Friday Readership: VC funding & web2.0 startup bubble starring Ning

This week I'll focus on the sick way the web2.0 startup world works thanks to Venture Capital (VC) money pouring in. I agree with 37signals and believe startups should be focusing on making money and not on burning other people's money. When you don't earn your own dough, the decisions you make can be really strange:
Here you go, Ning and their VC-backed business backfired:

After 6 years in business and burning $120M of other people's money (VC) they discovered that eyeballs don't pay the bills and a free model isn't sustainable. They decided to charge each account now. Not a really nice move, now is it?

David has a great writeup on this subject: Eyeballs still don't pay the bills - draw your own conclusions.

As much as I respect Joel, I'm not sure he's going the right direction with their Stack Exchange web site - killing paying users and creating totally free networks? Well, just look how it worked out for Ning! Again, VC money and irrational decisions. Judge for yourself.

Anyway, I've seen this many times - first web2.0 companies give accounts for free, later they say, sorry, it's not sustainable, we need to charge you right now. It's cheating users. It's not good for customer trust and bad for overall user trust in the industry.

At Nozbe when we give free accounts, you know their limitations and you know they are free forever. If you upgrade, you know what you're paying for and we're trying to exceed your expectations. We actually care about our business model and about our users. We don't care about eyeballs all that much.

When a service offers free accounts and doesn't earn a dime, you should watch out, don't you think?
--> me I'm Michael Sliwinski and I'm an entrepreneur who's also the...
.. Founder of - a time and project management web application
.. Editor of Productive! Magazine - a global PDF publication on productivity
.. and a blogger as well as a producer of a weekly 2-minute Productive! show.

Posted on Friday, April 16, 2010 (business,followfriday,startup)

Like this post? Subscribe to my newsletter, and every 2 weeks you'll receive updates from me. You'll also get you my latest book for FREE as a thank-you: "No Office Apps: How the Nozbe team uses modern technologies to communicate better and get more done.".

Paul Krefta
Apr 16, 2010 16:43
About burning someone's money - I'm much more scared about all those EU dotation programs & cash spent on those pseudo-innovative social apps and websites - It'll be very interesting to see how many of them will survive required five years.
Apr 16, 2010 17:27
I agree. It is all about expectations. If you can't offer it free, make it clear that it is a trial period or offer limited free services (and the limit can be very tight). But it should be stated that right way from the beginning.
Michael Sliwinski
Apr 17, 2010 22:03
I've seen many companies tricking people by giving their service for free, saying it's going to be free forever... and later they changed their mind because they couldn't pay their bills... People are losing trust to Web2.0 services by shabby moves like this. Hugoestr, thanks for your comment!

Paul - I'm curious about the EU funds, too. Lots of cash will be burnt, lots of businesses, too. I haven't applied for these. I'll blog about my reasons later. Thanks for your comments, Paul!