Marco Arment, the former CTO of the Tumblr blog platform, is best known these days for his time-shifting reading app Instapaper. But he could start a side-job as a financial advisor to start-ups. His motto: Get the money from your customers, not investors.
Arment’s more traditional take is built largely on the idea that if he puts out a good product, there’s no shame in asking customers to pay for it. And the more they pay, the less he needs to rely on outside investors. Arment said many developers are of the mindset that they need to amass a huge number of eyeballs through free services. But they don’t focus enough on building a solid product that can command loyalty and payment from consumers, and instead try to gain profitability through advertising and turning to outside venture capital.
By contrast, Arment says his efforts to monetize Instapaper have been successful because he was able to leverage the hard work he put into his paid versions and the good will he’s gotten back from consumers. And that has allowed him to avoid outside funding, something he plans on doing for the forseeable future.
Don’t Take Funding if You Don’t Need It
“If a service can be profitable and breakeven without VC money, you don’t need to take it,” Arment told me in an interview. “There’s no reason for developers to get a lot of users without charging. There’s another path. My goal is to spread that message: Charge for something and make more than you spend.”
Arment launched Instapaper as a free website in January 2008 and became profitable later that fall when he first began selling a paid iPhone app alongside a free version. He’s been profitable ever since. Arment won’t disclose his revenue, but he said he can cover his expenses and can afford to hire a couple more people if he needed. He left his Tumblr job in September to devote himself to Instapaper.
Though Arment maintains a free iPhone app, he said the focus of the company has been on the paid versions which are updated first (a new update is expected in the next month or so). He has yet to release a free iPad version and has only gotten three emails about the lack of it. Most seem happy to pay for the $5 iPad version. Between 25 and 33 percent of people pay for the $5 paid iPhone version. In fact, as an experiment, he pulled the free iPhone app from the app store for a week a little while back and found that only one person emailed. Sales of the paid version didn’t go up, but they didn’t go down either, he said.
“The free version isn’t really competing as much as I expected with the paid version; a lot of people go straight to the paid version,” he said. “It was only a week but the people who were going to the free version would not have gone to the paid version.”
Let Users Thank You by Paying You
That’s what’s allowed Arment to really focus on the paid segment. In fact, he still questions the value of the free version at times because it can leave a more negative impression for users with its limited set of features. Arment said his paying users have surprised him with their support. He started a $1 a month subscription plan in October that didn’t actually offer much in the way of extra features. It was more of a way to let users show their support for Instapaper. He said the response was overwhelmingly positive.
“That was a huge surprise to me how well it’s doing given there’s no real incentive to do it besides good will. But it ends up that good will is powerful,” Arment said. “It shows that people will pay for something they like because they want to ensure its future.”
Arment is testing the theory again with a new API that leverages his subscription plan. For developers who want to build apps with Instapaper integration, Arment said last month he will require their users to subscribe to Instapaper. Again, the response has been very positive, said Arment. Two hundred developers have applied to get access to the API. All this money-making has allowed Arment to sidestep venture capital money. He has had repeated offers, but Arment said accepting VC funding is akin to taking on a new boss, and the act of raising and maintaining money is a full-time job, he said.
Venture Capital Is Like Having Another Boss
“If you can go without funding, you can be a one- or two-person shop without a whole level of bosses,” he said. “You’re not worried about getting more money and getting diluted anymore.”
Arment’s approach doesn’t work for everyone. He was fortunate to be able to this as a side job and build it up while at Tumblr. And he acknowledges that the lack of funding could be a problem if he wanted to build a staff quickly. But he believes his experience shows that a more old-school approach to building a business and developing a following with consumers is a viable one for entrepreneurs that should be explored more. He may not the biggest company, but he can be a profitable one for a while.
“I don’t need the entire market,” Arment said. “I can get five percent of the market and be rich.”
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This is actually a good piece, but a wee bit preachy. But still good.
Anyone complaining about eBay and PayPal fees, please just be quiet. If you are running a home business where you sell things that don't take up too much space or is a hassle, then the fees are trivial compared to the profit in many cases. You think that when you pay $10 for something at a store, 100% of that $10 go to the owner? After rent, salary and even credit card fees real world business often deal with HIGHER fees than someone dealing with PayPal.
But I do agree 100% with his buy something and sell it just to even break even to experiment. That is the BEST way to learn how to sell something and is very little risk.
I got into eBay selling the usual way by selling off things I knew were valuable and could turn a profit. After a while I started to sell off stuff I had but didn't want anymore on eBay; I consider it an endless yard sale. Many times I made back my initial investment or lost money, but after 10+ years of doing this on eBay I started to understand what sold and what I was good at selling.
Then I started to sell Mac upgrades for folks who were tweaking their machines back in the early 2000. For those who don't know, Apple placed an "Apple tax" on many off-the-shelf PC components that either just had an Apple sticker or need a ROM flashing. So I would buy boxes of components, flash them or simply write an eBay explanation as to the item being tested on a Mac and soon enough I was making $20 to $80 profit for a good year or so until Apple basically obsolete the G4 machines. In the case of items that simply cost more as Apple branded I wrote a description that explains what the item was, how it was tested and how my feedback and tech expertise assures that the item will work. Anyone had the choice of buying the pure PC component, but they bought from me for a modest markup to save the hassle. I even had a few people give me PayPal "tips" for advice I provided. It was then I realized I set up a small tech store with loss leaders and consulting! I could not quit my day job on that money, but it helped me through some rough times.
Now I mainly sell old collectible toys from the 1960s, 1970s and 1980s. I got into it when I started to sell off some of my old childhood toys, realized there was a profit in my childhood investment so I translated my passion and knowledge into buying collectible toys in bulk in the U.S. and Japan, cleaning up and assessing them and then selling them on eBay. Buy a huge lot of toys from a seller who doesn't want to deal with the headache, break it up, ID the parts and assess it, and then I am selling items that cost me about $2 a piece for around $10 a piece. Again, not enough to live on, but a very nice source of extra income.
Also, if you sell online, be prepared to ship. Some sellers never think of packing until after the sale. BAD MOVE! You might end up paying more in packing materials or delaying shipment while you hunt for boxes and screw up your sales transaction. I only sell items online I am 100% positive I can ship. And with that in mind, I have moved over to buying small collectible items in bulk I know I can stick in a padded envelope and ship. The weight assures first class shipping which is less than Priority Mail, but gets there as quickly in many cases. And the light weight makes it easier to carry.
Also, if you know you will ship items—like books and CDs—in bulk, buy a box of mailers from an online seller. It will end up costing you 25 cents per envelope which you might penny-pinch over, but it is a lot less than buying individual envelopes from the Post Office or drug store. And you have them on hand so it saves time.
I would also recommend investing in a small scale and even a nice label printer. The scale will help you give your customers a better estimate of cost and the printed labels will assure that the address is clear/legible on the package so it goes through the system correctly. Labels can be bought in bulk for thermal printers for tons less than local stores, and are just as good.
Oh, as far as shipping goes, my eBay shipping & handling rates are incredibly reasonable and always less than others but guess what? Buyers ALWAYS complain or have second thoughts on shipping & handling charges. ALWAYS! I charged someone $2 for shipping and they complained that shipping was $1.95. Don't worry about shipping other than the tips I give above, because ultimately nobody wants to pay for shipping and everyone complains. You'll never make them happy so don't sweat it.
Also Craigslist... Oy vey... I mainly sell items on there that weight too much or are too bulky to ship. And it works well somewhat. But folks on Craigslist want bargains and are lazy when picking up. Not worth the effort.
Phew! I just wrote that.
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