How do free services on the web make money?

Interesting coincidence - last night I finished my first post in a series of posts about startup business models. Specificaly, advertising: <a href="http://blog.chewxy.com/2013/03/06/startup-business-models-advertising/" rel="nofollow">http://blog.chewxy.com/2013/03/06/startup-business-models-ad...</a><p>My startup is going thru a series of heavy re-thinks, so I thought I would blog about the different models, and how to approach them in a rather thorough fashion.

There's a big one missing from this list that is somewhat recent.<p>Selling the placement of audience segmentation/retargeting cookies on a publisher's site to a data aggregator like Bluekai (typically on a CPM bases) who then sells that aggregated data to DSPs/DMPs for use in display advertising.<p>If you want to learn about a whole different layer of the ad tech industry, just start perusing some of the questions on Quora for Bluekai (<a href="http://www.quora.com/BlueKai" rel="nofollow">http://www.quora.com/BlueKai</a>) and then do some digging on the companies in the Data Aggregator and Data Supplier buckets of the LUMAscape for display advertising (<a href="http://www.lumapartners.com/lumascapes/display-ad-tech-lumascape/" rel="nofollow">http://www.lumapartners.com/lumascapes/display-ad-tech-lumas...</a>).

Ironically, the original author (who has some sort of Quora affiliation) did not include "generate content and resell it to other free web services" in the list.

Here's one he forgot: I've seen niche content sites that after building a community hold conferences. They may have advertising but it's the conference that's their main money maker.

<i>Disclaimer: I'm going to comment on my personal experience running a free web application, <a href="http://sleepyti.me" rel="nofollow">http://sleepyti.me</a>. It's not meant to be self-promoting, but I feel that the experience is relevant.</i><p>There are a lot of ways to make actual profit (not just break even) with free applications.<p>The Hacker News crowd doesn't always show a lot of love for the "small, free application" crowd, and the echo chamber is correct that having a webapp doesn't mean you're a startup.<p>I know that I don't consider myself the "founder" of my app, because my site is not a company. I'm not trying to make it a business.<p>That said, though, this write-up glosses over what has been, in my experience, the easiest and most straightforward way to profit from free traffic: <i>non-</i>targeted ads. For me, that means a single banner advertisement served over Google Adsense.<p>Now, like I said, I'm not trying to make <a href="http://sleepyti.me" rel="nofollow">http://sleepyti.me</a> my primary income. If I wanted to charge users, or enter deals with, say, large mattress vendors, that would be different. But that isn't to say that the traffic and feedback I've received hasn't helped me both personally and professionally.<p>Personally, I've received a lot of attention from my app. It's pretty popular with college students, and it's gained media attention from outlets such as Lifehacker, the Toronto Star, and most recently the New York Times.<p>I'm not listing these sources to self-promote, but to show that from a personal exposure standpoint, it's opened many doors for me.<p>The same goes professionally: I had a brief partnership with YC-backed WakeMate, which, although now defunct, allowed me to interact with an early-stage YC company that I otherwise would not have been able to experience. I get between 1.6 and 2 million hits a month, and the financial reward has been steadily increasing through my single banner ad as well.<p>People always say that "if you're not paying for it, you're the product," but I don't think that that's always true. I don't prey on my users, and I can think of several free apps that operate in a similar--even <i>less</i> obtrusive--manner. Trello, for example, neither serves ads nor sells my personal data (I hope!). Sometimes it's worth it for a developer to create something and truly release it for free, without having the immediate motive of profit.<p>I always tell college students who ask how to break into an industry--whether it's information security, professional programming, the startup world, or anything else--to <i>do</i> something. Sometimes a free application, such as the one I created as a free weekend side-project, turns into more than what it is. I'm more than aware that my experience is mostly a fluke, though. The take-home message should be that <i>even if it doesn't</i> become some massively-profitable, highly-trafficked app or site, it's still something that you built.<p>And that has value.

Advertising sucks because worldwide inventory grows faster than the supply of eyeball-hours to view the ads. So there's constant downward pressure on prices.<p>Subscription sucks because you have to fight subscriber fatigue ... if you can get someone to sign up at all. People sweat over $5/month memberships; meanwhile they spend $20/wk on coffee.<p>Micropayments suck because everyone hates the mental overhead.<p>I have a solution I call "microsubscription". The only problem is that it's been tried by others and failed. Naturally I feel I've got the magic ingredients that the others didn't have, but ... we'll see.

Nice list where the author is trying to make a comprehensive list, but then I also have some criticism of the article. It lacks some models, and it makes an implied relationship between for-profit and non-profit. In the English language, this is commonly refereed as making money vs raising money. A charity or non-profit (say Wikipedia) is commonly not talking about making money.<p>Some projects is funded by an indirect sponsorship model. Best example here is google and their model of giving 20 percent of an employees time to do what ever project that the employee wants. While Khan academy model is direct funding, projects that are an result of the google employee free time model is indirectly funded project.<p>Then we have non-profit and what they will consider to spend money and man hours on. Sometimes, that not even remotely related to their primary purpose, but is just something that interest the people in the organization.

Note that many of these fall into a bait-and-switch category. You use the product for free for a while, and then all of a sudden you are spammed to high hell, or functionality is taken away unless you pay.<p>Paying isn't really that bad of an option sometimes.

They don't. They hemorrage money in an attempt to get some claim of silicon valley gold.

Gullible VCs.

I clicked the link and got a full page ad and thought that was the joke.

Many times they don't. It's usually something like Instagram where they give out a product for free in hopes that piles of people will start using it, and they'll "figure out something later". Worked out great for Google and Instagram, not so great for 999,999 other startups who tried it.<p>Personally, I like the idea, but it's tough.