Do Business Models Just Happen? For Dopplr It Did
Dopplr has finally found its gold mine, the aggregate user travel date. Dopplr plans to anonymize and aggregate all the recommendations that have been added to Dopplr over time and selling the information to those who want to know where the worlds most frequent travelers are visiting.
This will effectively be big part of their business model in addition to the lead generation that has been in place already for a while (see video below). Dopplr aggregates the travel advice and recommendations in what it calls a Social Atlas. Marko Ahtisaari, Dopplr CEO, calls the Social Atlas "pops chart for the cities of the world", which it really is. In effect Dopplr monetizes recommendations made by friends and like-minded people. Not very much unlike Finnish startup TripSay (see our story here). Dopplr's model is still easier to see working, because it does not depend on sharing individuals' insights, just the locations and the times they were visited.
(video via Informilo)
There has been a lot of debate about whether one should just build a good service and let the business model happen (think Twitter and Facebook), or whether one should aim to get revenue from day one. This was also among the topics in Sweden where I was just this week moderating a panel on Monetizing Digital Content. Since we entered the down economy, the debate has gotten more intense and more people are arguing for the day one cashflow.
I don't know whether Dopplr had planned for this exact model and didn't just tell us but my guess it they hadn't. Rather, they decided to let their business model happen. Why I believe this was the case was that they have changed CEO recently and earlier on during the London Seedcamp in 2008 (coincidentially the very day that Lehman Brothers went under) a Dopplr investor Martin Varsavsky admitted to me that they don't have a business model just yet (see video below). The founders and investors knew that they have a very interesting and useful service, and new that if they can build on that the value can be exactred when the service has grown to an age.
Even when there is a business model from the get go, for the more interesting services it always evolves. Thus, even though we do live in down economy and the cash is king, I would not outright kill all the ideas that don't have an obvious business model from the get go, since those are many times the very services that will be the most interesting and successful (again, think Twitter, Facebook and now Dopplr).
While you're at it and if you are already part of Dopplr's growing user base, do join our ArcticStartup group in Dopplr. Marko also tells us in the video that there's an iphone app coming in June 2009, which is great news. Currently checking interesting venues let alone adding venues to the service is hard work, but when you can do that easily on the go with iphone I imagine Dopplr will see a spike in usage.
Although Dopplr and TripSay are somewhat different services aimed for different audiences we definitely do share the recommendation angle. Even though the way how the two companies come up with the recommendations the goal is still the same: show the user places he is likely to like based on the fact that similar people have loved them. I'd say that in terms of monetizing they are identical. Dopplr has a pretty likeminded user group (frequent business travelers) whereas we in TripSay try to decipher leisure traveler preferences based on the places they've loved and the things they like to do on their vacations.
It's actually funny, I remember that there used to be a lot of discussion on Dopplr's business model. Mostly it was about if they have any. To me it was pretty clear that their model would be the same as ours and I'm sure that they as well as we did have the monetization plan from day one. Starting a company without such a plan is hard, especially outside Silicon Valley.
Thanks for the comment Juha.
I agree that Dopplr certainly needed to have an idea of where the money would eventually come from otherwise it would be very hard get investments, but my point is that many times the model evolves when you're dealing with a new concept. And here I think it's healthy to let it evolve and be somewhat patient with it, if you're confident with what you're building.
Some people will take the idea of a business model a bit too narrowly. Sometimes it amazes us all where value can be created and what people are willing pay for.
But does not having a business model from the start create companies that have a difficult time with monetization (Facebook, Twitter... YouTube?) I'm guessing Dopplr isn't yet a very profitable business, as is neither Facebook, YouTube or Twitter.
I think business models should just happen, but I can understand that investors are wary of that, since the examples aren't that great.
I'm sure that Twitter will be profitable one day, since it is so versatile and expandable. However, I'm not sure if Facebook or Youtube will ever become a profitable investment for the investors if you don't count the media value.
I admit that I don't know the profitability of Facebook, Twitter or YouTube.
Riku,
Here's my take.
1) YouTube will never make enough money to compensate the costs they are incurring with serving video.
2) Twitter will not see profitability because it will be acquired before it gets there. That's soon.
3) Facebook will make boat loads of money when they roll out their payment mechanism. PayPal will be in deep throuble, but eventually so will Visa.
Ville - I agree with you on 1 and 2, but not too sure about 3. This is latest in the string of things they're trying but have a hard time seeing it become widely successful. I am of course hoping you are right, as it would make the life easier for anyone who wants to sell small things over the internet... I just don't see it happening.
They'd need to implement worldwide support for payments other than credit cards, for one. Then comes the issue with currencies. Someone from China buys FB "credits" with yuan and then makes a purchase from an American provider, who will be paid in USD by Facebook... there's a big currency risk involved if Facebook really wants to use virtual currency (PayPal is dealing with real currencies so they don't have the same issue... the price is calculated in real time accordingly).
Finally, even if they manage to fix all of that, they'd need to somehow convince 200 million people that it's a good idea to put some money in Facebook instead of keeping it in their bank accounts. Otherwise the purchase process will be tedious as we'd send people to Facebook for payment processing, only to have them dig out their credit cards to "fill up" the account first. That would mean at least half of the transactions being lost in the middle, probably more.
Jani,
Who says it needs to be virtual currency. The point I made assumed a PayPal like link to bank accounts, which needs to be set up only once. After all, FB is build around our real identities. Many still assume FB is just a social network, but its helpful to think about it as a global infrastructure and a distribution channel. And when you take that mindset, its not about 'filling out form for social network' anymore, but rather seeing it as a platform level infra for transaction and trade.
Ville, well perhaps you know more than I do. The information I have is that they're building a system where you fill-up "Credits" to your account using a credit card or whatever, and then you can use those credits to make payments. It does seem to make sense for things like buying one dollar pictures of roses to your friends on birthdays (to avoid having to enter the credit card info every time), but not much of a threat to PayPal to me.
Have to say that I disagree with Ville aswell. Facebook could probably make money with virtual goods etc silly stuff, but as a platform for transaction and trade? I don't see any fit with the current Facebook whatsoever.
According to VentureBeat, Facebook is building a platform for fb app developers and others that use fb data, to be able to receive payments(in virtual credits), eg. of virtual goods, more easily.
Anyway it's kind of useless to use the outliners, like Google, twitter or Facebook in some sort of meaningful example. For every Google there is like hundreds of thousands of other startups and hitting the google-twitter-facebook-pot is quite slim to none.
Sometimes business models do happen and sometimes there isn't any model that would fit. It doesn't mean that you shouldn't do it, but just you have to realize that you're flying even more blind and with higher risk.
Jani and Karri,
I'm not talking about what's in the news right now. 200m active(!) users is powerful user base and its only growing (That's 40 times the size of Finland). And I'm sure my guess is rather modest compared to what they are planning within the company.
To the second point Karri raised. I think it's counter productive to not to think about the big successes. Almost to the point of where it does start to hurt the people and startups around you. We are products of our environments after all. In fact, I think you should look way beyond them. You should aim to be that outlier.
'Organizing the world's information' is pompous, irrational and megalomanic claim. Yet, making such claims and aiming for the "google-twitter-facebook-pot" is the only way to make a dent in the universe. Slim chances? For sure, but we are talking about growth entrepreneurship and RISK capital here, right? Dream up people and forget the naw-sayers.
Ville, yeah regarding your original point, I think business models just happen. Most big success stories happened without much planning. FB was a nice little tool for local university students, and it has evolved a lot from where it started. They certainly didn't start with the goal of allowing everyone in the world to share information. The same for Google and many others. They just happened. And when you look at the big corporations with deep pockets trying to build success stories, they usually fail miserably. It's as if you can't plan success. You just need to build a very good product for the right audience and sort of hope that there will be a business model if it's successful! :)
Jani,
Good to hear. Agree with all of you points. I'm guessing http://www.xihalife.com/ got started much the same way, by building a very good product for a given audience you cared for?
Yeah, absolutely. Going from tens of thousands to millions of users in just over a year didn't happen by crafting a careful business plan or thinking of how to maximize earnings, that's for sure.
Just a quick comment on the point raised by Jani vis-a-vis exchange rate risk with Facebook's virtual currency. With the way they are currently implementing the currency I don't see there being any exchange rate risk. Basically the Facebook Credits are a currency pegged to the US dollar at a Facebook determined rate. So the exchange rate is fixed. Whenever you buy credits you are invoiced in USD. So the credit card company does all the currency conversion magic and Facebook ends up with USD which they just happen to credit to customer accounts as their Credits.
The other major benefit of running a virtual currency is that you can deal rather easily with credit card chargebacks. If you've purchased virtual something that you don't like, Facebook will give you your Credits back. No need to deal with the credit card companies. And with actual chargebacks Facebook can argue that the user got exactly what they bought, that is the Credits.
Tuomas, thanks for the clarification. While it sounds like it shields them from currency risk, I think it doesn't sound very global market oriented system. First of all, it would assume you have a credit card, which is not true outside of the USA and western Europe (more than half of xiha's sales come in methods other than credit card).
And secondly, having the credit price fixed to USD means that it'll fluctuate daily in other currencies, becoming quite a pain for regular users. It really sounds like they are hoping to generate most of their money from the US, if this is the case.
Finding a good business model is important and takes a lot of work. Luckily one day as I was reading through BusinessWeek.com I stumbled across a great book titled, "Reinvent Your Enterprise" by Jack Bergstrand to help me come up with a great model for my home business. Not only did it help me come up with a good business model for me, but it also helped me achieve personal goals better and faster—as the same principles that improve knowledge-based companies also improve individual achievement levels. This is the first I have heard of Dopplr's ideas more indepth. Thank you for the tip.