23 Sep 2009
Money Is Expensive
Particularly during booms/bubbles, a lot of web start-ups get stick for not having a clear business model, let alone actual revenue. Often that criticism is justified, but it’s easy to overlook some of the problems and trade-offs involved.
You see, money complicates things. Yes, it’s lovely to have it flowing in to your business, but money really can be a pain for a small, growing web site. Let me explain with an example based on a real project I was involved with.
So you’ve got this idea for a site where people compete to solve puzzles. It’s a decent enough idea, and people love puzzles, so you can easily imagine thousands of people competing and having fun and eventually forming this amazing community of puzzle fanatics. But you also want to make money and have a proper business, so you figure you’ll offer cash prizes and charge small entry fees, that way even if it starts small you can have revenue from day one.
You hire a web dev agency. Mr. WetBlanketWebDeveloper (that’s me) and his colleagues think for a bit and then recommend you reconsider this plan, ditch the pay-to-play and restructure the budget. What spoilsports! They just don’t want you to be happily sitting in the pub while the Sweet Internet Money flows in. What’s the problem?
The problem is that the site will need to basically act as a bank (accepting, holding and paying out money), so there’s a fair bit of onerous application coding and payment integration needed. Paranoid security measures. High-end hosting with great backups. Customer support. Legal and financial advice. Reassuring content and small print. No rough edges. Lots and lots of expensive, time-consuming tasks. Instead you could launch with free competitions offering ranking points and/or small non-cash prizes (perhaps sourced for free in return for advertising), adopt a less formal tone, halve the costs, use some of the leftover budget for marketing, and look to add paid-for competitions/features once you have an audience, stats and more experience.
Don’t underestimate the cost of money. Sometimes it’s simply not worth accepting.
You can probably guess what happened with the real-life project. The client ignored our advice, spent their budget on a perfectly decent site, had negligible revenue and shut up shop. Maybe the idea would never have worked, but they could’ve failed more cheaply.