I was thinkingjust now about the kind of business models that work for startups and web 2.0 sites. Specifically I was thinking about Twitter and Chatterous - 2 services I use daily.

Please Donate!

Show me the money

Both sites have a problem (more so in the case of Twitter); how to make money. Lets be honest here for a moment. The primary focus of any business has to be to make money - if it's a good service then I for one dont begrudge them charging for it. But it seems others do. There seems to be a wierd ingrained attitude that  everything in the future of the web should be FREE (for the most part). It seems a strange concept because in some cases you could be making serious amounts of money because of these sites.

We know where this has come from of course; Google lead the "free stuff" revolution with this hug shining torch of non-payment. Some news for you guys - Google already has a multi-billion dollar turnover. Their hosted tools dont have to make any money at all (indeed they can even make a huge loss) because their entire purpose is to proliferate the brand. If you use Gmail for your webmail it keeps you thinking about using Google as your search engine.

Of course that doesnt mean you get crappy tools - Google can afford to spend a lot of money on gloss and usability because it pays off. Their tools are easy to use and so people tend to stick.

With that aside over lets get back to the point in hand. I think people are copying the Google model for a few reasons. Firstly they are forced to by the public assuming they will be able to get it for free. Secondly launching a paid product straight from the off never works - and when you get to the point where you can start to charge actually making the transisition is tough. And finally becaue often these things start off as a "good idea" in someones attic and it is only after 3 years, millions of users and hundreds of thousands of VC funding down the drain that issue of actually making money comes up.

3 years?

Well yes, an arbitary figure. But my point is that if things take off most people/companies will have to spend a lot of the initial time fixing the hundreds of bugs and feature requests users come up with. There is no way you can really charge successfully for a product that your userbase is not 100% happy with (well, you can but I dotn think that's great business practice personally!).

Twitter has reached this point now - they have actually come up with a decent looking idea (though are not charging for it yet) to advertise cleanly within the site. Hopefully that is the start of something - but I do think they missed a trick (as I will explain in a second).

Chatterous on the other hand seems to not be considering a business model as yet: which I think is foolish. They already have a great "product" that is possibly more useful to those who use it than Twitter is. It is definitely marketable already.

What is this worth to you?

That is the question both sites should be asking users. What is Twitter worth to me? Well very little - but what about, say, John Chow and others? What is Chatterous worth to me? It certainly isnt essential but it does make my life so much simpler and much more connected with the teams I work on. So it's worth to me is quite large - I would become a donator.

I dont know why people shy away from this idea. There need be no benefit whatsoever (personally I'd be dead against anything silly like "DONATOR" tagged about my name on either site) because it is simply a way for us to express our desire to help the service succeed and progress in the same way we might donate cash to a community we are members of.

I know, obviously, that this isnt the most secure form of revenue. There is no way to predict how much people will donate (and how many will do so) but look at In Rainbows, that was a fairly successful experiment. And Twitter probably has 10's more users than Radiohead has fans! There is cash to be made there and to pass on it seems silly; if it justp ays for the lights in your office for the year then that is certanly not a bad thing.

There are ways you could improve the model too:

  • Make it subscription: deliberately encourage people to contribute slightly smaller amounts monthly. That way you gain constant revenue and chances are they will pay more in total over the long term.
  • Set some subscription levels. It gives you a modicum of control over the amount you will recieve (and probably make your accounts nicer). Offer a couple of prices - one of which is a tiny bit on the small side and the rest logically scaled pricing.
  • Ask the question right. "Please donate to help us?" is probably too whiny for modern web users. But "How much are we worth to you?" will appeal to people.
  • Pitch it right - dont call it "free or donation". Make it logical for the user to want to give you money out of enjoyment for the service.
  • Get the customer services right. Once people donate they DO have the right to complain if things go down.
This isn't something that would work as a long term model but in the initial startup phase it could be a good idea (again look at In Rainbows, after being freely available it then sold very well in the shops). Plus there are other benefits which could prove even more important:
  • It associates your "free" product with money from the get go. If you introduce charging sctructures in the future the concept might not be so alien to your users.
  • If you plan to charge for extra features in the future it could be a great way to sort out your payment strutures, pricing and so forth in advance (but of course remember to give the donators something a little extra by way fo thanks!)
Freemium, without the extras

All in all I think the donations model is one often overlooked and underused. Perhaps because of the legal rammifications of such a model - or perhaps because developers feel it just wouldnt work. All I really know is that there are a couple of web sites/services that I WOULD pay for, right here, right now :) Free stuff is nice - some things are worth more.

Someone, at least, should give it a shot!