Which business model is better for the new web startup?


4

I would like to ask you for your opinion on pros and cons of 2 different business models for a social networking+user advertising start up.

For a very vague description and comparison, imagine this project is somewhat similar to linkedin. Project target market is business sector.

Which of the two do you think its better business model:

a) Have the website completely free for everybody and base the revenue on advertising?

or

b) Offer some of the features free, however limited and base the revenue on paid subscriptions which user needs to pay in order to get access to the premium content and "full usability".

Which of the two models do you think offers bigger opportunity for growth? Or do you perhaps have any other suggestion that might work?

Thank you very much for you opinion on the subject. It is much appreciated.

Web

asked May 18 '11 at 02:23
Blank
New Web Start Up
21 points
Top digital marketing agency for SEO, content marketing, and PR: Demand Roll
  • Another option c) Could be to offer the services of the site for free for a period of time, say a couple of months, to help build a user base. Then you can take a look at user's activity to see if there's another way to monetize the site. You can always switch to a paid or advertising model later. – Brad Pineau 9 years ago
  • Thank you. Yes, that is also something I thought about briefly. I am a little worried to go this way to be honest, as I am scared switching the business models like this might actually force some of the users to leave the project. I can imagine nobody likes the "good news" of having to pay for something, they are used to use for free. On the other hand... without going this way, there might not be any user base to begin with. – New Web Start Up 9 years ago

4 Answers


5

I think it depends on the size of your potential market.

If its 1000s then a freemium model is better, with a lot of functionliaty being free ... Basically if your adding a high amount of value like a tool to run someones specific business (we do a range of these), then your likely to get a lot less overall customers but you can charge an ongoing fee for it ... These sites "feel cheaper" if they have advertising all over them. Listen to this week in startups interview with Phil Libin, Evernote CEO for the best description of running a freemium model I have heard.

If its millions then an advertising model is probably more suitable because you can estimate a rougly 1.5 to 3% click through rate so millions of visitors means more clicks and no barrier to entry means more people.

As a "rule of thumb" low volume sites will struggle to make revenue from advertising alone because of the 1% to a maximum of 5% rule (unless you do a stackexchange for adverting and people points are based on clicking on the ad) ... not a bad idea that :)

answered May 18 '11 at 17:24
Blank
Robin Vessey
8,394 points
  • Surprised that last bit hasn't been done yet. – Md Moore313 7 years ago

3

Of course every business has to make money but what I'd say is try to focus on the product first and get it off the ground in terms of its users. Without having the critical mass of users a site like this isn't going to command any advertising revenue potential. Think about what your users need and love - make them rave about your site and then monetization ideas will come naturally.

With that in mind I'd go for your first model because it is the simplest model that allows you to focus on building a user base without putting any barriers in place. If you cannot get a user base built up with an essentially free service, then you'll have trouble with a subscription-based model. Demonstrate you can get the users first. If you need a model for your business plan - go with the simplest one that gives you the most flexibility to adapt as you grow the business. The chances that a startup company will still be growing on the same business model it first came up with are low. You'll have lots of crazy new ideas as you start the business and you'll be happy that you started off simple to give you the freedom to try out different things along the way.

answered May 18 '11 at 02:37
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Edralph
2,333 points
  • Thank you, I appreciate your comments very much. It is exactly what I was thinking, however for the technical point of view, I need to keep in mind already which way to go from the beginning as the architecture of the whole project needs to be modeled about this. It is dTefinitely something I have to think about twice. Thanks for your comment again. – New Web Start Up 9 years ago

1

Clearly, if you want to get significant following to your website, you need to start with an everything-free model, and generate income from advertising. You should also think if you can become an affiliate of other sites selling goods or services related to your website's content. This could generate additional income.

However, you should plan ahead and build your website in such a way, that later on you'll be able to charge users for premium services. Once you get significant traction, you'll want to start generating income from your users. In order to do be able to do that later, you should design your website's software to support this capability.

This model have worked for large websites like LinkedIn and smaller ones like Conceptispuzzles.

answered May 18 '11 at 17:13
Blank
Zottek
111 points

0

It makes sense to define what is a business model in first place. What I prefer, is a concept of nine building blocks of the model (by A.Osterwalder). You may want to check out this article about how to define and compare different biz models.

answered Nov 30 '11 at 17:16
Blank
User14568
1 point
  • Some details on this nine building blocks model might be beneficial here. – rbwhitaker 8 years ago

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