14 ms·

How do free services on the web make money?

david_shaw 14y ago
Disclaimer: I'm going to comment on my personal experience running a free web application, http://sleepyti.me http://sleepyti.me. It's not meant to be self-promoting, but I feel that the experience is relevant. There are a lot of ways to make actual profit (not just break even) with free applications. The Hacker News crowd doesn't always show a lot of love for the "small, free application" crowd, and the echo chamber is correct that having a webapp doesn't mean you're a startup. I know that I don't consider myself the "founder" of my app, because my site is not a company. I'm not trying to make it a business. That said, though, this write-up glosses over what has been, in my experience, the easiest and most straightforward way to profit from free traffic: non-targeted ads. For me, that means a single banner advertisement served over Google Adsense. Now, like I said, I'm not trying to make http://sleepyti.me http://sleepyti.me my primary income. If I wanted to charge users, or enter deals with, say, large mattress vendors, that would be different. But that isn't to say that the traffic and feedback I've received hasn't helped me both personally and professionally. Personally, I've received a lot of attention from my app. It's pretty popular with college students, and it's gained media attention from outlets such as Lifehacker, the Toronto Star, and most recently the New York Times. I'm not listing these sources to self-promote, but to show that from a personal exposure standpoint, it's opened many doors for me. The same goes professionally: I had a brief partnership with YC-backed WakeMate, which, although now defunct, allowed me to interact with an early-stage YC company that I otherwise would not have been able to experience. I get between 1.6 and 2 million hits a month, and the financial reward has been steadily increasing through my single banner ad as well. People always say that "if you're not paying for it, you're the product," but I don't think that that's always true. I don't prey on my users, and I can think of several free apps that operate in a similar--even less obtrusive--manner. Trello, for example, neither serves ads nor sells my personal data (I hope!). Sometimes it's worth it for a developer to create something and truly release it for free, without having the immediate motive of profit. I always tell college students who ask how to break into an industry--whether it's information security, professional programming, the startup world, or anything else--to do something. Sometimes a free application, such as the one I created as a free weekend side-project, turns into more than what it is. I'm more than aware that my experience is mostly a fluke, though. The take-home message should be that even if it doesn't become some massively-profitable, highly-trafficked app or site, it's still something that you built. And that has value.
- chewxy 14y ago
  In otherwords, you made sleepyti.me a loss leader for your personal growth. That is a fantastic way of looking at it. (Also, I <3 SleepyTime and I would pay like $1 a month or something :D)
- highace 14y ago
  By 'hits', do you mean page views or visitors? Just curious.
- balajiviswanath 14y ago
  If you are a solo entrepreneur who is running a website part-time and furthering your personal brand, then advertising is not a bad idea. However, it is different if you are working full-time along with a team and building something bigger.
- NathanKP 14y ago
  Exactly. I did the very same thing, made a small app that showed off my coding skills. It only made about $1000 through Amazon Affiliate sales over the course of a year, but it got some press coverage and got me numerous job offers, one of which I ended up accepting. There is a lot of value to be had from providing a free web app if you are a lone hacker looking for a job.
  - OGC 14y ago
    Also a 1000 bucks is a thousand bucks.
  - davidw 14y ago
    So - the people who make enough to pay you a salary - what business are they in, and how do they make their money? I'm not trying to be snarky. Well, maybe just a little, but in a good-natured way - I think you got a good deal that probably met or exceeded your expectations, which is commendable! But you did not create a sustainable business. To do so with ads is not impossible, but since each user generally gives you way, way less revenue than with something where they pay for it, you really have to parsimonious with resources per user.
chewxy 14y ago
Interesting coincidence - last night I finished my first post in a series of posts about startup business models. Specificaly, advertising: http://blog.chewxy.com/2013/03/06/startup-business-models-advertising/ http://blog.chewxy.com/2013/03/06/startup-business-models-ad... My startup is going thru a series of heavy re-thinks, so I thought I would blog about the different models, and how to approach them in a rather thorough fashion.
- balajiviswanath 14y ago
  Thanks chewxy. The only issue is that advertising is getting increasingly sophisticated and contextual. The big boys (Facebook and Google) have way too much data and crowd out the smaller startups. So, startups should start thinking beyond advertising as a main source of revenue.
  - chewxy 14y ago
    I maintain that if you know what you're doing, advertising is ridiculously profitable. Most of the time though, most startups that use advertising do it because: they don't have other business models, and so advertising is shoe-horned in. On the other hand, a startup that knows what they're doing will know that building out the correct audience is the way to go - if you provide your clients (the advertiser) what they want (quality, relevant audiences, preferably with intent to buy), you can do quite well.
    - boyter 14y ago
      Any examples to support your case?
      - chewxy 14y ago
        Google (the search engine) would be the prime example. A search engine is the service that Google provides, and by virtue of its service, they build their product (audiences) by making the audience self-select into niches (i.e intents). Google isn't a startup anymore. If I were to be asked about more recent startups, I'd list Buzzfeed, the 9gag peoples, Ben Huh's company (can't remember the name) amongst those with quite decent strategies for advertising. You may notice that they're almost all content based companies/startups - that's because it's easier to build audiences with content.
rmason 14y ago
Here's one he forgot: I've seen niche content sites that after building a community hold conferences. They may have advertising but it's the conference that's their main money maker.
- balajiviswanath 14y ago
  That's a good feedback, rmason. It is a niche model that could be added to the article.
  - justincormack 14y ago
    Its not that niche eg TED.
- camus 14y ago
  quite a lot of enterprise opensource software companies do that. And their gigs are not cheap ;)
saosebastiao 14y ago
Note that many of these fall into a bait-and-switch category. You use the product for free for a while, and then all of a sudden you are spammed to high hell, or functionality is taken away unless you pay. Paying isn't really that bad of an option sometimes.
- balajiviswanath 14y ago
  Bait and switch model is a pretty old concept (promo offers, free trials, etc in consumer goods).
  - SiVal 14y ago
    Those are not bait and switch unless the buyer is told that the introductory price was the permanent price. Bait and switch is a form of fraud where an offer is made and accepted, technically constituting a legal contract, but then the offerer reneges on the deal, claiming some sort of snafu beyond his control. Having not made the offer in writing and having apparently made some sort of honest mistake make the buyer unlikely to hold it against him, even though it is often technically a breach of contract. Oh, well, the buyer reasons, I may as well trade up and finish this thing, now that I've put so much time and energy into it. And that completes the bait and switch. Simply offering "first three months free, then we start charging" is not bait and switch. It's a perfectly valid offer.
- nonamegiven 14y ago
  That's not bait and switch. > "Bait-and-switch is a form of fraud used in retail sales but also practiced in other contexts. First, customers are "baited" by merchants' advertising products or services at a low price; then customers discover the advertised goods are not available. Other products are "switched" for them; however, these items are often costlier." https://en.wikipedia.org/wiki/Bait_and_switch https://en.wikipedia.org/wiki/Bait_and_switch Bait and switch means that you're promised or enticed with one specific thing, but that thing is not available and you're offered something different. The idea is that you wanted something, so fuck it just buy it and get it over with. And of course some people won't even notice the switch. Free now pay later and the other schemes are not bait and switch. When you get there/sign up, you have the free version right now, exactly as advertised. And there is no attempt (usually) to hide the fact that free is only for N days, after which you'll need to sign up. Similar for free/paid for reduced/enhanced. You're getting exactly what's being offered.
timmm 14y ago
They don't. They hemorrage money in an attempt to get some claim of silicon valley gold.
- deleted 14y ago
  [deleted]
KnowledgeSponge 14y ago
There's a big one missing from this list that is somewhat recent. Selling the placement of audience segmentation/retargeting cookies on a publisher's site to a data aggregator like Bluekai (typically on a CPM bases) who then sells that aggregated data to DSPs/DMPs for use in display advertising. If you want to learn about a whole different layer of the ad tech industry, just start perusing some of the questions on Quora for Bluekai (http://www.quora.com/BlueKai http://www.quora.com/BlueKai) and then do some digging on the companies in the Data Aggregator and Data Supplier buckets of the LUMAscape for display advertising (http://www.lumapartners.com/lumascapes/display-ad-tech-lumascape/ http://www.lumapartners.com/lumascapes/display-ad-tech-lumas...).
- dangrossman 14y ago
  I wonder how they're going to work around two of the four major browsers blocking third-party cookies by default.
BlindRubyCoder 14y ago
Many times they don't. It's usually something like Instagram where they give out a product for free in hopes that piles of people will start using it, and they'll "figure out something later". Worked out great for Google and Instagram, not so great for 999,999 other startups who tried it. Personally, I like the idea, but it's tough.
- camus 14y ago
  I always thought if you have a product that works but is free , you can commditize it by selling your infrastructure as a service ( paid API , hosting , etc ... ). For instance , instragram could sell a way to make instragram clones in the cloud, like wordpress has a free blog script and sells blog hosting for that script, you get my point. Once you understand a domain and develop an app for that , should be easy to sell your app infrastructure as a service for thirdparty apps.
  - derrida 14y ago
    The problem? They can't really sell that. Want to make an Instagram clone? Write a web interface for Imagemagick Youtube clone? Interface for ffmpeg... This gets boring quickly. :-)
jacques_chester 14y ago
Advertising sucks because worldwide inventory grows faster than the supply of eyeball-hours to view the ads. So there's constant downward pressure on prices. Subscription sucks because you have to fight subscriber fatigue ... if you can get someone to sign up at all. People sweat over $5/month memberships; meanwhile they spend $20/wk on coffee. Micropayments suck because everyone hates the mental overhead. I have a solution I call "microsubscription". The only problem is that it's been tried by others and failed. Naturally I feel I've got the magic ingredients that the others didn't have, but ... we'll see.
- chewxy 14y ago
  And yet, there are still sites that will command a high eCPM. The difference is of course, the audience quality. Like I mentioned in my latest blog post[0], > Real time bidding engines are getting more and more intelligent, and would be able to guess with quite good results, how valuable a user is to the advertiser. This allows the advertiser to only pay high amounts for audiences that matter to their ROI, while paying low amounts to audiences that don’t. > What happens is then this: a segregation of high paying advertisers and low paying advertisers form. When I say high paying advertisers I mean advertisers who would pay high for the right audience. They will pay significantly higher than the low paying advertisers, who would “spray and pray” their ads in hopes of reaching the right audience. I maintain that if a startup is able to build the correct audiences (StackOverflow building an audience of IT professionals for example), the revenue from advertising will be substantial. [0] http://blog.chewxy.com/2013/03/06/startup-business-models-advertising/ http://blog.chewxy.com/2013/03/06/startup-business-models-ad...
  - jacques_chester 14y ago
    My original motivating problem was: how do blogs I like make money? Blogs that aren't about answering Oracle Obscure Platform 6.75a-R2 questions. Blogs that aren't about mesothelioma. Blogs that aren't "review" websites. Honest, good old fashioned smart people writing thoughtful stuff. Based on who I've talked to in areas of business and politics and the visible spread of ideas in Australian public intellectual life, the demographics for the blogs I directly host are amazing. Highly paid professionals all round. They're read in ministry offices and C-suites all over the country. To scrape some of this high-quality audience $$ I'd need to adopt a very high touch advertising policy and use invasive user tracking to prove my demographics. I don't have time or the moral flexibility and neither do the bloggers. Hence: how do the blogs I like make money? (Answer right now is: at their dayjobs.) The technology I've developed allows users to be tracked visiting participating websites without the websites being able to piggyback on my scheme to track users across multiple sites. It's resistant to the visit falsification attacks present in any standard tracking scheme. Pointless without a business, of course. So watch this space, I suppose.
pcl 14y ago
Ironically, the original author (who has some sort of Quora affiliation) did not include "generate content and resell it to other free web services" in the list.
trentmb 14y ago
Gullible VCs.
belorn 14y ago
Nice list where the author is trying to make a comprehensive list, but then I also have some criticism of the article. It lacks some models, and it makes an implied relationship between for-profit and non-profit. In the English language, this is commonly refereed as making money vs raising money. A charity or non-profit (say Wikipedia) is commonly not talking about making money. Some projects is funded by an indirect sponsorship model. Best example here is google and their model of giving 20 percent of an employees time to do what ever project that the employee wants. While Khan academy model is direct funding, projects that are an result of the google employee free time model is indirectly funded project. Then we have non-profit and what they will consider to spend money and man hours on. Sometimes, that not even remotely related to their primary purpose, but is just something that interest the people in the organization.
qwertzlcoatl 14y ago
I clicked the link and got a full page ad and thought that was the joke.

Disclaimer: I'm going to comment on my personal experience running a free web application, http://sleepyti.me http://sleepyti.me. It's not meant to be self-promoting, but I feel that the experience is relevant. There are a lot of ways to make actual profit (not just break even) with free applications. The Hacker News crowd doesn't always show a lot of love for the "small, free application" crowd, and the echo chamber is correct that having a webapp doesn't mean you're a startup. I know that I don't consider myself the "founder" of my app, because my site is not a company. I'm not trying to make it a business. That said, though, this write-up glosses over what has been, in my experience, the easiest and most straightforward way to profit from free traffic: non-targeted ads. For me, that means a single banner advertisement served over Google Adsense. Now, like I said, I'm not trying to make http://sleepyti.me http://sleepyti.me my primary income. If I wanted to charge users, or enter deals with, say, large mattress vendors, that would be different. But that isn't to say that the traffic and feedback I've received hasn't helped me both personally and professionally. Personally, I've received a lot of attention from my app. It's pretty popular with college students, and it's gained media attention from outlets such as Lifehacker, the Toronto Star, and most recently the New York Times. I'm not listing these sources to self-promote, but to show that from a personal exposure standpoint, it's opened many doors for me. The same goes professionally: I had a brief partnership with YC-backed WakeMate, which, although now defunct, allowed me to interact with an early-stage YC company that I otherwise would not have been able to experience. I get between 1.6 and 2 million hits a month, and the financial reward has been steadily increasing through my single banner ad as well. People always say that "if you're not paying for it, you're the product," but I don't think that that's always true. I don't prey on my users, and I can think of several free apps that operate in a similar--even less obtrusive--manner. Trello, for example, neither serves ads nor sells my personal data (I hope!). Sometimes it's worth it for a developer to create something and truly release it for free, without having the immediate motive of profit. I always tell college students who ask how to break into an industry--whether it's information security, professional programming, the startup world, or anything else--to do something. Sometimes a free application, such as the one I created as a free weekend side-project, turns into more than what it is. I'm more than aware that my experience is mostly a fluke, though. The take-home message should be that even if it doesn't become some massively-profitable, highly-trafficked app or site, it's still something that you built. And that has value.

chewxy 14y ago
In otherwords, you made sleepyti.me a loss leader for your personal growth. That is a fantastic way of looking at it. (Also, I <3 SleepyTime and I would pay like $1 a month or something :D)
highace 14y ago
By 'hits', do you mean page views or visitors? Just curious.
balajiviswanath 14y ago
If you are a solo entrepreneur who is running a website part-time and furthering your personal brand, then advertising is not a bad idea. However, it is different if you are working full-time along with a team and building something bigger.
NathanKP 14y ago
Exactly. I did the very same thing, made a small app that showed off my coding skills. It only made about $1000 through Amazon Affiliate sales over the course of a year, but it got some press coverage and got me numerous job offers, one of which I ended up accepting. There is a lot of value to be had from providing a free web app if you are a lone hacker looking for a job.
- OGC 14y ago
  Also a 1000 bucks is a thousand bucks.
- davidw 14y ago
  So - the people who make enough to pay you a salary - what business are they in, and how do they make their money? I'm not trying to be snarky. Well, maybe just a little, but in a good-natured way - I think you got a good deal that probably met or exceeded your expectations, which is commendable! But you did not create a sustainable business. To do so with ads is not impossible, but since each user generally gives you way, way less revenue than with something where they pay for it, you really have to parsimonious with resources per user.

chewxy 14y ago

Interesting coincidence - last night I finished my first post in a series of posts about startup business models. Specificaly, advertising: http://blog.chewxy.com/2013/03/06/startup-business-models-advertising/ http://blog.chewxy.com/2013/03/06/startup-business-models-ad... My startup is going thru a series of heavy re-thinks, so I thought I would blog about the different models, and how to approach them in a rather thorough fashion.

balajiviswanath 14y ago
Thanks chewxy. The only issue is that advertising is getting increasingly sophisticated and contextual. The big boys (Facebook and Google) have way too much data and crowd out the smaller startups. So, startups should start thinking beyond advertising as a main source of revenue.
- chewxy 14y ago
  I maintain that if you know what you're doing, advertising is ridiculously profitable. Most of the time though, most startups that use advertising do it because: they don't have other business models, and so advertising is shoe-horned in. On the other hand, a startup that knows what they're doing will know that building out the correct audience is the way to go - if you provide your clients (the advertiser) what they want (quality, relevant audiences, preferably with intent to buy), you can do quite well.
  - boyter 14y ago
    Any examples to support your case?
    - chewxy 14y ago
      Google (the search engine) would be the prime example. A search engine is the service that Google provides, and by virtue of its service, they build their product (audiences) by making the audience self-select into niches (i.e intents). Google isn't a startup anymore. If I were to be asked about more recent startups, I'd list Buzzfeed, the 9gag peoples, Ben Huh's company (can't remember the name) amongst those with quite decent strategies for advertising. You may notice that they're almost all content based companies/startups - that's because it's easier to build audiences with content.

rmason 14y ago

Here's one he forgot: I've seen niche content sites that after building a community hold conferences. They may have advertising but it's the conference that's their main money maker.

balajiviswanath 14y ago
That's a good feedback, rmason. It is a niche model that could be added to the article.
- justincormack 14y ago
  Its not that niche eg TED.
camus 14y ago
quite a lot of enterprise opensource software companies do that. And their gigs are not cheap ;)

saosebastiao 14y ago

Note that many of these fall into a bait-and-switch category. You use the product for free for a while, and then all of a sudden you are spammed to high hell, or functionality is taken away unless you pay. Paying isn't really that bad of an option sometimes.

balajiviswanath 14y ago
Bait and switch model is a pretty old concept (promo offers, free trials, etc in consumer goods).
- SiVal 14y ago
  Those are not bait and switch unless the buyer is told that the introductory price was the permanent price. Bait and switch is a form of fraud where an offer is made and accepted, technically constituting a legal contract, but then the offerer reneges on the deal, claiming some sort of snafu beyond his control. Having not made the offer in writing and having apparently made some sort of honest mistake make the buyer unlikely to hold it against him, even though it is often technically a breach of contract. Oh, well, the buyer reasons, I may as well trade up and finish this thing, now that I've put so much time and energy into it. And that completes the bait and switch. Simply offering "first three months free, then we start charging" is not bait and switch. It's a perfectly valid offer.
nonamegiven 14y ago
That's not bait and switch. > "Bait-and-switch is a form of fraud used in retail sales but also practiced in other contexts. First, customers are "baited" by merchants' advertising products or services at a low price; then customers discover the advertised goods are not available. Other products are "switched" for them; however, these items are often costlier." https://en.wikipedia.org/wiki/Bait_and_switch https://en.wikipedia.org/wiki/Bait_and_switch Bait and switch means that you're promised or enticed with one specific thing, but that thing is not available and you're offered something different. The idea is that you wanted something, so fuck it just buy it and get it over with. And of course some people won't even notice the switch. Free now pay later and the other schemes are not bait and switch. When you get there/sign up, you have the free version right now, exactly as advertised. And there is no attempt (usually) to hide the fact that free is only for N days, after which you'll need to sign up. Similar for free/paid for reduced/enhanced. You're getting exactly what's being offered.

timmm 14y ago

They don't. They hemorrage money in an attempt to get some claim of silicon valley gold.

deleted 14y ago
[deleted]

KnowledgeSponge 14y ago

There's a big one missing from this list that is somewhat recent. Selling the placement of audience segmentation/retargeting cookies on a publisher's site to a data aggregator like Bluekai (typically on a CPM bases) who then sells that aggregated data to DSPs/DMPs for use in display advertising. If you want to learn about a whole different layer of the ad tech industry, just start perusing some of the questions on Quora for Bluekai (http://www.quora.com/BlueKai http://www.quora.com/BlueKai) and then do some digging on the companies in the Data Aggregator and Data Supplier buckets of the LUMAscape for display advertising (http://www.lumapartners.com/lumascapes/display-ad-tech-lumascape/ http://www.lumapartners.com/lumascapes/display-ad-tech-lumas...).

dangrossman 14y ago
I wonder how they're going to work around two of the four major browsers blocking third-party cookies by default.

BlindRubyCoder 14y ago

Many times they don't. It's usually something like Instagram where they give out a product for free in hopes that piles of people will start using it, and they'll "figure out something later". Worked out great for Google and Instagram, not so great for 999,999 other startups who tried it. Personally, I like the idea, but it's tough.

camus 14y ago
I always thought if you have a product that works but is free , you can commditize it by selling your infrastructure as a service ( paid API , hosting , etc ... ). For instance , instragram could sell a way to make instragram clones in the cloud, like wordpress has a free blog script and sells blog hosting for that script, you get my point. Once you understand a domain and develop an app for that , should be easy to sell your app infrastructure as a service for thirdparty apps.
- derrida 14y ago
  The problem? They can't really sell that. Want to make an Instagram clone? Write a web interface for Imagemagick Youtube clone? Interface for ffmpeg... This gets boring quickly. :-)

jacques_chester 14y ago

Advertising sucks because worldwide inventory grows faster than the supply of eyeball-hours to view the ads. So there's constant downward pressure on prices. Subscription sucks because you have to fight subscriber fatigue ... if you can get someone to sign up at all. People sweat over $5/month memberships; meanwhile they spend $20/wk on coffee. Micropayments suck because everyone hates the mental overhead. I have a solution I call "microsubscription". The only problem is that it's been tried by others and failed. Naturally I feel I've got the magic ingredients that the others didn't have, but ... we'll see.

chewxy 14y ago
And yet, there are still sites that will command a high eCPM. The difference is of course, the audience quality. Like I mentioned in my latest blog post[0], > Real time bidding engines are getting more and more intelligent, and would be able to guess with quite good results, how valuable a user is to the advertiser. This allows the advertiser to only pay high amounts for audiences that matter to their ROI, while paying low amounts to audiences that don’t. > What happens is then this: a segregation of high paying advertisers and low paying advertisers form. When I say high paying advertisers I mean advertisers who would pay high for the right audience. They will pay significantly higher than the low paying advertisers, who would “spray and pray” their ads in hopes of reaching the right audience. I maintain that if a startup is able to build the correct audiences (StackOverflow building an audience of IT professionals for example), the revenue from advertising will be substantial. [0] http://blog.chewxy.com/2013/03/06/startup-business-models-advertising/ http://blog.chewxy.com/2013/03/06/startup-business-models-ad...
- jacques_chester 14y ago
  My original motivating problem was: how do blogs I like make money? Blogs that aren't about answering Oracle Obscure Platform 6.75a-R2 questions. Blogs that aren't about mesothelioma. Blogs that aren't "review" websites. Honest, good old fashioned smart people writing thoughtful stuff. Based on who I've talked to in areas of business and politics and the visible spread of ideas in Australian public intellectual life, the demographics for the blogs I directly host are amazing. Highly paid professionals all round. They're read in ministry offices and C-suites all over the country. To scrape some of this high-quality audience $$ I'd need to adopt a very high touch advertising policy and use invasive user tracking to prove my demographics. I don't have time or the moral flexibility and neither do the bloggers. Hence: how do the blogs I like make money? (Answer right now is: at their dayjobs.) The technology I've developed allows users to be tracked visiting participating websites without the websites being able to piggyback on my scheme to track users across multiple sites. It's resistant to the visit falsification attacks present in any standard tracking scheme. Pointless without a business, of course. So watch this space, I suppose.

pcl 14y ago

Ironically, the original author (who has some sort of Quora affiliation) did not include "generate content and resell it to other free web services" in the list.

trentmb 14y ago

Gullible VCs.

belorn 14y ago

Nice list where the author is trying to make a comprehensive list, but then I also have some criticism of the article. It lacks some models, and it makes an implied relationship between for-profit and non-profit. In the English language, this is commonly refereed as making money vs raising money. A charity or non-profit (say Wikipedia) is commonly not talking about making money. Some projects is funded by an indirect sponsorship model. Best example here is google and their model of giving 20 percent of an employees time to do what ever project that the employee wants. While Khan academy model is direct funding, projects that are an result of the google employee free time model is indirectly funded project. Then we have non-profit and what they will consider to spend money and man hours on. Sometimes, that not even remotely related to their primary purpose, but is just something that interest the people in the organization.

qwertzlcoatl 14y ago

I clicked the link and got a full page ad and thought that was the joke.