem they started the EC2 and S3 programs. Gmail could serve the same kind of purpose for Google.

paul2• 19 years ago

It's important to understand that there are a lot of non-monetary costs associated with paying for things, such as entering payment info and deciding whether it's actually worth paying for in the first place.

immad• 19 years ago

agreed, clearly the discontinuity in the demand is based on the non-price costs, which is why people like the idea of easy micropayments so much. But the psychological difference between free and not-free is pretty significant.

paul2• 19 years ago

Exactly. Even with micropayments, I would still have to think about it, and I don't like having to think. This is part of the reason why the most popular micropayment system on the web is Google AdSense.

On the other hand, I regularly send text messages on my phone without much though given to the crazy $0.15 per-message fee.

jwecker2• 19 years ago

same with "registering" in the first place, even if it is free. Just knowing that you have to make a decision whether or not you can use your real email address, the nagging question of what they're doing with the information, etc...

MEHOM• 19 years ago

The key objective is to develop an solution that would either generate revenue or save time and money for the user. If you cover that in your app, your group got a winner. Remember the key is to develop solutions not "stuff". An old economy rule for consultants. Be a problem solver.

The First Penny - getting your users to pay you anything at all

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