As an internet entrepreneur, the decision when to turn on your properties monetization engine is not a trivial one. At first glance it seems like you should open the cash faucet as soon as possible. But sometimes, it could be tricker than simply the ability to do so. I will try to summarize the counter arguments below:
Monetization and Growth
Regardless of your business plan and monetization strategy, you could almost always argue that turning the money engine on slows down your growth. The level of slow down obviously varies depending on your audience, and your money making technique, but it will slow it down. An easy example is subscription services: by turning subscription on, you should expect about a 90% or more drop in your user base accessing the paid sections. Even if simple registration decreases your audience.
You might say that our property only uses advertising to make money and that doesn’t slow down growth. But think about it for a second. Even though users are now accustomed to seeing ads on sites, if the ad directly doesn’t increase site’s
value (think ads on Google search results that might give you what you were looking), users don’t particularly don’t like them. A less pleasant experience usually results in higher probability of abandonment (again the value I am giving up has a lot to do with this rate).
But even more important is the attention capital that you are giving up. Entrepreneurs sometimes just think about the real estate that they are giving up to ads and potential the less pleasant user experience. But you also give up some of your users attention. That 1% CTR that brings you some money is built but taking away a percentage of your users’ attention from your site and to advertisers message. The question here is whether you could use that attention and click to increase your own growth rate. I believe this is a very important question for any entrepreneur to answer. Thanks to my friend, Touraj Parang, we at Pollection are thinking much harder about it.
Monetization and Valuation
So what if you give up some growth for good chunk of cash? Well as long as you make that decision consciously, there is no problem with it. However, if you are running a venture financed company and are thinking about future rounds of financing, this decision will have deeper consequences.
You need to understand how your financiers value your company in your next round of financing. If all they care about is your user base growth trajectory, then sacrificing even 1% daily growth for paying some of your bills are going to lower your valuation in a few months in a very big way.
Taking the Middle Ground
One might decided to take the middle road: split the focus half and half between monetization and growth (or some other combination). The problem with this split decision is that you do not have a razor sharp focus on either. So you won’t optimize your user experience 100% for neither growth nor monetization.
As a result, your growth rates and your monetization yield (let’s say your advertising eCPM) are not stellar. Now you are in a really bad situation when you talk valuation with your future VC since they will ding you for both inadequacies.
What is the consensus?
Last week I attended an event at Plug & Play Tech center on the topic of monetization for widget companies. The event was mostly a networking opportunity, plus a presentation by CoFounder of Hi5, Akash Garg. It also included demos by a number of startups including Pollection. At the event, I got the opportunity to chat with multiple founders and CEOs about the topic and it seems that there is sense that everybody wants to postpone monetization even though they can make money today in exchange for faster growth. They funny part is that everybody prefixes this assertion with “it might sound like bubble talk but…”. This sentiment was very well captured when at one point Akash said (paraphrased): My biggest regret is that we went for monetization too early, sacrificing aggressive growth.
We at Pollection are looking into different strategies when it comes to this question very carefully. I really don’t think there is a clear answer. As always it depends on your circumstances and your objects. In my opinion what matters is that you are conscious about the choices you are making in the context of tradeoffs described above.
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