Swaroop C H

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It is not obvious how to make money online

23 Dec 2008

Execution is one aspect of making an idea successful, I would say the other is having a business model.

And the latter is very hard as well. Why? Because it is not obvious how to make money online, especially in India.

The obvious way would be to have freemium models such as Flickr and 37 Signals. IMHO, I believe that this is the only sustainable way.

BUT:

  1. How can you make this successful in a country like India where people are NOT used to paying for things online especially on a subscription basis? For example, how many people do you know are buying things online that does not have a physical aspect to it? i.e. most people buy movie tickets or pay phone bills online, compared to how many non-techie people do you know who are paying for Flickr or for online storage or similar services?
  2. How do you prevent free websites from eating you up? For example, Wufoo did a great job of both execution, including winning awards and having a clear business model. But I am not inclined to using it because Google Forms is free, has no limitations and is a good-enough surveying option. Google doesn't make money off of this option but they surely have taken away Wufoo's lunch.
  3. Ideas such as scribd.com, and StockTwits are useful and interesting, but even they don't know how to make money off of it. Heck, even Google is having a tough time in making money off YouTube.
  4. Ad-based businesses don't work in Asia, or so is the impression that I get. Is there a single web application site, NOT a content site, for India that is purely making a business out of displaying ads?
  5. I have a feeling that almost all websites that are popular today and that will be popular in the next 2-3 years will have to have a physical component/aspect to it, whether it is payment collection at your doorstep for BharatMatrimony or Zapak running corporate gaming tournaments. This is something that may not be viable for small companies. Perhaps after 2-3 years, things will change.

Bottom line: Without getting funding, and without a clear path to charge for things, how is it possible to make a sustainable web application?

Is this just me or is this the path that every online startup faces?

Comments

David Barnes says:

Why make money selling to Indians? Use your cost advantage to focus on a niche market in the US, Europe, etc. You should be able break even on far fewer sales than 37signals can.

I work in the UK, but we have offices in Mumbai too. We all work together as a single team -- not "out sourcing" at all. We could really use a tool that made multi-location offices easier to handle. Low monthly fee, no commitment, etc.

Yash says:

hey Swaroop,
Let me tell you from a user perspective. I think Indians will pay for stuff online if you are solving a real problem or offer a cheaper alternative. For eg - I book tickets for movies online. All movie tickets websites charge a service fee. So I buy only for PVR Koromangala because going to PVR takes me time and fuel which is justified by the extra cost. But for Urvashi theater, I just buy it on my way back home. So, given the convenience and value addition I am ready to pay. For my restaurant business, I am ready to pay justdial.com if they will forward me customers who will give me business. So, if you have something useful people will pay, as for the free alternates, you have to build something build better than free alternates.

Ankesh Kothari says:

Thanks Swaroop.

Freemium model is not the only way to make money.

India is comparable to Finland when it comes to online activities. Does anyone ask - how do you make a web app profitable in Finland?

Yes India has a billion people. But how many of them are online? And how many of them are able to buy things online (not willing to buy - able to buy)?

To make your website profitable - you have to focus on the audience that is ABLE to pay online. In India - there are only 2 broad markets that I can see:
i. Tech consumers
ii. Businesses

(There may be others too - I haven't come across them.)

Focus on those 2 and your website can become profitable without the freemium model in India too. A website like alibaba.com but focused only on Indian related goods would do very well. I think any B2B based website would do well.

Job sites do very well too - because businesses are able to pay for such services.

In summary:
Think WHO before you think WHAT or HOW. Think who your target audience should be. Not how you are going to create a website based on the freemium model.

Scribd - wufoo - youtube - all of them worked on the what and the how before the who. And thats why they are struggling to become profitable.

Gowri says:

I think the main thing is to find the union between the target audience that is willing and able to pay, and what would be of value add to that target audience.

There are probably some uniquely country/region specific things that can generate money online. For eg, personal finance and related aggregation is one of my favorites that is screaming for some webapp. A business model that works with multiple financial institutions and aggregates data/value for a user would find a wide audience.

Also, a webapp doesn't have to be on a regular browser. I think valuable mobile webapps have a good chance of finding customers willing to pay. For eg, mobile webapp for Railway or bus booking with a service fee component per ticket would be a good business model.

Swaroop says:

@David Barnes, My passion is about products for people in India (first). If we only make products and services for only others (as does the majority), what about the people here? :)

@Yash, Yes, the idea definitely has to provide value and benefit. But the point I'm making is that it's become hard to do that and make money off of it. Let's take the case of airline ticket booking services, it's become such a dog-eat-dog competition that people are finding it hard to charge for anything. And when you want to charge, there are multiple adoption problems.

But I guess, it's a moot-point if the line of thought should be that if you give enough value, people will pay for it. Is my understanding correct?

@Ankesh, Thanks for the insight. I agree with you that most of the audience online is techies and that's definitely something we have to assume as mostly the target segment, but especially for the IT crowd, it's hard to encourage people to pay for anything, there is this whole culture of getting everything for free which is both good and bad.

And also why can't we get the others online and provide them value as well? I have been making a list of such websites on my wiki - the kind of websites that "are useful enough to compel a person without internet access to go to a cybercafe just to access this website." Almost all of them have a physical aspect (movies, travel, etc.) or are classifieds supported by ads (which is not sustainable unless you reach a critical mass and that might be too late in the cycle for a startup).

Why can't we have more apps and utilities that are generally useful for people in India? For example, smsgupshup.com is the SMS/India-equivalent of Twitter, but I have no clue how they actually make money off the thing and if they are indeed actually making money or not.

@Gowri Sivaprasad, I agree with you on that, maybe it's those ideas in that cross-section that need to be sought out. I like what ngpay is doing for buying stuff on GPRS-enabled mobile phones.

Ankesh Kothari says:

Thanks Swaroop.

As far as I know - Smsgupshup makes money off their enterprise solutions. Selling sms based services to businesses and enterprises.

Again - they are making money only from the audience who is able to pay money.

Your wiki is quite handy. Real estate is a market I had completely missed thinking of.

ray says:

Hi,

I was reading ur blog posts and found some of them to be very good.. u write well.. Why don't you popularize it more.. ur posts on ur blog ‘swaroop ch’ took my particular attention as some of them are interesting topics of mine too;

BTW I help out some ex-IIMA guys who with another batch mate run www.rambhai.com where you can post links to your most loved blog-posts. Rambhai was the chaiwala at IIMA and it is a site where users can themselves share links to blog posts etc and other can find and vote on them. The best make it to the homepage!

This way you can reach out to rambhai readers some of whom could become your ardent fans.. who knows.. :)

Cheers,

Kalpesh says:

Eric sink has said this well.

People in tech field don't think of business outside of tech, which is true in some sense.
Also, we think about who will buy it rather than how many?

Look at mobile. Personally, I don't spend money on ringtones, caller-tunes, poll SMS.
But, you can see that there are people who pay for it (just for fun). So, paying small amount once is fine.

Another trick cellphone companies use is unlimited SMS for x amount.
People really dont need this. People buy it & them SPAM it by sending crappy jokes around.

Kalpesh says:

One more thing, if it would be obvious - everybody will try it atleast ;)

Although I haven't ventured into anything (so I am nothing in this journey), but to worry about business model makes it limited.

I don't know whether youtube had a model right from beginning & am not sure, if they are making money yet.

(conversation between investors in google before it became household name)
IIRC, it was like following.

A VC director speaks to one of his partner about how they can make money with this idea. To which, he said - these guys have created something of value. they are good in technology. if we can't find how to make money out of it, we should get out of the VC business.

So, guys who created google didn't know how to make money out of it :)

venkat says:

Hi Swaroop,

Very interesting topic indeed.

The question is will people pay for service? My answer is - yes. I feel there are 2 main reasons how you can convince your users to pay.


If you can cut costs of your users and you can prove to them the ROI - how by buying your service it saves them a bunch of money.
If you can reduce the pain points of your users. It can be saving time, saving other frustrations ( like avoiding queues,physical travel for instance ).


Ad revenue in my opinion is a bonus. You cannot sustain off it. From what I have learnt from some entrepreneurs Indian consumers do not click on ads - I may be wrong but my experience so far concurs with this view.

Regards
Venkat

Swaroop says:

@Ankesh I guess that's the point to note: "the audience that is able to pay".

@Ray Thanks for the compliments on the writing. Regarding "Why don't you popularize it more".. I don't know how to do that :), Will check out rambhai.com and contact you offline.

@Kalpesh I guess the trick with mobiles is that once there is a financial relationship (the customer gets a bill every month), it is easy to get them to use more services such as caller-tunes, etc. which would've been difficult to sell otherwise.

Regarding the google conversation, it is a good-to-hear story, but there is a difference between trying to create great technology, and trying to create a business. The latter does require a business model.

@Venkat Good points. "Show them the value" is my takeaway and something to keep in mind. And yes, I agree that ad revenue is not something to depend on, unless the website/webapp is inherently suited for it.

sunil says:

look beyond movies and hotels.....if you have to from indians you shall have to go for the primery aspacts of the life like their basic requirements ...i dont want to name the services.but BASIC is the key

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