How to make a million dollars? A penny from 100 Million or $100 from 10,000

Seth Godin on 'How to make a million' says tyring to make a penny from hundred million almost never works. Instead try to make a dollar from million people.

One popular method is to make a dollar in profit from each of a million people. Or a penny from a hundred million. This is the China strategy. It almost never works.

It almost never works because the challenge of reaching that many people is just too great. It's too risky and too expensive. Doesn't matter that you're only hoping for a dollar or a penny. The price isn't the challenge, it's the difficulty in spreading your idea.

Far easier to make a thousand dollars from each of a thousand people, or even $10,000 from a hundred organizations. You can focus on a small hive of people, a group that talks to itself. You can push through a smaller dip and reach a level of recommendation and dominance that makes incremental sales far easier.

And you can learn much earlier in the process if you've gotten it right or not. Because you're making more per sale, you can spend the time necessary to figure out what really sells and modify your offering sooner in the process.

The irony is that many products and services that have reached huge masses of people actually have significant margins (Windows, for example, or a cup of Starbucks). They got the best of both worlds because first they focused on winning small communities over and that led to the larger market.

Apply this rule to today's web2.0 companies and software development companies. I don't understand where they are going.

  • For most web2.0 companies, the only revenue channel is by showing ads. To make any marginal revenue out of those ads, you must server Millions of page views. Each page view paying a penny. And software companies like 37Signals does it entirely different. They only had around a Million customers. Not sure how many of them are paid customers, but they charge a minimum of 12 dollars a month for a paid customer. To generate 12 dollars in ad revenue if we go the ad route, they need a minimum of 20,000 page views. So when it comes to listening to customers and make changes in thier products, which organization is better.  In other words, if you want the organization to respond to you, you know which one to pick.
  • Many companies used to sell their software by licensing it for a fixed number of servers or users or a combination. (Take for example Solaris Unix). And then they decided to offer the software for free. Motivation behind is to get more customers who pay $100 per support instead of having few customers who pay license costs that runs in thousands per license.

So finally, which one is better. Offer your product free and sell ads. Millions of signed up users to boast while you may not be making any profit. Or offer your service at a fee. You have only a few customers but you may make Millions in profits.

( | Via RSS Feed | Link to Article | )


Kavitha said…
As you said many successful businesses have a mix of large customers and penny paying customers. However for a startup it is better to focus on acquiring as many large customers as possible. But that starts only with a small customer again. And, since many web2.0 startups are created by geeks, it is quite difficult for them to 'sell' anything. So they resolve to ad based revenue streams, which requires just another geeky thing, signup.

Shanky said…
Both sides have challenges. Its difficult to target a hundred million customers, but quite easy to get them to part with a penny. On the other hand, it is easier to target a thousand customers but much more difficult to convince them to part with a thousand dollars. What you will end up having to do is to talk to ten or fifteen thousand potential customers to get to the one thousand that will buy.

The approach to creating a mass market brand is different from one that addresses only niche segments. Think of the difference in marketing between Apple ipods against, say, medical equipment for cardiac surgeons.

Popular posts from this blog

Newsworthy News in Red October : Dow Jones & Tax Dodgers

USCIS Selects Final H1B Petitions by Random Selection - Almost a 50% chance for each Application

Wanna-be an Entrepreneur? Get Started