Captains Log: Friday 8 August 2008

I just had a thought about revenue models and how micropayments can assist many a startup. We all know the Google model of revenue , whereby you startup a web app and add Google adsense to it in the hope of covering costs and making a tiny profit. Well the reality is  in most cases you earn around $10 or so a month. Some of the big guys do get a couple of million but those are the few. Most VC people don’t want to see the Google Adsense as a revenue model any more.

You cannot also build your own ad network as the cost and time in most cases is not worth it as you are busy with you new app and marketing and building the user base. Most of the ad networks give anywhere between 30 to 70 percent of the revenue, but you would have to get alot of clicks per day in order to get any meaning revenue. There are of course other forms of web advertising as well like banners and placements.

So I was thinking why not look at a micropayment strategy for  you product. You feel you are offering some sort of meaningful service to your userbase so why can you not charge for it and offer some premium services. Even if you only charge $1 per year and work off volume you would probably come of better then with Google.  Hold competitions via premium SMS and make money off that. Everyone loves the chance of getting something for free. So if you can charge $.50 extra on top of the SMS and recover the revenue via the service providor you should be able to generate a fair amount of revenue from that. The hard part would be to get the providors to asisst as they are usually totally disinterested in a small guy running his operation out of his bedroom.

I do believe that there is no such thing as a free lunch and the freemium model cannot sustain itself at the current rate with Google looking at generating quality clicks and ever changing the adsense algorithms.

With my startup I am looking at all these things as without a revenue model there is little chance to getting the terms you want from a VC. If you got cash on hand and a growing product they will most likely provide better terms.

So guys share you opinions on this topic and maybe we can see some googd ideas come from discussion.

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