Hacker News Reader

Often times, companies have no choice but to raise money up front. Tesla and Facebook had to, and both seem to be well on their way to changing the way we behave environmentally and socially.

Also, I really really really do not understand all the crap you guys give ad based websites/business models. Advert business has well and long been an established industry, dripping with cash. There are tons of websites out there generating millions of dollars for their owners. From POF to sleazy SEO blogs, these people generate enough money to live comfortably, and they're happy with that. And when I see DHH rail against ad based sites at conferences in his snarky ways, it's very disingenuous, as if he's completely blind to the world of those who are making bank from ads.

"Tesla and Facebook had to"

Tesla makes physical products. They manufacture. They have inventory. They have a factory. Money is required because they have significant initial capital expenses.

I take issue with "Facebook had to". Facebook chose to, they didn't have to. Software companies don't have to. They choose to.

Facebook had to take money because they have server costs; Facebook has server costs because they are the largest photo webapp. But sure, you make a point. Facebook should have instead stayed small. Charged its customers money. Had a popular internet blog. Facebook should've built something people love.

I agree with your assertion that Facebook choose to. However, it seems like it was the right choice.

There are plenty of times where the companies (and consumers, and founders) best interests are served by taking early money and focusing on growth rather than profitability, especially if their VCs are open to helping those founders take money off the table as they hit milestones).

my .02

>Facebook had to

Facebook was started in some kid's dorm room, and I'm still not entirely clear on what they're selling.

Facebook sells highly targeted ad inventory. They may become the most effective advertising platform on the planet.

Not sure why you're being downvoted. I've read estimates that Facebook now shows 10% (!) of all U.S. display ad inventory on the internet.

How does that percentage translate in terms of clicks ? Is that also 10% ?

Of course they are lower than average quality impressions. Proportional representation of clicks isn't necessary with that kind of volume.

Do they profit? Or is Zuckerberg still buying his ramen with VC money?

Being able to target ads well doesn't do you any good if you don't have the ad inventory to make use of that advantage. That's Facebook's problem: their users aren't apt to click on ads while on the site, so they don't convert very well, hence a lot of advertisers don't bother and their inventory sucks.

I've never seen an ad on Facebook that highly targeted me. I think that beyond a few niches (like engagement rings) Facebook's targeting works out to be a wash. That's why despite having 300 million users and billions of page views they are only barely profitable.

What the hell do you mean by "Just building an audience with nothing to sell (beyond ads)" - you're attracting the audience with content - that's what you sell to those brains behind eyeballs and you sell ads on the side. Where is the problem with that? That's what media business was/is about for the last couple of centuries.

How can you build an audience with "nothing to sell" anyways? What kind of audience is that, spam bots?

I always felt the fight against ad-driven business models has been slightly misguided. I think if you set out to draw a very targeted audience and make money with displaying ads around quality content you can create a very strong business. Look at Mashable, the Tuts sites, Problogger, even TechCrunch.

I think the real mistake is that so many people don't ever stop to really think through their business model and "selling ads" is just the default thing they fall back on.

*I might be biased since I run advertising networks, but then again my business model isn't really ads either.

Jason: if Mint had taken a bunch more money, sold for say 2-5 times as much and returned less money to the founders, would that be better or worse?

Also, if you had a chance at a $170M exit, what would Jeff Bezos say?

If you're against building something that monetizes with ads, then you're against most of the internet, a good chunk of publishing, and most of broadcasting.

The position doesn't seem too principled. Your condescending tone with "sell the brains behind the eyeballs" doesn't aid the argument.

I personally like selling stuff and services too. But I'm not railing* against other business models.

* pun intended

Your belief that selling ads is not valid or useful to the user never ceases to amaze me.

You sell a few online webapps, and get a full cut. People showing ads, sell them tech, finance, cars, whatever. Anything that's relevant, and get a smaller cut.

A smaller cut of a massive pie is often better than a full cut of a very small pie.

The website selling directly has a finite (small) number of things they can sell the user. 37signals can sell me a basecamp subscription, a campfire subscription...

The website advertising to the user has a massive inventory they can get the user to buy. Each time the user comes back, there's another chance to sell something new to them.

I'm guessing either you tried advertising at some point and couldn't get it to work for you, or you just hold some sort of weird grudge against advertising and see it as evil.

I'm no 37signals, but I work closely with the advertising and marketing world. If I were to extend Jason's comments, I'd be shit nervous of making my primary revenue stream based on an ad model. It signals that the product/service I'm making doesn't provide enough value or utility to a single customer (even 1 out of 100) to compel them to give me some money. That's something to avoid, at least in the context of mitigating risk going to market.

Why is making money from advertising any more risky than trying to sell product directly?

It's actually the opposite IMHO. If you're selling directly to people, you have one chance to get it right. You need to be 100% sure they will buy what you're selling, at the price you're proposing. Also for several types of service, charging the user may not make sense - who would pay for access to a search engine?

With advertising, you're effectively acting as a middle-man, providing the users with the opportunity to buy millions of different things related to your own service. The risk is ridiculously low. That's why advertising as a model works so well on the web.

Both are completely valid, good business models. It's just funny how 37singles take every opportunity to make out that a business making money from advertising isn't a 'real' business.

The thing that hurts the model is silly people who slap up adsense, don't do their research or learn about how to make advertising work, and then moan about how they only make a few cents a day.

Eyeballs... Our problem with action for eyeballs is when you have nothing to sell the brains behind the eyeballs. Just building an audience with nothing to sell (beyond ads) is what we rail against. But building an audience that could also be your customers is something we encourage.

Sorry, Jason, I think you're being disingenuous again.

Did you come up with the idea of writing Getting Real and then try to market it and sell it to web developers? Or did you gather the content of your book from your blog posts, bundle it into Getting Real and up sell it to your readers?

Did you start out with the idea of having a job board on a popular blog? Or, did you have a popular web developers blog, and then decide to monetize those eyeballs by selling to people looking for developers on your job board?

Did you come up with the idea of writing Getting Real and then try to market it and sell it to web developers? Or did you gather the content of your book from your blog posts, bundle it into Getting Real and up sell it to your readers?

What's the difference?

From what I can see, 37signals came up with the idea of writing a book called Getting Real and marketing it to web developers. But they came up with the idea very slowly and incrementally by starting out with one post on a blog, observing the response, and working up from there.

It's positional chess. Yes, the checkmate on move 37 is caused directly by the pawn move at move 1. But that doesn't mean that the chessmaster planned move 37 all along. The chessmaster started out with a plan to make money ("win this game") and then made strong moves that led in winning directions, refining as the game proceeded.

37signals has had a mechanism for translating developer attention into cash from day one: Selling developer project-management tools. What's disingenuous about that?