Ask HN: Are white-labeling deals ever a good idea? | Hacker News Reader

Ask HN: Are white-labeling deals ever a good idea?

3 pointsfezzl6 comments

Hi. We had previously posted on HN our startup about mixing Groupon mechanics with Facebook:

http://news.ycombinator.com/item?id=1988016

Twice, we had offers from businesses (one retailer and one technology vendor) for white-labeling deals, where we basically hand over our entire systems to them for white-labeling and integration, because they "have the infrastructure to scale" and "want to protect the privacy/security of their data," among other reasons. In return, they propose either a lump sum payment or revenue-sharing arrangement. I don't think that we would later be restricted from continuing to license our app to others, but I was wondering if doing white-labeling deals like this are common for startups (or product companies in general).

Our pricing is currently $9.95/mth, affordable even to the smallest online retailers. We have had sales with this model: low-touch and web-based. Why wouldn't they just pay and use, as opposed to coming up with complicated arrangements that would obviously cost them more? In general, what do you think of this sort of deals? What is in it for them, and for me, if anything?

When you are first starting out white-label offers can be enticing to say the least. I have not heard of any companies doing them recently though. Most of the time, white label is common in the hosting/web-based service (i.e. email/project management/support companies).

Like ecommando said, don't get sucked into it though, unless you can control every aspect of the deal, code, database, etc... As the white-label grows they will expect the world from you in terms of support/updates/code modifications/etc... They will take away from your time to support your own customers. I would offer a hybrid solution at most where you allow them to change the logo and remove references to your company, but you continue to host and control the code.

To answer your question on why they wouldn't pay/use, well it is all about marketing. They want to be able to offer something different from their competitors and make it look like they are the ones behind it.

As for pricing, NEVER, NEVER take a lump sum payment. Always work something from a revenue-share or monthly fee arrangement. You could even do an annual contract with built-in price increase each year based on percentages of their sales/revenue.

If your product is that good that other companies are approaching you to white-label the solution, the best advice I can give you is to review your marketing/sales strategy. Why can't you sell direct to their market? Why risk losing revenue and allowing them to make money off your product?

Jeff is right on target.

THE biggest issue I have with it is that one app never fits. There are ALWAYS an endless number of feature requests, and the license usually never takes these into consideration. Make sure that if you plan on doing it, and making changes, then you (a) charge for time, enough to make it painful ($150/hr or more), (b) are charging for time and that they don't own the code, and (c) limit the number of requests per day/week/month/year, etc, and (d) have the right to terminate the app, hosting, licensing, and support at will, and the only recourse they have is to buy it for a minimum amount decided by you.

If they REALLY want it, they'll be willing to make concessions.

If you go this route, you need to be willing to lose control of the app, and be blocked from the industry for up to three years.

It will happen. Chances are they've looked for the app, even tried to have it written, and now they've found it for license, and a guy that's willing to keep it up. All that stands between them and the app is negotiations.

We're not painting a pleasant picture, but we're holding back. It's worse than it appears.

We definitely don't want to lose control of our app, nor do we want to be locked into any particular partner. Thanks for bringing up the potential pitfalls.

No. Don't do it. You will completely undermine any chances of being acquired, the white-label will own you if they grow larger, and you will find yourself losing control of your code and product. Focus on building your brand, your product. Cut costs if you need to make that happen, any way you can.

If they want a white label, tell them "Only if WE run it, we'll code it, and you won't have access to the code or database schemas."

The other option is "buy us out and we'll run it for you internally."

Cheers.

But are there any known successful startups that have offered white-labeled versions of their products to partners/customers? We're not desperate for cash, but we just want to know what is common in the industry, i.e. if it's a shit deal.

I've done it. PM me your contact info at "me at rwd dot im" and I'll give you a call to discuss.

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