There are 3 major economic models we see with web businesses.
Option 3. Take more value (either from VC’s or customers) than the value they create.
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.