For some types of businesses, pageviews is what counts. Some type of applications need to reach a certain tipping point, after which trying to generate revenue makes a lot more sense. So they need to grow fast and then focus on money later.
Think of it like a blog trying to get big. You don't slap ad-sense on the blog right away. First you grow your audience, get your fans first, then focus on revenue. Focusing on revenue right from the start will likely make you unable to ever grow.
Well...I wouldn't classify starting a blog as a startup/viable long term business.
If you are, indeed, starting a digital publishing house then I think you need to come up with a viable/more sustainable business model more quickly than just relying on advertising at some point in the future.
Hacker Monthly is a perfect example of this. They released a few editions, then quickly put up a pay wall.
A blog, in the most generic sense, I think is better served being a 'free' marketing tool. The main focus should be, as 37Signals so eloquently put it, to teach your users and subsequently build an audience.
Edit: I would also like to point out that I don't disagree that there are some businesses that make sense for pageviews/uniques - my main point is that we (the industry) are still suffering from the bad branding caused by the 90s boom & bust. i.e. start a company and figure out revenue later. I am suggesting such a drastic shift, in an attempt to drastically change that mindset. Once that mindset is changed, then we can loosen a bit - and 'encourage' some models that require pageviews first (but perhaps by that time we won't need to, because more platforms like http://www.flattr.com will be mainstream and bloggers can get paid for each article, than relying on advertising).
the path to monthly revenue isn't necessarily a linear one, no. but it doesn't mean that it still isn't a viable metric. take the exact same argument you made here, swap "revenue" and "pageviews", and it still pretty much makes sense.
Great realization, I'm happy for you. But now to the next step: are you trying to grow revenue or profit? The strategies are vastly different. When building profit, you need to keep costs as low as possible. When building revenue, you increase costs as much as you can afford in a way that grows revenue as fast as possible, perhaps throwing even the idea of profit out the door.
Focusing on revenue is awesome. Throwing in the extra "and profit" feels like the safe thing to do, but in reality your execution will be completely different with profit in the equation.
Martin, I fully agree. I threw it in there to show that the argument isn't just myopic on revenues alone.
The reality is that web apps and sites that generate monthly recurring revenue come in many forms. Either the microprenuer variety (i.e. one man shop) or the larger VC-backed startup (ala dropbox, etc.).
Depending on your situation it really is up to you to decide to swing the pendulum whichever way you want to go. For example, Dropbox would likely focus on growing revenues as fast as possible, sacrificing profits in the short term - and that's a perfectly respectable decision because they have tons of VC cash in the bank and makes total sense.
So that was just shorthand for me saying that once you make that mental shift from advertising/eyeballs/uniques to monthly recurring revenues, you can then decide how you want to tackle the profit question (more now or later).
I think the mechanics around how your thinking about growth, revenue, profit and costs affects your execution are among the most "unknown unknowns" among entrepreneurs. But only because this is where my greatest realizations have appeared during the last couple of years. I know now that in reality I knew nothing when I started my company. And unfortunately you mostly learn stuff like this in hindsight.
In conclusion: great post and great topic, keep writing about stuff like this.
In advertising, there is the concept of "above the line" and "below the line."
Below the line is anything that directly contributes to sales, and above the line is the less measurable stuff, like brand awareness (usually television ads, billboards, etc.).
I can think of a lot of cases where a web site should be measured by its reach rather than its immediate profit.
For example, a web site for a movie would measure its success in terms of trailers watched, time spent playing with interactive features, etc.
Web sites for cars measure success by the number of people who use the configurator, download brochures, or similar activities. It's very hard to tie monthly sales to monthly web visits, because the customer's consideration time is often much longer than a month.
Even a pure e-commerce site can't go on sales alone. Huge numbers of people use Amazon for product research, wish-list building, reading reviews, getting recommendations, etc. Just because they don't buy something every time doesn't mean it's not measurable. It's that kind of activity that cements Amazon's central role in many people's online shopping behavior. The lifetime value of a customer doesn't show up on a monthly sales report.
Determining the value of each touchpoint in a customer journey is an inexact and difficult science. There's an entire industry evolving to try and do that, called Attribution Management. One quite I've heard repeatedly from people in that field is "if you only count the places where money changes hands, you'd dismantle everything and just keep the cash registers."
The idea of a "revenue per month" metric sounds good on the surface, but it misses the entire value chain.
Remember I said this is in reference to a website/web app that
is a startup. Not as promotional material...or functioning as a loss leader.
Websites for movie trailers = promo material...not a startup.
Web sites for cars = promo material...not a startup.
An e-commerce site has to go primarily off of revenues and profits. Once they focus on revenues and profits, they can then invest in advertising (both above-the-line and below-the-line).
Amazon ran in the red for many years, because it invested heavily in the infrastructure. It raised equity financing, reinvested all revenues and profits and when it went public it raised huge debt.
Over the subsequent years, it paid down that debt slowly but surely with the profits thrown off of operations. Until the point that it has been profitable for the last few years. However, this point illustrates what I was talking about...they focussed on revenues first and then went to profitability shortly after.
Sorry, the article referenced doesn't mention startups at all. It just says the web development community should ignore pageviews and only look at monthly revenue numbers.
if you charge $50 a month, you only need 200 subscribers to hit $10,000/mo, $120,000/yr. And since it's recurring, once you hit that number, you'll continue growing with time.
So sure, it might take you a year to hit 200 paying customers, but with recurring, every month after that you add more people...so at year 5, you'll get to 1000 subscribers, paying $50,000 a month or $600,000/yr...and with most web apps you can support that just by yourself.
And even if you can't, $50K a month, will allow you to recruit about 5 people, so you can scale your workforce as you grow too
Not quite. What I was really alluding to is that most web entrepreneurs should look at developing any web site/app that has recurring revenues - not only one off sales.
Web apps happen to be the best option to generate recurring revenue with the highest margins. Another option is selling infrastructure services (hosting, etc.) but those net margins are much lower because the cost of revenues are higher.
I know...which is why I added the editor's note. I, believe, that the industry has to evolve more towards other sustainable business models than just advertising focussed.
The problem I am addressing is that many people, when they think about creating a web app/site, the first biz model they think of is advertising.
What I would love to see is a complete evolution of this mindset.
It is the equivalent of wanting to start a restaurant or any business in the 'real world' with the model of getting a great location and charging advertising from the foot traffic. That's kinda ridiculous.
If we start treating web businesses like real businesses, I think we will see some more very interesting companies develop.
Think of it like a blog trying to get big. You don't slap ad-sense on the blog right away. First you grow your audience, get your fans first, then focus on revenue. Focusing on revenue right from the start will likely make you unable to ever grow.