There is an insanely useful guest post on the Jason Cohen’s blog: Bending over: How to sell to large companies. It’s not about the sales magic, i.e. not about how to get a large company like your software and decide to buy it. It is about different technical problems that can occur on the way, including weird contract clauses, the curse of the purchase orders, and so on.
I’ve encountered all of those problems firsthand and thus I highly recommend reading the post.
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Posted by Oleg Kokorin
The recent news and rollouts by major companies are going to have a huge impact on the startup surface, and sink a lot of them as well. Here are some I want to mention:
However, the top prize for screwing its ecosystem and partner network goes to Apple:
The lesson we all can learn: when your application totally depends on some company’s product for monetization or value for users, the company can evaporate your business in a blink. Our MobileNoter also falls into this category. People like our product, but if Microsoft decides to port its OneNote to MacOS and iPhone OS, we’ll have to have a much better product than theirs in order to win the customers.
3 Comments | Competition, Social networks, Startups | Tagged: Adobe, Apple, facebook, Microsoft, twitter | Permalink
Posted by Oleg Kokorin
I found an insightful discussion about SO/SE (StackOverflow/StackExchange) business model and going for VC money on 37signals. It looks like everything has been said, and the outcome is just remained to be seen. Some key points well noted there were:
Leave a Comment » | Startups | Tagged: StackExchange, StackOverflow, venture capital | Permalink
Posted by Oleg Kokorin
What happens when you have a great knowledge-sharing site, where people can freely ask questions and other people are willing to answer them?
Let me ask again, what if you have “pioneered a unique web service that offers its members fast, qualified answers to questions … from a network of qualified technology experts”? And not just that, you also have a “patented knowledge-sharing process, combined with the advantages of the Internet”? And if it’s not enough, let’s imagine for a moment that you “received a $5 million first round investment commitment from <drum-roll> J.P. Morgan Capital“?
Well, mostly likely you end up being www.experts-exchange.com. The text in bold above is quoted from the site and from a Business Wire article.
The company is 14 years old now. It’s an eternity by the internet standards. The site was once the largest network of qualified technology experts, or so they claim. What lessons can we learn from its fate?
First, a few observations:
1. Is its traffic going up or down?
2. How does it compare to competition?
3. Was there an IPO or sale to a strategic investor?
I couldn’t find any traces of it in the internet. OK, this is certainly not a hard fact, and if you send me a link about the event, I’ll update the post accordingly.
What can we learn? Perhaps, that Q & A sites are too easy to build (say hi to StackExchange!). That the competition in the area is too fierce. That even patented IP and “smart money” from the investors won’t let you scale the business enough. You may be the leader one day, and a new kid on the block leaves you biting the dust the next day.
Leave a Comment » | Social networks, Startups | Tagged: StackExchange, StackOverflow, Startup, venture capital | Permalink
Posted by Oleg Kokorin
The question of whether a StackExchange-based site can generate a lot of revenue and my answer to it lead to a heated discussion on the OnStartups Answers. So I decided to estimate what kind of revenue StackOverflow actually generates. Apparently, it’s enough to try to go to VCs, but not enough for a self-sustained growth. Luckily, it is relatively easy to estimate.
Disclaimer: the following calculations are unproven, non-scientific, and cannot be used as a financial advice.
Despite a good and long list by Alex Lam of potential revenue possibilities for StackOverflow, they make money only via paid job posts and site ads (rectangle banner in the right column and sponsored tags).
1. Paid job listing is very easy to calculate. They have about 8-9 new job posts a day. One costs cool $350. So let’s estimate it at 9 * 350 * 30 = $94,500 per month.
2. Ad revenue is hard to estimate. Let’s start with the 26M pageviews per month they claim to have. A lot of these pageviews don’t carry any ads at all: pages like About, FAQ, list of users, etc.
2.1 I would take 80% are ad views and 20% non-ad views. This gives 20,800,000 pageviews with ads.
2.2 The ad inventory is not sold out. Every now and then they display an internal ad – ad for job.stackoverflow.com. To make matters worse, the ads are geo-targeted, showing different ads for different countries. This means that ad inventory and its sold out ratio is different for every country. My tests showed it is about 75% for USA and 45% for India and Russia. Let’s take these figures and assume 75% rate for highly ad-targeted countries and 45% for the other countries.
2.3 My estimation is that half of pageviews go from highly ad-targeted countries and another half from the other countries. Originally I thought that low ad-target countries would make most of the pageviews. However, I browsed through the list of registered users and was impressed with the big number of USA, UK, Australia, Canada users. So let’s take 50% – 50% split, which gives average of 60% sold out inventory ratio. Thus, only 12,480,000 pageviews carry paid ads.
2.4 Now the trickiest part, CPM – the cost per 1000 impressions. fabien7474 came up with roughly $5 CPM for StackOverflow and I tend to agree, not going into details.
Drum rolls: the estimated banner ad revenue is $62,400 per month.
2.5 There are also sponsored tags that display ads as well. I don’t think those are sold on CPM basis, and hardly a lot of people click those tags anyway. Also, consider that few tags are sponsored so far. A week ago I saw a bunch of tags sponsored by Adobe and them are gone. Let’s add ballpark $10,000 for the tags.
The total revenue is $94,500 (for job posts) + $72,400 (for other ads) = $166,900 or $167K per month.
A few observations:
In the next post I will go through competition and examples of similar sites to get the whole picture…
Leave a Comment » | Social networks, Startups | Tagged: StackExchange, StackOverflow, venture capital | Permalink
Posted by Oleg Kokorin
If you got a startup with a brilliant idea and you think that all you need is a bit of VC money to get off the ground, think again. According to a recent study, about 41% of startups believe that they qualify for venture capital money. At the same time, VCs indicate that they go through about a hundred of business plans to make one deal. That is, fewer than 1% of startups are considered as venture worthy by the money people.
In other words, the businesses grossly overestimate their ability to raise capital. “Grossly overestimate” is probably not good enough to describe the 41% vs 1% discrepancy.
And if you are not an average native Silicon Valley grad (like me), the chances are even worse. Says Vivek Wadhwa, former entrepreneur: Despite having co-founded a software company that we took from startup to $120m in revenue; profitability; and IPO in a record five years, I couldn’t get Research Triangle Park (RTP) VCs to even return my phone calls when I was ready to start my second venture. I later found out why: “my people” <Indians> were great at mathematics and made great engineers, but didn’t make great CEOs — “we” didn’t have the necessary management skills, didn’t like diluting our equity ownership by raising venture capital, and couldn’t “fit” into the rough-and-tough American business-management culture. That’s what one RTP VC told me over lunch, to explain why his firm wasn’t inviting me to pitch my business plan. They were very busy and had to be selective in who they met.
Leave a Comment » | Startups | Tagged: Funding, venture capital | Permalink
Posted by Oleg Kokorin
A while ago I was writing about StackExchange, which is a platform to create simple web 2.0 questions-answers community sites. StackOverflow was the first community site created by Joel Spolsky using StackExchange. I sometimes browse through another StackExchange offspring – OnStartup Answers, which is themed around startup industry. Ironically, one of the questions asked on the OnStartup Answers was the following: Do owners of sites like OnStartups.com and Startups.com have any revenue off of these websites? I was skeptical about it and got slammed by fellow OnStartup lovers. Meanwhile, Jason Cohen, a co-owner of the OnStartups himself wrote that the site “is like blogging. It’s almost impossible to make money off ads and blogging, even with thousands of readers (you need many 10s of thousands). But blogs can be a fantastic way to drive traffic to other things that do make money, like a startup or like consulting time.“
So guess what happened. Joel started looking for VC money to fund his StackOverflow project. Funny enough, he also wrote in that post that it is a sign that you should NOT be looking for VC money ”if there is any other way to raise the kind of money you need, for example, by selling actual products to customers“. In other words, he doesn’t think that he can make good money by selling actual products (ads or whatever) off StackOverflow and decided to go to VCs. This is exactly the answer the OnStartup lovers didn’t like.
It is not necessarily a bad business model for Joel and StackOverflow. This is the way to do things in Silicon Valley – you get a site off the ground, get funding, grab the audience, do IPO or sell to a strategic investor, and then you walk away smiling. Webvan, anyone? 
3 Comments | Startups | Tagged: Joel Spolsky, OnStartup, StackExchange, StackOverflow | Permalink
Posted by Oleg Kokorin
A while ago I did a post, showing how EverNote was bleeding money at an astonishing rate. Turned out their CEO Phil Libin gave confusing data, so it was not just me falling into wrong conclusion. You can find updated math here. In short – they do have operating profit, and things are not as bleaky as they seemed two months ago.
Leave a Comment » | Competition, Startups | Tagged: EverNote, Finances | Permalink
Posted by Oleg Kokorin
I enjoy reading about dubious startups raising more and more money on TechCrunch every day. How about a startup to burn through $6M to develop a customer support forum software? Basically, it’s the same thing you can achieve with free and open sourced phpBB or dozens of other forum packages like that. Noone will pay you for this guys.
Or how about burning $34M to develop software that lets you “monitor your brand on Facebook and Twitter” and “engage with consumers around conversations regarding a brand”? You really can’t make this stuff up…
Leave a Comment » | Startups | Tagged: investing, scam, Startup | Permalink
Posted by Oleg Kokorin
I just found this beautiful article. In short, the figures are as follows:
May 2009: 900,000 users total; 12,000 paying users.
Nov 2009: 2,000,000 users total; 31,000 paying users.
The cost a user incurs is $0.09 per month.
A few observations:
Note: I used $4.50 per month fee because it is $5.00 if you pay for a month. If you pay for a year, it’s $45/12 = $3.75 per month. Plus, payment processing is not free, especially for small transactions.
A few questions:
Leave a Comment » | Competition, OneNote on iPhone, Startups | Tagged: EverNote, MobileNoter, sales | Permalink
Posted by Oleg Kokorin
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