Breaking Free
How to Quit Your Job and Start Your Own Business
Should I Charge For My Product Or Make Money Off Ads
In: Advice By: Brian Armstrong
29 May 2008In your opinion, when does it make sense to follow the plentyoffish model (ad supported) vs. the provide a service and charge a subscription model.
Taking that approach for example, someone could start a tutor site, make it ad supported, and potentially disrupt your site.
Thanks,
Aaron
This is a great question and I had to spend some time thinking about it.
What I came up with is that if you have the best site you can go with a subscription model, and if you don’t then a free ad supported version is a good alternative. Here’s what I mean:
Usually its not too difficult to look at what’s already out there and do it just a little bit better. This was the case with the tutoring website I put together. What’s out there currently is really not very good, so I was able to make a better site, and hopefully people will pay a small premium for that trust or convenience or whatever else they are getting from it.
On the other hand, if you are making a new site and you don’t think you can be beat the incumbent (like for example if you are trying to compete with match.com which already has a ton of users and fairly decent site), then making your site “free” could be your best competitive advantage.
In summary, you have to offer SOMETHING better to get people to use it. If you can’t offer a better service, then offer a better price (free). Or do both.
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Aaron
May 30th, 2008 at 12:26 am
Brian – Thanks for taking the time to answer.
I would tend to agree with your assessment, if you’re the best on the block you can definately charge for the advantage you provide over the others.
Your post brought to mind two additional discussion points.
1) Once you make it to the top, how do you stay there.
With such minimal barriers to entry online, and the ever decreasing cost of operating a website, it is very feasible that someone could duplicate most sites online for free.
As I started to think through this, I came up with a few suggestions that i’d be interested to get your take on. The first is build up those barriers, so others can’t catch up. Once your tutor site hits the critical mass necessary to provide enough of a service to the students and tutors, (it may have already) it will be difficult for a new site to generate the buzz and traffic that you’ll have. One other protection technique is obviously constant improvement and development, but this is time consuming, costly, and otherwise difficult.
2) When is it actually more profitable to be ad supported than subscription based? The $5MM revenue you mentioned that PlentyOfFish is generating keeps sticking in my mind. Would they make as much if they charged subscriptions? If you have a friendship with the CEO, i’d be interested to hear if they have done a Cost benefit analysis and projections comparing the two. It would be fascinating to research when and why the scale tips to one side or the other, based on traffic, level of service you’re providing, and competition.
let me know if you’ve done any research into this, or if you have any additional feedback on the thoughts.
Thanks,
Aaron
Caroline (works from home typing)
May 30th, 2008 at 6:26 am
I think it would depend entirely on the product or service. This leads to your target market, those with more disposable income are going to fit a paid service where as other demographics may best work as ad supported.
Brian Armstrong
May 30th, 2008 at 3:06 pm
Yup thats true it depends on your customer’s money situation. Also physical products are almost never ad supported, so we’re mostly talking service or info products here.
As for barriers, the number of people using your site is a good barrier. Getting a certain number of tutors and clients signed up is the critical mass you’re talking about, especially as they leave reviews and build a history on one site they are less likely to switch.
Brian Armstrong
May 30th, 2008 at 3:08 pm
Forgot to mention, I haven’t talk to the guy who runs PlentyOfFish, but I imagine there wasn’t too much analysis put into it. I think the story is that he started the site because he was trying to teach himself programming, so it was just a personal project, but people liked it and it took off.