Startup World: A Double Edged Sword

All tech startup have a similar strategy: give away product free and grow the user base as fast as possible to make the company attractive to venture capitalists. Once funds come in, the startup expands headcount and establishes new offices. Only then do startups feel the pressure to monetize.

Off the top of my head, two respected companies that immediately fit this description are Tumblr and SoundCloud. These companies make money:  Tumblr from premium templates and SoundCloud from annual subscribers, mostly musicians.

But the long-term growth strategy for their free products is to be determined.  As a Tumblr user, there’s no way I’m paying for extra space to save my blog assets; don’t upsell me there after being free since the beginning;) As a SoundCloud user, there’s no way I’m paying (especially in Euros) to stock extra sounds. There are plenty of voice recording apps out there free and I can save and post via mp3.

Maybe it’s my ignorance but profiting in the free Internet world is one hell of a challenge with a double edged sword; if you start with a paid product, good luck getting people to try it. If you start with a free product, good luck getting those people to pay up after committing to free.

As much as I want startups to succeed, particularly Tumblr and SoundCloud, I also want to see them profit.  But maybe it’s the thrill of uncertainty in startup land that teaches patience.

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By Wells Baum

Wells Baum is a daily blogger who writes about Life & Arts. He's also the author of and four books.