Start Up Blog

Web Economic Models

Posted in entrepreneurship by Steve Sammartino on June 12, 2009

There are 3 major economic models we see  with web businesses.

Option 1. Create value, and take a small percentage of the value they create (ebay / amazon)

Option 2. Create value, and take nothing. The free model (twitter, youtube)

Option 3. Take more value (either from VC’s or customers) than the value they create.

Obviously option 3 is what we’d call unsustainable. There are many dot gone companies under this banner. Pets.com comes to mind as does Kozmo.com

Option 2 ends up selling advertising, or to another internet company with deep pockets – Facebook comes to mind. We are not Facebook, we will never be Facebook. We don’t have the page impressions, loyalty or any of the stuff needed to sell enough advertising, or sell the entire ship.

Startup blog advice is simple. If you want to have a web business, have a price for your service. Call me old fashioned, but it’s the simplest way to make a living on the web. Sure, we may have to provide more than what we sell – have an augmented product, but the economics of ‘free’ aren’t enough for ‘us’. Free might work for them…. But if we’ want to survive, we’ve got to sell something. If people wont buy what we sell, then we have 2 options.

(A) Improve what we offer

(B) Sell something different

But be sure of this, we need a price and giving stuff away is a quick way to go out of business.

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