Back in the heydays of Web 2.0, advertising based web startups were popping up everywhere. As the economy tanked and consequently, the ad based revenues started drying up, several startups started transitioning to a freemium model so that they could survive.
This makes me wonder -
How can Indian web startups sustain themselves in this market ?
If you are a venture funded startup, you probably have the cash reserves and a time buffer to figure out a viable business model till the cash burns out. However, what if you arent a venture funded startup ? How do you sustain yourself ? Do you switch to a freemium business model as well ? Or do you simply continue to operate a free service, max out your credit cards (if you havent already) and continue to build your user community ?
I havent found one single, good answer to the above question.
Switching from a free to a freemium model isnt necessarily going to work, if your app / service isnt compelling enough. How many Indian web apps do you find compelling enough that you’ll pay for the app ? So, unless you are providing some great value to the users, a freemium model may not necessarily work. Moreover, I have my own reservations about a freemium model in the Indian market. I think India is a highly price sensitive market and majority of the folks may not be open to receptive to the idea of paying for a web app. Also, when you make the switch from a free to a freemium model, your target market size is going to drop significantly. That’s just a fact and there’s no refuting it. (If you can provide me examples of a few Indian startups where the freemium model has successfully worked, I’d be more than happy to change my mind)
The other option is to keep your web app free of cost, assume additional personal debt and continue to built the user community till you max out. If you’re lucky, you might be able to weather the current crisis. If not, it might as well be the end of your startup.
Alternatively, you can start a parallel venture that will bring in sustainable revenue, and use those revenues to continue providing the free web apps to your users. This is exactly what Zoho does to sustain their web based office suite of products.
As I said above, I dont think there’s one single good answer to the questions above. For this reason, I’d like to hear what you think about what’d be a good way for Indian startups to sustain themselves.
PS: If you are interested in reading a sample case study about a statup that made the switch from free to a freemium model, I’d ask you to read YouSendIt’s story on Andrew Chen’s blog.
How can Indian web startups sustain themselves in this market?
Good question! What I propose may not be an equally fitting answer though… but this is just my synopsis of the problem at hand…
I think any internet start-up plans to begin as an attractive, informative, engaging site, accumulate a considerably large user-base (preferably in multi-thousands), let the word-of-mouth epidemic spread and then:
Introduce new or enhanced features (Silver, Gold, Platinum account), but keep the freebies still available… if at a reduced bandwidth. Chances are even if 5% of your user base might register for the enhancements… thus keeping you afloat…
What might also happen at this stage is some bigwig might see a potential in your start-up and might offer a merger/aquisition… This option works better than imposing a freemium on your primary services… leaving users with no option but sulk and google for for alternatives… which would be present in dozens, thanks to the herd mentality as discussed in one of the previous posts…
Another alternative is try and search for start-ups with similar interests… if the cost of developing new features is too much to ask… For example: A book review site might tie up with a portal that is into selling of books … and thus each can boast an added feather in their caps in form of a new partner… In other words, expand horizontally/adjacently.
A start-up with a strong and a clear business model, a fresh and a user friendly interface, happy bunch of followers and the ability to stick it out till the end (remember, there are others in the race with you…) holds the best chances of surviving these time and thriving in the times to come…
- Vishal
pranav: The YouSendIt article is really good! Thanks for the link
glad you liked it..i’d definitely recommend subscribing to andew chen’s feed. he’s an awesome writer.
This is not an easy task as it looks.If you have power with patient then go ahead and start.If someone think that they can start earn in a day .Please stop…
Great article Pranav, and quite timely too. The Free -> Freemium has been our biz model for a while now and we are quite happy with it. The difference in our two offerings isn’t just more features, but also that the Free version comes with ads and premium doesn’t. We see close to 15% conversion rates from Free, which i think is in the ballpark of industry webapps.
An important side benefit from Premiums, besides more money of course, is that they up the bar for quality. It rids you of the misperception that its ok to have a less than perfect product or customer service since the product is Free.
vikas,
15% conversion rate is good, but is it enough in your case for the business to sustain itself ?
If so, then thats great !!
I’m curious – Have you tried to find out what it will take your free customers to convert to paid ones ? As in, are they finding the premium plan expensive ? Have you tried any pricing models to see what price could be the tipping point to to a higher conversion rate ?
Naa – ofcourse its not enough. It reduces the burn rate, way more than advertising would, but we are far from reaching nirvana
No, we haven’t done any price testing. In my view, the larger barrier to purchasing online is the mindset of not paying for a web app or the concern of transacting online rather than the actual price point itself. So, we are more focused on addressing those two issues than seeking the optimal price point.
I really like this article. Although i am still at a stage where i m contemplating on what business idea out of the 366 ideas i have will work, this is surely better understanding of what will sell and allow to sustain.
Thanks, Look forwards for more information.
Jit
I think also with the increase in traffic with freebies can attract some ads which can get enough revenues to allow the website to sustain and wait for the time when the faithful lot of customers would start upgrading their memberships
I think advertising and sponsor-supported model would be the ebst way for any Indian web startups to sustain themselves.