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Are people still prepared to pay for software?
Posted by David Greiner on March 15, 2007 1:15 AM
Just over a week ago Ben and I had the chance to head to Australia's first ever BarCamp at UTS in Sydney (which Freshview sponsored). For those not familiar with BarCamp, it's basically an unstructured meet-up for those with an interest in all things web. Plenty of people have written about the day (which was fantastic), but there was one thing I took away from the event that's been on my mind ever since.
One of the earlier sessions I was looking forward to was on bootstrapping a startup, moderated by Nick McNaughton of Zookoda fame. While some good points came out of the discussion, I was genuinely shocked by the number of people saying how impossible it is to charge for anything on the web these days. People were giving examples of Flickr and YouTube, saying that everything had either been done already, was free or wasn't worth paying for. I couldn't believe what I was hearing.
Not long after this, the predictable recommendation came that you shouldn't charge for your app, but instead try and get as many customers as possible and rely on ad revenue. I even managed to hear the old beta line thrown in a few times for good measure. I chimed in with my own position on the issue, which is something I want to echo and expand on here because I think it's so important.
Forget about the lottery winners
It's so easy to get caught up in the billion dollar hype from Silicon Valley. People hear about YouTube's US$1.5 billion acquisition price and think it's something they can replicate. Forget it. Really, don't even entertain the thought for a second. What you don't read is that for every glittery success story, there are hundreds or even thousands of other startups in the same space who fizzled overnight.
Remember, if you're looking to get bought by one of the big guys like Yahoo or Google, you'll probably need something with the potential for a huge horizontal consumer market. Horizontal markets are tricky for a number of reasons
- Building something that anyone can use is bloody hard. It's impossible to know which features to add and which to leave out. You might get customers, but getting passionate customers is so much harder.
- Lots of other people are building exactly the same thing as you. Right now.
- It's very hard and very expensive to market something that anyone can use as opposed to something built for a particular niche.
Sounds like a lot of risk to me with very little chance of reward. Sure, there are exceptions to these rules, but I'd like to propose an alternative that I think is much easier to pull off and a whole lot more realistic.
Stop being so incestuous
The web and software development community has a nasty habit of looking in on itself and forgetting about the other 99% of the online population. While everyone else out there is building for the early adopter crowd and going to bed dreaming of getting TechCrunched, why not look outside this circle and try to solve a real problem that real people are having.
Too many people I speak to are focused on technology instead of a solution. "It's gonna be really cool, we've got RSS feeds, a neat tagging system and the whole thing runs on 3 lines of Rails code". Now take a deep breath, and realise that none of that means a thing to your customers. They want to leave work 5 minutes early, they want it to take 2 steps instead of 5. They don't want a tag cloud.
Solve a specific problem for a specific group of people
Instead of trying to build the next video sharing or social networking site, why not narrow your focus a little more. There are loads of simple problems out there that are waiting to be solved online. Here are a few thoughts to get the creative juices flowing.
Solve a real problem
I know, too obvious right? Not really. Every day I see apps that are cool or do something interesting, but they're rarely something I'd actually pay for.
Pick an industry that might not be treating a particular segment well
This is the exact approach we took with Campaign Monitor. There were hundreds of email marketing tools on the market back in 2004, but none of them were built just for web designers. By focusing on a smaller section of the market, we could focus all our energies on building the perfect tool just for them. Think vertical, not horizontal.
Scratch your own itch
Many of the apps that are successful today were initially built to solve the developers own problems. If you can't find the right tool for the job then chances are plenty of others can't either. Solving your own problem is way easier than trying to figure out what might be annoying others. Again, try and think outside the early adopter market.
Try and build something that actually adds value
If you can build something that saves someone time, helps them look better to their own customers or makes them money by using it, you've got a much better chance of people handing over their hard earned cash to use it. Building software for other businesses to use is a whole lot easier than selling to the consumer market.
People will pay good money for something useful
Here's the kicker. Businesses want to give you money for your software. If you can make them operate more efficiently, close more deals or make more money, it's a no-brainer. Don't try and start off free and then charge later. You might end up with an awesome product, but if there's no business model then your options are pretty limited.
Many businesses would actually prefer to pay for software than get it for free. If they know there's a profitable, stable company behind the product then it's going to get improved, they'll get technical support, the product won't just drop off the radar at any moment. Make it as easy as possible for potential customers to try your product, but don't give the thing away for free.
Well, turns out my quick review of Barcamp turned into quite the rant in the end, but I'm glad that one's off my chest.
Marc
wrote on March 15, 2007 3:30 AM
Totally agree with you on this. It's sometimes troublesome to hear ppl trying to convince us otherwise, glad you feel the same way!
Hugo
wrote on March 15, 2007 11:16 PM
Totally agree. Off the top of my head, things I pay for at the moment;
flickr
feedburner
omnidrive
lynda.com
and i feel i et way more than I pay for in each.
Gavin Heaton
wrote on March 16, 2007 1:33 AM
Good to see/hear someone talking about customers. Technology is cool, but there are still people who have trouble turning on their PCs. You can't just build something and expect them to come ... no amount of cool will win -- utility trumps cool anyday.
Andrew Roberts
wrote on March 17, 2007 12:50 PM
Couldn't agree more. The business world needs much more and varied packaged software than it has today - a witness to this is the huge spend on custom software projects today.
Lachlan Hardy
wrote on March 18, 2007 3:34 PM
Couldn't agree more, Dave. Thanks for being the voice of reason in that discussion. I hope your point of view, backed by your actual success, helped convince some of the people in that room to reconsider their plans a bit
I asked the room, "do you actually believe is planning to be the 'next YouTube' is a viable business model?" And I'm still horrified that most people just looked a little uncomfortable like I'd caught them out
I think we should encourage our local web folks in any way we can, but I'd rather encourage them to a series of moderate successes than to some kind of single shot flame out
Tim Lucas
wrote on March 20, 2007 1:18 PM
Great comments on that talk, as I was also a bit unconformtable with how that conversation was going (which is why I remember asking "Lets hear from people who've actually built a real, profitable business").
re. looking outside the techcrunch sphere, I've also been echo'ing that message of "look outside the web2.0 circle-jerk techcrunch thing" for simple, real-world problems that need solving and have people willing to pay for them.
Though it's ideal to be scratching your own itch and eating your own dogfood, and it might well be the factor that pushes a product/business from good to great, it's the only point which is debatably unnecessary. Thousands of profitable businesses provide goods and services which their company can't or don't need to use, and quite often a smart, tech-oriented business mind could build a small system to scratch somebody else's itch and execute it quite well.
Dave Greiner
wrote on March 20, 2007 5:17 PM
Thanks for the comments Tim, I definitely agree with where you're coming from there. I guess my motivation here was to list the points I thought made the process easier, especially given some of the comments you and I heard in the room that day.
Mathew
wrote on March 24, 2007 4:06 PM
Awesome post man! it gives us developers a douse of good old common sense that we solely need.
Faui Gerzigerk
wrote on March 24, 2007 7:33 PM
You're absolutely right and I actually wanted to add almost the same point that Tim Lucas has brought up. With regard to that, my observation is that there seems to be very little "cross-pollination" between potential tech-startup founders and people who know the ins and outs of some business. There is just no forum for that. I mean where's the list of little problems that wait to be solved? Where is the debate? It's in various industry publications, but most of them are impossible to read or understand for outsiders.
Whenever I talk to non-tech people about their work, it takes barely a few minutes for such items to crop up, and most of the time they're pretty easy to understand. We need to talk more to people outside of the technology world!
tndal
wrote on March 25, 2007 3:22 AM
Concerning "People will pay good money for something useful":
Sometimes they will and sometimes they won't. I developed a package that was very useful, but very few bought. Most didn't, preferring to wait and see if the government would enforce laws that required them to do what the software did.
Many bought a competitor's package. After 5 years it was found that the competitor's package was incorrect: I mean absolutely, totally, utterly incorrect in it's calculations, leaving hundreds of companies were out of compliance with federal and state regs. My competitor offered users a new system that fixed the old bugs. Full purchase price and no discount. Furthermore they would have to manually re-enter all data for the (incorrect) 5 years.
Did they buy my package (which had always worked properly, was easier to use and was less expensive) or my competitors? Of course they bought my competitors. An evil they were familiar with was considered better than anything different.
My conclusion is that people are very, very firmly "anchored" about business decisions. The only ways to move them from a bad decision almost certainly requires some sort of criminal behavior.
Got anything to add?