Surprise for Startups: You Have To Charge Your Users To Survive

Lately I’ve been talking quite frequently about startups and even established internet companies coming up with new monetization ideas for their businesses to survive the recession and hopefully even prosper due to the innovative approaches unmatched by competitors. The latest interesting examples include Ma.gnolia offering paid accounts for its social bookmarking service and Calgoo inventing the idea of in-calendar marketing that can potentially help any web product featuring a calendar as part of its functionality to find a new revenue source that will most certainly be way more profitable than traditional display or contextual advertising.

I don’t think it is a surprise that we have grown way more focused on business aspects of a startup than we used to be only a few months ago when any application that featured a great idea even without any chances of making money from it could be our favorite for a day or two – only because we like everything innovative and revolutionary. But everything has changed now that many of us have already been hit by the recession and we seem to think in terms of business more than we ever cared about – and it is visible everywhere these days.

But sometimes this new focus on money from everyone – be it a startup or a technology blogger reviewing that startup – leads to dubious and somewhat embarrassing situations when startups that never seemed to care about the business side a lot and were pretty happy with the investments they raised realize they need to learn how to make money finally in addition to knowing how to raise money.

The latest example that made me feel quite uncomfortable about the future of some services that many of us learned to rely upon is from Allmydata, one of the numerous startups that operate in the online storage and backup market. Today I’ve read on the company’s blog about their decision to have all the free accounts expired and suggesting the owners of such accounts to contact the service support team to be able to get the required data from their free accounts back before it is all deleted or upgrade to one of the paid plans offered by Allmydata (with the cheapest one priced at $10 per year).

A few months earlier, back in October, Allmydata introduced a new pricing model with unlimited accounts available for $10 per month which meant doubling the price. Of course they had to explain the decision and the explanation was simple: the service was getting popular and the usage was higher than the previous pricing model was intended for so they had to raise prices to be able to make money off their paying customers. In the previous pricing model the free accounts included 1Gb of storage (1 Gb of monthly bandwidth) while the basic plan with unlimited storage was priced at $5 per month. And while the overall comments from users seemed not to be disappointed, it is still a two-fold price increase and it looks like too much of a mistake when calculating the reasonable price.

But of course everyone knows it has been very typical for a startup to offer prices based on those offered by competitors to win users away at least with great prices instead of calculating actual costs and determining the prices accordingly. So this is exactly what we saw with Allmydata – a miscalculation that actually required double the price and absence of free accounts.

But no matter how sad or disturbing it may be to watch such steps taken by startups, I still think it is good that the financial turmoil has already made many startups finally realize money can be as important as the great idea behind their service simply because without making money no great service will exist. Yet it is too bad it took such companies so long to realize this simple fact. For example, should the guys from Allmydata figured that out from the very beginning, they would not have to face these embarrassing explanations now. Here is to hoping that such reasonable business decisions (even if a little overdue) will not hurt too many startups that have taught internet users to expect to be able to receive just about everything for free.