At the risk of indulging in a bit of Redmonk introspection, I wanted to comment on this post from A VC (AKA Fred Wilson), entitled “My Favorite Business Model.” If you’re not interested in conversations of industry analyst business models, this probably isn’t the post for you. But for those of you who are curious about such things, what follows are a couple of things to think about.
Before we get to those, however, let me state up front that I’m not trying to argue that this model is instrinsically superior to another of your choice. Despite our alignment with it, it’s but one among many viable economic models for profit. In other words, I’m somewhat agnostic as far as the business theory itself goes. What I do subscribe to, however, is the notion that ubiquity and volume are clear paths to success, and to the extent that this particular model enables the drives towards those values I’m for it.
But let me get back to the post in question; here’s Wilson’s description of said business model:
Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.
While the theory there is interesting, I wanted to give it some practical grounding and thus thought I’d take a second and see how RedMonk compares. So let’s break that down a bit:
- Give your service away for free? Check (blogs)
- Possibly ad supported, but maybe not? Check (some AdSense, very little revenue – but growing)
- Acquire a lot of customers very efficientlyu through word of mouth, referral networks, organic search marketing? Check (see here)
- Then offer premium priced value added services or an enhanced version of your service? Check (subscriptions)
So far, so good. If the goal was to be aligned with an economic model currently in vogue amongst enlightened VC’s, we’re doing well. What other advice does Fred have?
- It is important that you require as little as possible in the initial customer acquisition process Check (if they can use Google, they can use us)
- Asking for a credit card even though you won’t charge anything to it is not a good idea Check (no credit card needed)
- Even forced registration is a bad idea. Check (with the exceptions of the library, which is going open source, and the wiki, for spam reasons, we don’t even allow for registration)
- Don’t require any downloads to start. Not really applicable
- Don’t require plugins. Not really applicable
- Support every browser with any material market share Check
- Make sure your service works on various flavors of Windows, OSX, and Linux. Check
- In short, eliminate all barriers to the initial customer acquisition. We’re doing our best 😉
Now before I run into another situation where I’m accused of selectively applying data to make RedMonk look, let me be clear: that’s exactly what I’m doing. It’s a (mostly) tongue in cheek exercise to answer, in part, Armaggedon’s question: “why is it always a major firm like Gartner that is going to be disintermediated, but not boutiques.”
How does the above answer that question? Hopefully by highlighting the fact that our model is very, very different from Forrester, Gartner, et al. What disintermediates them is less likely to do the same to us, simply because we operate differently. We may be in the same industry, but we are literally a different species of firm. Does that mean that I believe those firms are going away? No. But does the VC’s favorite business model, as applied to the analyst industry, have implications for them? I think so. Check that, I know so, as customers of ours telling us that they are using us as a lever for better deals, more access, etc.
Lest someone think we’re getting big heads over here at RedMonk, let me assure you that we’re not expecting to be bought out or acquired for sums similar to some of the examples that Fred cites such as Flickr or Skype. No, we’d be perfectly willing knocking a couple of grand off what eBay paid Skype 😉