Today something sad but not unexpected happened. Andrew Mason was fired as CEO of Groupon. I worked at Groupon for two years, from late 2010 to late 2012, and while the experience was a mostly positive mixed bag, Andrew was definitely one of the highlights. Even though I knew it was a matter of time, I was still sad to hear the news.
- Strong Linux admin and Java stack experience – he could get a job in that kind of shop no problem.
- Evidence of interest in other programming tools – he did a Rails project in 2005(!) for an internship and some Django projects at his main job. This showed awareness of new tech trends and willingness to use the best tool for the job, not just what he’s comfortable with.
- More emphasis on greenfield, new applications than maintaining or growing existing ones
- Both desktop and web development projects
- Capable of integrating other tools and systems as needs (credit card payments, WordPress, SMS, etc)
- If he wanted to work in a medium-to-large, non-tech company environment, he had a great set of skills and should be gainfully employed in companies like that for a long time to come
- I did not think he was well positioned to switch to a Python or Ruby shop or a small startup because most places need someone who can contribute immediately without a lot of training or supervision, and it didn’t look like he had a lot of experience with those. Some, but not enough to hit the ground running
- Smart and fast growing companies larger than a certain size (say 10 devs) could be a possibility because hiring fast is hard and they need a broad skill set and a fast learner. He appeared to be those things.
- You might think you’d be happier somewhere else, but bouncing jobs doesn’t always work. I’ve worked at 6 places since I graduated in 2005 and Groupon is the first place I’ve really, really loved. Don’t expect to get it right on the first try, but don’t be afraid to try!
- Work is a huge part of your life, so it’s worth researching companies beforehand to give yourself a better chance of landing the best job. Find and meet people that work there, visit the office, interact with the blogs/twitter of the people that work there, go to meetups they attend, find connections on LinkedIn, etc. Also try to meet former employees.
- Bonus tip: if you do those things, then when you apply, you’re no longer a resume, you’re a real person
- Having a web presence can give a perspective employer a more complete impression of you than can fit on a resume. How you think, how you write, what you’re interested in, etc. Public projects, OSS contributions, etc set you apart from most applicants and turn you from a flat resume into a real person. They are indisputable proof that you can produce things and are engaged in software as more than just a job.
- Tactical tip – name your resume something like “Resume – Jake Nelson.doc” – it makes the hiring person’s job easier and cuts down the chance that your info gets misplaced.
- Take a long think about where you want to live. This guy had worked in the same region where he went to school, a couple hours outside a major metro area. Smaller places like that have benefits, but there’s also a lot to gain by moving. You enter a bigger and richer job market and it gives you a chance to reinvent your outlook on life.
- He was in the Eastern US, so I recommended looking into New York City. For every ten articles I see about how hard it is to hire good developers, 8 of them are about NYC. There have been several Hacker News threads about hiring in NY and how good developers are getting multiple offers. Etsy, Foursquare, Gilt Group, etc are all growing fast.
- Once you find a place you want to work, don’t worry if you don’t feel qualified to work there:
- If you take the advice I listed above about getting to know a company, you’ll be a much more attractive candidate and you’ll have an idea beforehand if they would consider you
- Getting a great job is a discontinuous event in your life. If you can land an awesome that you’re barely qualified for there, then a year or two of working at that job will teach you enough that you’ll be in the same league as the rest of your coworkers. If you sneak into a job at Facebook, then after a year, you’re a Facebook Developer. Ditto for Google, Twitter, Groupon, Foursquare, etc. Those opportunities can change your career trajectory for years to come.
Background: One of the new responsibilities I have at Groupon is getting lots of awesome developers to work here. [If you are or might be an awesome developer, email my work address – email@example.com – and check out the job openings at http://groupon.com/jobs ] So I’ve put myself out as a representative of Groupon’s dev team, announced hiring, answered questions, etc. In one week, two people have responded asking about summer internships.
[HILARIOUS UPDATE: I left off one sentence that has confused at least one person so far. Groupon doesn’t have an internship program right now. We’re just barely starting on campus recruiting for college graduates. The friendly advice was a consolation prize since I couldn’t help with the internship. Sorry for the confusion!]
Here’s some advice I gave them through email that I thought was worth posting publicly:
- If you’re already reaching out to companies when you’re a sophomore , you should be commended for being so on top of your career this early in school. Too many people wait until two months before (or even after) they graduate. Even if you don’t get the internship, you make an impression.
- If there’s an established technology you’d like to learn, a book is still a good place to start. There’s a balance of theory and practice, it will be edited and consistent, and give you a complete end-to-end look at the technology. But don’t just read the books, do the exercises in them. If you want to learn Rails, the book Agile Web Development with Rails has you build a complete ecommerce website and you can do it in a week or so. Sometimes doing comes before understanding (or rather, you can’t understand without doing). EDIT: How do you tell the good tech books from the bad? Ask someone who is good at that technology. Too shy? O’Reilly and Pragmatic Programmer books are generally good, and you can often get good recommendations by searching on StackOverflow or SearchYC.
- On that note, PLEASE don’t wait for a class to learn a new language or technology. CS classes have their place, giving you a broad foundation of principles and practice in certain specific subjects. But many techniques (e.g. source control), technologies (e.g. server administration, nginx configs, etc), and languages (many schools teach only C and Java) won’t EVER be covered in school. In the workforce, you’ll have to learn stuff on the fly and on your own for your whole career, so you need to start learning things outside of class now if you want to be decent.
- Don’t just focus on specific languages or frameworks, learn some general programming skills. Books like Structure and Interpretation of Computer Programs (free online at http://mitpress.mit.edu/sicp/full-text/book/book.html) , Clean Code, The Pragmatic Programmer, etc are great for that.
- If you glossed over that last point, go back! Reading SICP, watching the video lectures, and doing the exercises will make you a fantastic programmer.
- Learn at least one “obscure” language. It will help you learn things that are hard to learn in mainstream languages like Java. I’m partial to Lisp and the book Land of Lisp is a great, fun way to learn that language.
- Find a project. It doesn’t have to be something meaningful or important, just do it! Write a scraper to find the nearest Starbucks to you. Make a group management website for your study groups. Write software to control a LEGO mindstorm robot. Just do something, post projects online, put code up on GitHub, and write something about what you did, and put it on a blog. This gives you a public record of interest in programming outside of work, which is very, very appealing to employers and probably the number one thing in getting to an interview. It will also give you practice writing and show you how you improve over time.
- Get involved with developers in your area. If there are meetings in your area, you can find them in 5 seconds thanks to the other Big G. If you can’t find any, it’s because those things take time and hassle to arrange. Volunteer to help with the meetings, find locations, etc, or organize your own. That stuff isn’t hard, it just takes time and the confidence to do. That way you will generate a lot of goodwill and make connections with people you can work with and learn from.
So there you go. $100 worth of books to buy, a years worth of homework, and you will have made yourself more appealing to employers than most college graduates!
Bonus points: If someone answers you saying “We’re not ready now but get in touch next year”, make sure you do it!
About a month ago, I started working at Groupon. It has been a pretty exciting month since then. Here are some random observations based on that time:
1) Groupon is working on exciting technology problems. Big scale, big data, multi platform, etc. The problem space is straightforward but the scale and importance of every part of the system makes it a worthwhile challenge.
2) Groupon has a principled approach to software development. Pair programming as needed, small, focused teams, meaningful code reviews, sensible testing, operations and deployment options, etc. The team is a mix of permanent employes and long-term consultants, and they support each other. It helps that the consultants come from one of the most excellent companies in Chicago. The product roadmap for the coming year shows a legitimate need to balance short term business needs with building a platform to support continued growth into the future.
Groupon’s technology work isn’t bleeding edge or particularly innovative. It is extremely well done application to a profitable problem and has scaled from a team of inital whiz kids to a medium sized team better than any place I’ve worked or know of, and signs are that it will continue into the future.
3) By a quirk of seating, I sit right behind the CEO, Andrew Mason. I occasionally overhear him talking so I have a tiny bit of insight into the higher up business decisions. Let’s just say that if you’re competing against him an the rest of the exec team, good luck to you. I think a lot of people are fooled by how he comes of as a goofball in his interviews. Don’t get me wrong, he is a goofball, buthe is also a savvy business leader. He knows what’s going on with us, our competitors, the technology, the business, etc. If you still insist on getting into the deal space, build a small niche based on personal relationships, because the chance to be a big player in the deal business is gone and it will not be relinquished.
If you’re interested in more about what it’s like to work at Groupon, leave a comment or email me. If you’re a talented developer interested in working here, email me now.
A big thanks to Chris Dixon for writing “Should Apple be more open?” I was going to write basically the same thing but he saved me the trouble. If you don’t understand what he’s writing, read The Innovator’s Solution. The short answer is that see how the primary criteria customers use to choose a product changes over time because technology improves faster than customer needs.
Dang it, now I’ve started writing so I might as well say the other thing that people haven’t been saying about the iPad. If you can spell “vim” or “emacs” or “ssh”, this computer isn’t for you. It’s for people who don’t use computers much because they’re hard to use. I think this could be as important as the original Macintosh for changing the way people use computers for the next 30 years. Computers as we know them are a super optimized expression of 40 years of progress. (No, seriously, name one thing we have now that wasn’t in Engelbart’s 1968 demo besides more horsepower.) This is wild speculation, but I think the iPad demo could be a similar moment, an expression of another path for computing. Obviously hardware makers think so because everyone with a soldering iron is pushing whatever flat, keyboardless device they threw together in time to ride the iPad media wave.
But to those that already heavily use a computer for specialized tasks, we’re the ones who need to be scared of the Innovator’s Dilemma and Innovator’s Solution. The axis of choice has already shifted away from power to price, and it is in the process of shifting from price to convenience and usability. Arguably there’s no way to fix the major problems with complexity and security that modern OSes have without breaking decades worth of legacy apps. So a clean break, whether it be iPhone OS, Android, ChromeOS, or other, is likely to be the platform of the future? Which one? iPhone OS is clearly the new platform for the immediate future and the iPad is only going to strengthen that, but the convenient, touch-based media consumption model of computing will go through a similar cycle of plausibility, power, price, then convenience. When it shifts from power to price, an open platform will gain advantages over a closed one and Apple will either loosen up or become a profitable niche player in mobile computing as well as legacy computing.
EDIT: Someone else also did a better job of writing what I wanted to: iPad: An Apple for Mom. Thanks, Daniel!
This is a repost from Jason Calacanis’ mailing list. While this kind of confrontation is certainly not my style, I strongly agree with the principle. I’m glad there are people out there like Jason that don’t care how dirty their hands get. Whatever you think of Jason, he is a friend to entrepreneurs.
[reposted in its entirety below, slightly reformatted]
[ disclaimer: written with boiling blood ]
When confronted with an abuse of power, an injustice or a scam I’ve developed a really effective technique: I blog, tweet and whine about it passionately for as long as possible. Basically, I do this until people get sick of me (some of you reading this have at various times told me this–I’m sorry!). I’ve learned over the years that this process is wildly effective in the long-term and has the added bonus of being great therapy. It’s a way for me to relieve the dissonance associated with the injustice, perceived or real, that I see.
So, I fight.
You see, where I grew up, you said what you felt and let the chips fall where they may. If you liked the Giants in a room full of Jet fans, well, tough s@#$t Jets fans (and Jet fans have a horrible existence anyway). My Irish mom and Greek dad are as opinionated as they come, and our dinner table was filled with healthy debate. So were the steps of the Brownstone where my brother and our crew sat all summer long in the 70’s and 80s, battling over the finer points of Star Wars, Yankees, X-Men and Howard Stern.
It probably didn’t help that I grew up in my dad’s bar. I watched him put an end to countless bar fights by clever debate techniques (i.e. “is this really worth fighting over when we could be all be enjoying this amazing bottle of wine?”). Of course, when that didn’t work he would slam the offender’s heads into the mailbox on the corner of 89th and 3rd avenue. It’s probably still got the dents in it, I should go check. Ahh… the good old times.
I’m from the bottom, so I still feel like I’m from the bottom. In fact, my biggest fear in life is that at some point I’ll stop feeling like that. This is a long way of explaining to you guys where I’m
coming from when you see me wound up like I am today. Father forgive me for the rant I’m about to go on … you see, I’m simply programmed to fight.
My Latest War: Angels charging startups to pitch
Recently, I was made aware of a group of angel investors that were charging startups to pitch them.
Yes, you heard that correctly: the rich people (angels) are charging the poor people (startup entrepreneurs desperate for cash to fuel their dreams) to hear their pitch. No, I’m not kidding. This is actually happening — and it’s widespread.
Last week, a number of the TechCrunch50 companies informed me about firms calling them to present at their “Angel forums” — only to discover that they would face fees ranging from $1,000 to $6,000 for a 10-15 minute pitch slot. After additionally investigation by the Jason Nation (the top 10% of the maniacs who follow me on Twitter), I was sent details of one epic bastard that wanted $10-$25,000, plus a couple of percentage points of the value of the deal (you’ll find out
who later in this email).
When I heard this, my blood started to boil immediately. So, I did what any maniacal, self-absorbed CEO from Brooklyn would do: I started a jihad against this dispicable form of payola and the people doing it. It’sonpeople … it’s on like a Donkey Kong.
Why it’s wrong to charge startups to pitch
I’ve been in the startup scene since 1994 and in those 15 years I’ve met, interviewed — and in some cases, pitched — the most powerful investors in technology. None of them have ever charged me a dime for doing so. Why? BECAUSE THEY ARE RICH!
It’s low-class, inappropriate and predatory for a rich person to ask an entrepreneur to PAY THEM for 15 minutes of their time. Seriously, what is the cost to the party hearing the pitch? If you answered “nothing” or “the cost of two cups of coffee” you win the prize! Evenif you rent a hotel room and put out breakfast for your fellow angel investors that’s like $20 a person. You mean to tell me that a room full of rich investors can’t afford to pay for their own God-damned $20 in bad coffee, stale pastry and stained ballroom rugs? Really?
To be clear, I am making this a class war becauseit isone: cash-poor startups are bringing RICH angel investors an opportunity to become EVEN MORE RICH. As such, the rich folks should pick up the non-existent to minimal costs.
Why startups fall for “angel group” payola
Now, you ask: why would any self-respecting entrepreneur pay thousands of dollars to rich people just for the opportunity to pitch? Well, the truth is that the more mature — or flat out better — startups would never pay to present. The best ideas by the best entrepreneurs get socialized instantly. As an new angel investor myself, one who has only done two investments of $25,000 and $50,000, I can tell you that I already get flooded with pitches. I can’t even imagine the volume of pitches real angel investors like Matt Coffin, Sandy Climan, Sky Dayton, Tony Hsieh and Ron Conway get inundated with.
This means that the only people who would pay to present are the entrepreneurs who are either “less good” or less connected. Now, I’m being diplomatic here in saying “less good,” in many cases, these aren’t just folks who lack a track record: they’re simply pursuing a bad idea.
In other words, if this was Hollywood, the folks who pay to present to investors are ugly, unpopular and lack talent. I know, that’s harsh but I’m afraid it is true. If you’re idea is good it will spread–even if you have no track record. If you’re only option is to pay to get in front of these folks you’ve probably got an idea that is weak or bad. Not always, but probably. Or maybe you’re a little naive or desperate to get things going–I don’t blame you for this startups.
Now, before you go saying “Jason is connected and he has access to angels” remember that I hustled my way into this industry from nothing. I networked at free conferences and figured out a way to get on the radar of uber-angels like Ted Leonsis, Fred Wilson and Mark Cuban. They paid attention to me because I had good ideas. If my ideas had sucked, they would have ignored me. Period.
These pay-for-play scams remind me of the “modeling agencies” that charge people for representation, acting lessons and to have their headshots done. Trust me kids, Brad Pitt and Kate Moss did not pay to get representation–they didn’t have to. If you’re paying to get an agent, it’s because you’re being scammed.
What about ‘presenting fees’ acting as a ‘filter’?
The folks who run these scams are going to feed you some line of B.S. like “we use these fees to filter out people who aren’t serious.” They’ll say something like “if we didn’t charge these fees, we
wouldn’t be able to filter through all the applications.”
Really? Well, the angels investors I know are really busy and they don’t charge fees. If Mark Cuban and Ted Leonsis — two really busy dudes running a dozen projects each — don’t charge why they hell do you? Oh yeah, right, you’re predatory DBs looking to double dip!
It’s your job as an angel investors to do the filtering and that should come out of YOUR RETURNS on your investments. If you have to charge it’s because either a) you’re a predatory DB or b) you suck at investing so much that your returns can’t pay for the time that you spend evaluating companies.
… or maybe c) you are actually a good person who has just never thought about how smarmy it is to charge a startup for your time? I’m willing to suspend judgement for a moment and consider all of those options.
What do we want?
At this point I’m calling on all angel groups who are charging to do two things immediately:
1. disclose what fees they *were* charging, displayed prominently on the top-level of their website.
2. immediately state that they willnever charge these fees– again, displayed prominently on the top level of their website.
If that is done, well, then this battle is over. We’ve accomplished our goal and everyone can get back to their day jobs.
However, if this is not done immediately, my group of startup CEOs and angel investors will begin targeting specific groups for elimination. We will launch competing, fee-free events directly opposite your events. We will encourage angels investors, service providers and startups to boycott your events. You may even find our street teams outside your events handing out flyers.
This isn’t a joke and this is a threat: stop charging startup companies to present or we will do everything we can to put you out of business with a competing, free option.
Now, if you think this is too hardcore and you don’t like my style, well, I can understand that. If you would rather take this offline and try to work something out, well, that’s not available as an option. There is not going to be any kind of negotiation and I’m not going to meet you for coffee.
Also, I don’t care what you think of me and I certainly don’t care if you email my investors (like one group has started doing) to tell them I’m out of control. The people who invest in me know exactly who they are investing in. In fact, one reason they back me is because I am a little out of control. Deal with it.
Angel Groups We’re Investigating
1. Keiretsu Forum ($1,000 to $8,000 to present according to sources)
The first group that was brought to my attention is something called the Keiretsu Forum. They have chapters all over the world, it seems, and they’ve been doing their program for a long time. I’m told by people that they charge between $1,000 to $8,000 to present and that a lot of good folks are involved. This is not publicly available information: they hide it! Now, if there are so many ‘good people’ involved, well, that’s great because good people will understand where startup companies are coming from when they demand that Keiretsu Forum drop their fees. If you have information about this group, please email it to me at jason at calacanis.com. We especially want to hear
from folks who have been asked to pay or who have paid. Send us the documents please.
2. Maverick Angels ($500 to $1,000 to present).
This group is a splinter group from Keiretsu we’re told. They hide their fees in a “boot camp” to prepare you to pitch (what a joke). If you have details on this group, again, send it to me.
3. PrivateEquityForums.com (stunnning $14,500 to $25,000 plus 3-5% of your raise to present!)
We’ve received information that Mike Segal of Joshua Capital Partners runs this forum that is looking for up to $25,000 and/or 3-10% of how much you raise! I’m in shock by this one… could this possibly be true? Do you know anyone who has attended this event or, worse, actually paid these fees? If so, I need you to email me immediately.
4. Tech Super Club ($595 to present).
This seems like a small event, but folks tell me they are charging $595 to pitch to angels.
5. Angels Den UK (Â£850 + 5% of raised funds)
Across the pond we have another reported payola scam that is looking for big upside in introducing you to angels. Disgusting! Send us the details of this one if you have them!
To recap the email quickly:
a) There is no circumstance where an angel investing group should charge a startup to pitch
b) We’ve launched an investigation into these groups and need any information you have
c) If you would spread the word about this issue by discussing it with angel investors and startups we would appreciate it
d) We are demanding that angel groups waive all fees starting today
e) We are going to crush any group that doesn’t comply with our demands
f) There is no negotiation
g) Angel forums upset by this email: Jason doesn’t care what you think of him and could care less if you email his investors, his mother or the Principal of the Internet to complain about his bad behavior (plus these folks get emails all the time and are used to it).
P.S. 1. If you have any thoughts on this please hit reply and tell me (I read them all).
P.S. 2. If this email was the final straw and you want to unsubscribe just hit reply and put unsubscribe in the subject line. 🙂
I’ve chimed in once or twice on the free vs. paid debate, and I’m firmly in the camp that you should charge customers money. You get money, they show some commitment, the expectation that comes with their money means you have an incentive to produce higher quality, and it gives you the funds and resources to sustain your business. Better yet, if they pay you repeatedly, you have predictable revenue and a baseline to measure the effectiveness of business-growing activities like marketing and advertising. So there’s the full disclosure of my preferences.
Now you should definitely take my opinion with a grain of salt. I’ve neither succeeded at a paid business nor failed with a freemium business. I have never actually started or run a business. But I am good at listening to lots of people and figuring out who’s telling the truth, who has an agenda, and what assumptions lie behind what people are saying. And now I’ll apply that skill to Mark Evans’ latest post Freemium is Not a Business Model.
[For those who don’t know, “freemium” is where you have a trial or limited version of your product that still does enough to provide some value, and a premium version with more features or capacity or X that some fraction of people will pay for. The hope is that you make enough money off the premium customers to support the many free ones.]
Mark’s point is that many Web2.0 companies are using freemium as an excuse not to make something valuable. It’s not a long article, and this quote sums it up pretty well:
For consumer-focused companies, however, freemium is fool\’s goldâ€¦and, most important, it\’s not a business model to create a viable and vibrant company.
Your business model might be to make something good enough that people will use it for free, get a big audience, then sell your company. But then you’re not really creating a product customers, you’re creating a product on spec to sell to another business. If you know beforehand that that’s what you’re doing (Paul Graham recommends this approach), it’s fine; just don’t fool yourself into thinking that your users are actually your customers.
I don’t think that giving things away is inherently bad, but it has to be put in context. The point of giving your product away is to make impressions on potential customers. There’s another name for this: marketing. If someone is ever going to buy your product, they have to a) know about it, and b) trust it.
People who don’t know something exists will never buy or use it. Period. It’s exactly the same as how people never buy things that don’t exist. If a potential customer doesn’t know about your product, then to them it doesn’t exist. Giving the product away lets people use it, and others can see people using it, users tell other people about it, etc. Those impressions are the same or better than the ones you have to pay for in advertising, hence the appeal of the free sample.
When people use your product, they can tell if they like it and want more. For instance, there are a million different calorie tracker websites and programs out there. It’s not a hard programming problem, it’s a data (why isn’t the food I just ate in here?) and interface (this takes too long, forget about it) problem. Those are things you can’t determine from a sales website, and definitely not from the claims the seller makes. So I went for a couple years before I found a situation where I trusted one enough to try it. I got a recommendation for Gyminee from someone I respected, and since it was free, I gave it a try. I found it easy enough to use, with a combination of fairly good food database and extremely easy to use interface, so I’ve stuck with it and recommended it to a few people. There is a Pro version that offers things like meal and workout planning that I’m not currently interested in. But if I do get more serious about my fitness and nutrition, there’s about a 99% chance that I’ll keep using Gyminee and about a 1% chance I’ll switch. Letting me use the free features turned a single impression into a potential customer. (plus it made me happy enough to plug it to everyone here)
Is it worth it to Gyminee to have me? Is this a success (because I use and recommend it) or a failure (because I haven’t paid them anything) of freemium? We can’t tell! Without knowing their expenses and conversion rates, we can’t say whether this is good or not. Let’s play with some numbers and see.
Here are some wild guesses about their business:
- Monthly hosting: $70 for a month for a 1GB slice from Slicehost
- Startup living for 3 people in Hunstville, AL: $3,600/mo
- Office, internet, etc: $1,300
This would give them roughly $5,000/month expenses. Gyminee Pro costs $5/mo, payable in 3 month chunks. So they would need 1,000 Pro customers to break even. If they convert 2% of signups into Pro accounts, they would need 50,000 registered users. If they have $50,000 in funding/savings/etc, then they have 10 months to get to that point.
What does this mean? Nothing! Even in this simplified model of their business, it’s a complex multivariate relationship. If they’re not where they want to be, they can do lots of things to improve it:
- raise more money
- reduce their expenses
- raise prices for Pro accounts
- create another set of features for a more expensive “Arnold”-level account
- sell either the meal OR workout planning as a sub-Pro account
- create more leads and registered users
- improve their sales process so they improve the percentages in their customer pipeline
You know what’s even better? They can do ALL of these things, within the limits of their time and resource constraints. For instance, since it seems like a young product, most of their costs have been related to designing and building the site. That is a fairly fixed cost that is already spent, so their best bet now is probably to get more and more customers to reduce the per-user cost of that upfront design work. Once your product is mature enough to be competitive, sales becomes more important. This is not some inherent quality of sales – when engineering makes the product better, sales becomes a relative weakness. When your sales grow fast and you enter new markets and people become used to your product, engineering becomes a relative weakness and that’s a good time to improve your product. You can improve your overall position by improving whatever is weakest in your business.
So if freemium isn’t when you should use freemium or not. These are the questions to ask:
- Are there enough people willing to pay for my product to support my business goals?
- Is there a subset of features of this product that’s enticing enough to stand on its own?
- What percentage of my paying market will be satisfied with that subset and decide not to pay?
- Based on my customer pipeline, what is my customer acquisition cost?
- What is my cost to support each free user?
So if (revenue lost in #3 + (#5 * # of users)) < (#4 * # of paying customers), then you should consider freemium.
Done? NO! This is not a one time calculation! You have to periodically reevaluate each of those to determine if that relationship still holds. So any changes you make should be temporary, so you can test the effects and decide if it is worth it to continue that change. It’s up to you to decide whether it’s fool’s gold or real gold.
Fortunately, there is a good place where we can see this in action – the iPhone App Store. It’s the one redeeming quality of all the mercilessly annoying whining about price changes in the comments: you get a record of different prices at different times. I’ve seen lots of examples where a company has lowered the price, made a lot of sales, shown up on the “What’s Hot” list, become popular, and then raised the price again. Sometimes, like for AirSharing and MotoChaser, where they have a free or low introductory price, then raise it. This serves two purposes: getting a feel for demand at different prices, and getting some free publicity.
Follow any discussion board for entrepreneurs, and there will be articles and conversations about pricing strategy every week. The reason people say it’s an art, not a science, is because the optimal pricing strategy is different for every business, and it changes as the business changes as well. Consider options, make informed guesses, and experiment until you find what works for you.
Or you could do like me, and work on creating free content that you have to pay to use. It’ll make sense soon – subscribe to stay tuned!
UPDATE: Dries Buytaert at Acquia and Mollom wrote a similar article about he uses a combination of freemium and open source to not only drive business but get valuable development contributions. Thanks Dries!
A few weeks ago, Google Chrome was released with much fanfare, press, celebration, comic books, and praise (with the usual skepticism and contrarian views thrown in for good measure). People wondered if Google was getting into a browser war, an OS war, a land war in Asia, whatever. I kept waiting, kept waiting, kept waiting until finally … oops, no finally, just more waiting. No one pointed out the biggest strategic benefit of Google Chrome.
First, some background. Google makes a lot of money. Like, they didn’t have enough bathtubs in the Googleplex to put all the money in. They were going to build swimming pools to put their cash in but all of the pool contractors in the Bay Area were already committed, so they’re working on damming and draining part of the San Francisco Bay to make a pit big enough to put all of the coins, bills, doubloons, and gems that those little blue text ads deliver to Mountain View. Meanwhile, Larry and Sergey are impatiently waiting to fulfill their dream of swimming through it like Scrooge McDuck.
So Google = Money = Good. But they make ALL (like 99+%) of it from advertising, about 2/3 from search ads and 1/3 from contextual ads on other websites. So although they completely own this market, making more money than all of their competitors combined and more than anyone imagined was possible, this single-source-of-revenue thing scares the crap out of a lot of people (just ask anyone who has lost a job). That’s the only criticism of Google as a business that has any real substance.
What are the biggest, juiciest targets for a behemoth that needs another revenue source? Let’s look at the cash cows in the computer industry and how attractive they would be to Google:
- Hardware: a total non-starter. While Google might run the best data centers in the world, it is also one of their major competitive advantages, both in cost and performance. Selling or sharing it is out of the question. Other fields like PCs or servers are too low margin compared to their current business. Besides, hardware involves atoms, and Google has no experience with atoms.
- Operating Systems: Sure, Apple and Microsoft make a ton of money and high margins off of their OS products, but they also have decades of accumulated advantage, installed base, and brand equity. And they got to build those things back when people PAID for new operating systems.
- Office Software: Someone at Google is at least as smart as me because they went through the same process of elimination and ended up here. So they’ve built and bought their way into Google Docs, which does enough of what people expect in an office suite that it is considered a plausible alternative to MS Office.
They built it, some businesses have adopted it, but they’re not making billions of dollars off of it. Why not? Let’s ask Joel. His Strategy Letter III is probably the most important business lesson that people don’t get.
The only strategy in getting people to switch to your product is to eliminate barriers…Think of these barriers as an obstacle course that people have to run before you can count them as your customers. If you start out with a field of 1000 runners, about half of them will trip on the tires; half of the survivors won’t be strong enough to jump the wall; half of those survivors will fall off the rope ladder into the mud, and so on, until only 1 or 2 people actually overcome all the hurdles. With 8 or 9 barriers, everybody will have one non-negotiable deal killer. This calculus means that eliminating barriers to switching is the most important thing you have to do if you want to take over an existing market, because eliminating just one barrier will likely double your sales. Eliminate two barriers, and you’ll double your sales again.
(Incidentally, he used Excel as his example, pointing to the last time a smart aggressive software company with one revenue stream was looking to diversify. Maybe office software is just more usurpable than operating systems.)
Google is facing a whole different set of barriers to adoption than Microsoft faced when attacking Lotus 123. What are some of the barriers to adoption facing Google Docs?
- Storage space is limited.
- MS Office has office has more features.
- It’s slower than installed apps.
- It can only be used when online.
- People are used to opening programs, not websites to work on documents.
- IT Departments won’t upgrade their browsers beyond IE negative three.
- [UPDATED] Some companies will NOT store their docs online – they only want them on their own machines/network (government, confidential, corporate secrets, etc)
How does Chrome change this?
- Google Gears is pre-installed, which should speed up adoption of Gears and solve #4.
- The “Create Application Shortcuts” feature means that you get a nice desktop link that gives you an applicationesque window with either the list of all your docs or a specific doc, which can also be easily synced for offline access. Take a look:
- Bye bye, #5.
- And last but not least, the $50 billion question, what about #6? Imagine a version of Chrome with a different installer that a) included an IT controlled whitelist, b) automatically ran the offline setup after installing, and c) created appropriate shortcuts. This means it can be centrally installed, restricted from general browsing, and treated like an installed app. IE6 or 7’s role isn’t changed. That would get the seal of approval of many more IT departments because of the greater control they would have over it vs a standard browser app.
- [UPDATED] If there was an option to store documents offline only, that would solve #7. This would negate one of Google Docs’ biggest strengths (collaboration) but giving companies that option just might be worth $50B.
So in one move, Google addressed all but one of the strongest obstacles to Google Docs, paving the way for a much bigger, more profitable expansion and the coveted second revenue source. Can you think of any other obstacles to the wider adoption of Google Docs that Google needs to address?
[UPDATES: Thanks for the suggestion Evan!]