“Whats your Revenue Model?”. It sounds like such an informed question to ask an entrepreneur. I have been asked this question not only by the people who really matter, but even by people who are far from gathering even 5% of the courage required to start up. Its a glamorous question to ask, and its so much fun to show contempt when one doesn’t get a convincing answer, or when one hears that “advertisements” are going to be the revenue generator.
That brings me to think: How relevant is this question for an early stage start-up venturing into Consumer Internet. I have the following reasons to think it is not a very relevant question:
1. In consumer internet, the user never pays. If we look at start-ups outside India, in their initial days, they concentrate on creating value by getting a large number of users, engaging them deeply, and making a lot of them return to their service. They hardly ever concentrate on monetizing very early, and that, probably is behind the success of many start-ups.
2. When the user does not pay, but is engaged by the service provided by the start-up, then it makes Advertisements not only the only, but also the most lucrative way to earn money. Various innovative ways of Advertising and Promoting on web apps have evolved, and if one looks at the top 30 internet startups in the world today, a very large number of them are banking on Ad revenues as their primary revenue stream.
3. In my opinion, the raison-de-etre (The Reason to BE) for a consumer internet start-up is to create value by deeply engaging a very very large number of users. This is probably the only value that a consumer internet start-up can create today. Very few of them really succeed in doing this, probably just 1-2%. For those who are confident of doing this, it is a good thing to bank on a buyout by an established company which really knows how to monetize this huge user base.
This, I think, is the rationale that consumer internet start-ups abroad have followed.
Would love to know what you guys think about this. Whether it is, and is going to be any different in India? Why, and How?
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Hehehe..ok we are working on it.
We have developed prediction model based on self-similarity. We are getting hits and exposure from the eye balls.
Now major issue we are facing?
“Revenue for Funding……or Funding for revenue.”
We look at things with US prespective and copy paste in India. Which would not work at any level. Think over the problems….for small startup with low capital. Really low capital
Problems.
1. Stable Internet through broadband(They can’nt afford Lease Line)
2. When salaries in Infy and Satyams r pushing people for much higher salary standards.
3. Family and parental pressures to perform or atleast live like medicore.
4. Rent, office space, food, travelling or any expenses.
5. It is about struggle with small issues.
Think about eco-system where output is source of input. Those business will always win the race. Rather then invest huge sums to get exposure.
US can play around because they understand model. How many indian investors understand model of facebook or myspace?
Virat
Well said.
I definitely think there are some pre-requisites for any consumer internet company when they say they would eventually be like to bought out:
1. They should be confident of being able to get a huge user-base consisting of loyal, engaged users, and have some credentials or initial success to prove it.
2. They should show that they have what it takes to build that kind of a user base.
Both of the above are rare, and hence, the 1-2% success rate of consumer internet start-ups.
The question is, do we see a scenario evolving in India, where teams that qualify on 1 & 2 above, stand a decent chance at raising good venture funding, or being bought out. Are there any precedents?
As Deepak pointed out, there are two: IndiaWorld, and DesiMartini. I can add MingleBox’s funding to it. Anything else that we can add here? Any other ideas as to which way things are going to turn in the future?
I think the freedom to innovate, invent and explore without thinking of financial returns is something every progressive society should provide to at least some of its citizens. But everyone can not expect it or demand it as a matter of right.
Its something to be earned – through patents, years of research or a nice little idea on the net that quickly captures the imagination of the world. Till the time you earn it, you will be asked about the rev model 🙂
I agree with Deepak – revenue models dont matter only in times of boom. It brings back the bad old dot com bust days. Even among the new favourites of internet like Facebook and MySpace, there is a push towards monetization. Although initially the plan may be to get more and more eyeballs, at some point you will have to think about generating some money. So although a good product may be a good way to start, there should be a plan to bring in some revenues eventually. Plan for the great product initially and after getting the required set of regular users, think about monetizing the traffic. Depending on a white knight to just buy you up may be wishful thinking if they dont see any hard cash behind the acquisition.
Isn’t this just boom time thinking – that revenue models don’t matter. It’s only in a boom that revenues don’t, that companies get valued at eyeballs or “price per user”. Typical models are more of Ebidta multiples or revenue multiples, and if your valuation metric (at point of exit) is way off that model then you are going to have trouble getting it accepted (right now).
Coming to buyouts: Getting bought out is good karma, but unless a few such deals happen, they won’t be accepted as “okay” in a conversation. Indiaworld is probably the only example I know. Everything else has been small – the desimartini acquisition was probably at cost (much less than the 10 million figure thrown around). Can’t think of much else in the space actually.
And what happens if you don’t get bought out? With no revenue sustainability you just die, especially because ‘something will click’ kind of funding is not quite available here. If the acquirer knows that he can squeeze you till the point where even 10 lakhs is attractive. Not good karma.