Silicon Alley Insider discusses the downsides of the easy availability of VC money during the last few years of the “second” internet boom.
“Free” is Killing Us–Blame The VCs – Silicon Alley Insider
I believe it should be possible to start a small business and to have a small number of profitable customers, and to earn a living. From there, it should be possible to work hard, and to grow your business into something substantial. Until recently, this was the American way…
In today’s “free” world, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small companies could succeed at a small scale and grow. But it is very hard to charge when your competition is free.
The economic problem with advertising businesses is that advertising businesses do not work without really significant scale. In the past, a good product or service could address a niche and succeed without being a home run. Today, a home run is required because if you do not reach a massive scale, advertisers are uninterested. And even if advertisers could be attracted, CPMs are so low that the revenue would be inconsequential. Small Internet businesses don’t work.
So how did we get here? In a word, VC…
The discussion is particularly interesting for me because I’m probably too young to remember clearly what it was like when you had to pay for a service on the net. I grew up and got accustomed to on-the-house online services.
I don’t want to debate whether VC money’s influence has been harmful for the development and growth of small businesses or free-of-charge is simply part of the natural evolution of the internet business. What I’d like to point out here is that despite being part of the free-services generation I have reached a certain point where I’m quite happy to pay a fee for a service if it saves me time.
My conclusion is that probably those small businesses going tits-up because the competition doesn’t charge simply haven’t targeted the correct market and/or have failed to deliver services worth paying for!
Tags: Blame, Business, Internet, Net, Network, Online, Services, Thoughts, VC
