The main point is that advice from 37signals is pushed too hard. It's not all bad, but it isn't a business model or company philosophy that can work in every situation.
I read and enjoyed Rework. It's refreshing to hear from a source that is trying to take on the business world by pulling a George Cosntanza and doing the opposite, or at the very least, an alternate.
The best use of their advice is to become a disciple of simple. Don't create huge goals, stick to small ones. Don't include every feature you think of, just the best/necessary ones. Don't have lots of meetings, only the ones that are vital (and good communication can fill in for formal meetings entirely). And don't be afraid to show your flaws. It's the advice we've gotten from parents and teachers and friends for years: be yourself. None of these things guarantee success, but they shouldn't lead to failure either.
Summary: if your product isn't useful (or doesn't have utility in the economic sense) it's harder to charge for it.
Duh.
The unfortunate conclusion of this is that social media may just not be that useful to people. DHH even made this point at his startup school talk - saying that if people aren't that willing to pay for your app, maybe it's just not that useful. I believe they've also stated elsewhere that when they moved Basecamp (or was it backpack) to a B2B product instead of B2C it got way easier to make money.
That's not an accurate summary, or at least it's not complete. I took the author's main points to be that (a) 37Signals's offerings are viewed by customers as investment opportunities instead of as consumable goods, and that (b) people are thus more willing to pay for 37Signals's stuff than for the mere "consumption-services" offered elsewhere. The author implies that this is the case even if those consumption-services provide a lot of utility.
Point being that in the author's mind, it's not that 37Signals is making great products while everyone else isn't. It's that 37Signals is making great products that are seen as productivity tools and hence as investments, rather than as simple absolute costs.
That's interesting. What if social sites focused on being better tools and less on being time wasting entertainment? I think it would be a good bet that there are productivity apps yet to be made -- ones based on the social graph which can be ad supported or freemium based.
True, neither has it been mine. The point seems to be that you can't just apply b2b pricing knowledge to a b2c market, which is correct. But b2c is alive and well, even if it is in practice harder to get people to pay for longer term stuff.
You write 'web services', but actually you are selling something that is probably closer to software-as-a-service, where people use your product once or multiple times to get some instant effect.
37signals produces software that people actually build their business on. You are both 'toolmakers' but with vastly different audiences, however the 'toolmakers' link unites you enough that lots of these lessons apply back and forth.
If you were active in the 'social' space then it would be a lot harder - but still not impossible - to get your users to pay. If you were running a news outlet it would be harder still.
So, somewhere along the continuum you can place a dot and say 'this is me', there will be parties to the right of you that are able to make a more direct link between someone making or saving money and so they can make a 'harder' proposition, pay or leave. To the left of you there will be parties that compete for eyeballs and that will probably ultimately rely on some form of freemium or advertising supported model.
I believe this author is arguing for web services of a specific kind. He says that products like productivity tools represent an investment to the potential consumer: 'buy me now, for a high upfront cost, and I will help you become more productive (aka help you make more money) in the future'. And this makes people more willing to pay huge amounts for 37signals products.
Edit: whether this is true I am not sure - I've reread the article a couple of times, and he doesn't really make a watertight argument for his case. Are there counter-examples to this? Or conditions where this is simply not true? His argument relies on the fact that 37signals 'charge a lot', and that this high price is not translatable to other web services. But there's no way to quantify that. And there's no reason to assume that there aren't other reasons for such willingness to pay. Off the top of my head: people pay more because 37signals is a strong, trustworthy brand. People pay more because this is B2B, and business have to tend to buy things only at a certain (high) price. People pay more because they have large teams, and 37signals's tiered pricing forces them to use the more expensive packages.
Your service falls into the same category as 37signals as far as the article is concerned. People buy your stuff to become more productive. (ie, they can take the time they would have spent writing out cards and spend it on something else).
The article compares selling productivity tools vs selling consumables... not B2B vs B2C
Substantially all of my customers a) choose to buy BCC for themselves and b) pay for it with their own money, which are two characteristics more typical of B2C. That said, lawyers get paid for arguing about definitions and I am not a lawyer, so you can call it either if it floats your boat.
That seems a little odd to me, but I can sort of understand it. Are they using in their jobs? If so, is there a reason their employer won't pay for it? Or do teachers routinely buy stuff with their own money to save lesson prep. time?
That's an interesting fact in it's self. From people I know who teach or have taught, it seemed that they had too much to do outside the core hours, so maybe they are trying to get some of that time back?
That was to be my last point in the discussion, which ended 11 hours before your post.
I get it now, people will pay their own money to help their career, it's technically B2C but if they didn't have that job, they wouldn't buy the product. Most B2C products are independent of the customer's career, but this type of product is not. Similar products would be suits, some networking events, travel costs, smart shoes, working lunches, coffee, smartphones etc.
I would have thought that large public school systems have so much beuocracry and standards when it comes to buying things that the teacher decide it's not worth the hassle of getting their employer to pay, and just pay for it themselves.
I don't think that was the point suggested by the article. I think the point is that B2C customers are unwilling to pay for web services that function as long-term investments, but they are willing to pay for web services that function with immediate gratification.
The majority of start-ups that the author remembers hearing of may be social web oriented, because we are all social animals. If you come up with a clever new Web site that people can use to schmooze with their friends, then lots of people will hear about it and be interested in it, because we all like to schmooze with our friends... but you’ll have a hard time getting anyone to pay for the service directly, because we all have plenty of ways we can schmooze with our friends for nothing.
By contrast, if you come up with a clever new Web site for managing a dental practice, then the only people likely to remember its name will be dentists... but they will pay for something that makes their lives easier, which means that you could turn it into a nice fortune, if not fame.
It's wrong enough that it casts doubt on the rest of the article, but he does have a - small - point, which is that any advise should be evaluated in the context in which it is given, which I think is pretty obvious.
I think the author operates from a limited perspective in to what startups are generally busy with and then assumes that everybody takes the 37signals advice as gospel.
Yeah. I keep waiting for the definitive article taking on some of what 37signals is saying, but this wasn't it.
It's not something I dedicate a lot of time to thinking about, but I think they don't spend enough time talking about their "following"/fame, which is really their biggest competitive advantage. That's probably the thing they've worked the longest and hardest to build, in some ways, because they most patently are not "doing less" marketing and promotion of their ideas.
This idea is something that Jason and DHH have covered in a lot of their interviews. My impression is that it is in Rework as well. (Haven't read it yet.)
This article is pretty far off the mark. 37signals don't advocate charging for social media apps. They advocate building software that people are willing to pay for. It's a little ridiculous to simply say "The majority of start-ups are social web oriented," and then assume that the rest of 37signals' advice still applies to all those startups.
37signals' advice is, in fact, irrelevant and unhelpful to you, but the real reason is this:
Your blog doesn't have hundreds of thousands of subscribers.
This was a good comment until it kind of got sidetracked at the end. I'd say 37signals' advice is irrelevant and unhelpful to him because he's not starting the kind of startup that they are advocating. I think if he had just pointed that out it would have been an interesting observation.
A better short summary: because 37signals is B2B, and because they sell productivity tools, companies are more likely to view their 37signals product purchase as an investment. What this means is that people believe the purchase will help their company's productivity (and therefore increase revenue). This is the real reason behind the high 'willingness to pay' that we see in 37signals's business model.
I'm fuzzy on where he draws the line between consumptive services and productivity tools.
Which is dropbox? flickr? instapaper?
I also can't say I've yet enjoyed the pleasure being part of an organization that views business-services costs as anything but costs. MSDN subscription? cost. Server lease? cost. Conference? cost. Support contract? cost.
They aren't considered investments any more than the electric bill; which itself could be arguably interpreted as an investment under the logic of this article.
Actually there is no difference between investment and consumption.
The principles of the internet are not different to the old world.
It is demand and supply.
The thing is: if a service is free and scalable, its supply goes up to infinity and this pushes the price down to 0.
> I will note that people are seemingly unwilling to incur costs which they know are in place purely to generate profit rather than to shoulder distribution and manufacturing outlays (as admittedly unfair this is of consumers).
Entirely false. He's basically saying - "People are more willing to pay for manufacturing/distribution costs than they are willing to generate profit for a creator."
People don't pay much attention to whether the things they're spending on are profit-related or are going to manufacturing. It's completely irrelevant to the average consumer. That's why an App Store app that took 4 hours to code can bring in tens of thousands of dollars, and one that took 4 months can bring in nothing. People don't pay according to how much you spent or how much they perceive infrastructure costs to be - they pay based on how well they perceive a product fills their needs relative to other options.
Ebooks often sell for more and have higher margins than paperback books. There's lots of other examples of this.
You don't need to increase costs to sell people. You don't need to put more time in to sell people. You have to deliver something they want that they're willing to pay for. How much your costs are don't really factor into most people's thinking on how much it helps them.
> ‘People are willing to pay’ say 37 signals to the cowering mass of young developers bombarded with an implicit open source manifesto written across the social web.
It's not "open source" vs. "selling software." 37signals heads one of the most popular open source projects of all time. They also sell their software. It's "free services" vs. "selling software."
Of course someone who is set on never charging for a product as a business model will not find 37signals' advice helpful.
I like 37 Signals and their general message, and certainly appreciate their willingness to take a strong, uncompromising public position in support of what they believe.
That said, my biggest objection to their whole discursive space is that a lot of their advice is implicitly elevated, both by them and by those who listen to, interpret and relay the message, to a more cosmological status than it should be insofar as it's characterised as general "business" advice. It's not. There is very little in their general methodological core that is useful unless your business model is exactly theirs: selling subscription-based hosted web applications. Most of the same advice they give would be extremely ill-suited toward other domains of commercial endeavour within IT, never mind anything capital-intensive and/or outside of mass-market technology per se.
I find the article to offer no insight. I surmise that it was written in a trollish manner to garner attention.
Looking at previous post by the Author, this is the first to extend over 5 lines.
Also, the Author tries to appeal to his authority[Oxford, Economics] which I consider poor taste; your logic should be able to stand on its own merits.
I myself was going to write an article on the failings of 37signals philosophy. But, talk is cheap; they have spent many years developing their philosophy; a simple cognitive dismantling of their philosophy would not suffice.
Any counter-arguments must be made in a similar fashion as they made their philosophy, in the real world with tangible results.
Yeah, what's more, it sounds like an undergrad economics degree. I don't care where you go to school, an undergrad degree in economics does not mean you understand this stuff as well as anyone. That's just pompous huffing.
37Signals themselves readily admit that charging B2C consumers is hard, which is why they shifted their business to focus almost only on B2B products. I don't think they've ever said charging casual users works. They're whole thing is that the best market for web businesses is the "Fortune 5 million" of small businesses who will actually pay for stuff.
I don't see what the point of your post is. 37s already concedes these facts as part of their philosophy.
It should probably read "why 37Signals advice regarding pricing is irrelevant and unhelpful for some types of software startups." That's the claim that is actually defended in the body of the post, and I might actually agree.
That said, I don't think the blogger isn't trying to pull a fast one here. When Nick Carr wrote "IT Doesn't Matter", then defined IT as something much more limited than the way most of us think of it when it came time to defend that statement, he knew damn well that his claim vastly exceeded his definition. The title, not the substance, was what got him attention. Kind of reminds me of sports writers who wrote "Roger Federer is Finished" headlines a few years ago, then defined "finished" as "only winning a few more slams." Strange definition of "finished" you got there. Hey, even with his resurgence, winning RG and Wimbledon the next year, they're still right!
The body of this article is very clear about the scope of the claim from the get-go... the title is link-baitish, though.
Uh, it's not 37 Signals' responsibility to determine whether their advice is relevant to your business, your startup or whatever you are trying to do.
Their advice is what you make of it. It will work well for some; probably not so well for others. It is your job to determine whether that advice will work for you and is relevant or not to how you want to run your business or startup.
All these "pundits" fresh out of business school with zero years of experience under their belt need to take a long hard look in the mirror and decide whether they want to continue talking out of their ass or actually take a closer look at how Jason and his team actually run their business.
Just because Jason and 37S figured out a non-traditional way to make money through providing web services does not mean their approach is wrong. Just because it's not taught in business school does not mean it's wrong.
I think the crux of all of this boils down to marketing. You can market your widget as a consumable or entertainment and people will not pay. On the other hand, you can market your product as an INVESTMENT to achieving their goals -- and people will quickly take out their wallets.
It connects to what Kathy Sierra has always talked about. Design your product to make your users fell AWESOME and you will succeed. If you do that, people will co-relate paying for the product as making themselves more awesome.
So in regard to The scope of this piece is narrower than that. This post really focuses on their take on pricing and the analogies they often use with their own experiences, which I feel aren’t applicable for the reasons given. Sometimes this advice is pushed harder than it should be, with little awareness of the lack of relevance it has to many start-ups., I wonder how you would evaluate Reddit's model, as it is apparently not a taker of the advice that you disagree with?
Counterpoint: People pay for music. People pay for games. What people won't pay for is something that is a shallow copy of what is available for free elsewhere.
Now look at consumption-services markets. Social web tools which aid in the consumption of goods, or which are forms of consumption in their own right, represent absolute costs. And if there’s anything we’ve learnt about absolute costs in the digital world, it’s that people are unwilling to bear them.
Their blog and their book is the SEO, product placements and self-promotion in the first place. Do not confuse it with something like selfless and sincere help to the community. ^_^
Update: Dear anonymous coward-down-voters! Face the reality - 37signals is a successful business, and it looks a lot like that of MySQL - lot of hype and really good, well-written texts, which means big and active community.
Do not assume that they know only programming. Those guys looks like well-read and more or less familiar with Eastern, philosophy. Most of their advises are just adaptations of some well-known Zen (and from other branches) principles. ^_^
The costs of those sites is relatively small compared to the overall monetary costs of being in a relationship like eating out, social events, travel, presents, marriage etc. So maybe that's why people don't mind paying.
Dating sites are a really bad counterexample, since they have to advertise(except plentyoffish and OKCupid, which are also free) and TV advertising for an Internet business is a sure sign of a failing business. (Think about every search engine you know. Almost every single one has tried to advertise, except Google. Google never ran ads. All their competitors did.)
I'd be curious to hear in what sense you consider online dating sites failures. Your assertion that advertising in other media makes them a failure is, well, just that; an assertion. I don't have any numbers on the financials of the companies, but the general consensus of people that I know is that OKCupid is a fine place to waste time, but that if you really want to meet people you need to go to the pay sites (precisely because the financial barrier-to-entry keeps away all the people who aren't really interested in dating).
I've heard that okcupid is an excellent way of meeting new people you actually like -- from friends that use it like this. My short time on there seems to corroborate this.
I read and enjoyed Rework. It's refreshing to hear from a source that is trying to take on the business world by pulling a George Cosntanza and doing the opposite, or at the very least, an alternate.
The best use of their advice is to become a disciple of simple. Don't create huge goals, stick to small ones. Don't include every feature you think of, just the best/necessary ones. Don't have lots of meetings, only the ones that are vital (and good communication can fill in for formal meetings entirely). And don't be afraid to show your flaws. It's the advice we've gotten from parents and teachers and friends for years: be yourself. None of these things guarantee success, but they shouldn't lead to failure either.