A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

If you doubt those words, just take a look at the difference between Egnyte, and Box and Dropbox.

Founded in 2007, Egnyte never offered free anything, has taken only $62.5 million (nearly half of that in 2013) in funding and says it will be profitable by year-end.

Box and Dropbox are not even close, with their millions of over-hyped, flavor-of-the-last-few-years hypergrowth users who pay nothing.

Nada.

Consumers used to pay, too, when the service was viable enough.

Angie’s List started in 1995 as a paid subscription service and boasted a 73% renewal rate in 2015.

In 2008 the mantra of hypergrowth exploded, driven by the the fremium model, but converting free users to paid turned out not be all that easy.

Many companies are now trying to sell their multi-million consumer products to corporations and are learning, to their chagrin, that corporations don’t care about freemium, let alone the media hype that drives consumer adoption.

Matt Weeks spelled it out perfectly in a guest post on NTR’s blog that’s well worth your time.

…hypergrowth without a hope of unit economics that lead to profitability has always been a fool’s errand (…) at some point there must be a path to profitable and repeatable unit economics.

Put more simply, the real goal of your startup is sustainable profit.

And there’s always Marc Andreessen’s advice, which really rules out the ‘free’ in freemium.

Marc Andreessen has two words of advice for startups: Raise prices. (…) “The No. 1 thing — just the theme and we see it everywhere — the No. 1 theme with our companies have when they get really struggling is they are not charging enough for their product. It has become absolutely conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible under the theory that if it’s low-priced everybody can buy it and that’s how you get the volume.”

Don’t bemoan it; own it.

Image credit: HikingArtist

Last Friday we looked at high profile role models—LinkedIn, Facebook, Zynga and Google.

With the exception of LinkedIn, which developed serious products that sell for serious bucks, they all rely on advertising for revenue generation; even Zynga’s virtual products revenue, which has tanked, is earned from its specialized ads on Facebook.

In March we looked at Angie’s List, also a subscription product.

Monetizing humongous user bases isn’t all that easy.

And it’s getting more difficult.

• Mobile ads are ignored more than 99% of the time.
• Privacy laws in other countries are far more onerous than in the US.
• Much like a slowly awakening Goliath, American’s attitude towards privacy is changing.

I’m no kind of expert, but I think founding a successful company based on ad revenue is going to be a much tougher sell as time goes by.

Even mighty Facebook seems to be following LinkedIn by creating products and even offering gambling outside the US.

Founding a company—wonderful.

Creating something that could change the world—fabulous.

Generating non-ad-based revenue—priceless.

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Flickr image credit: dh

History is interesting, the more ancient the better, but ‘ancient’ means different things by context.

Ancient Internet history dates more to the 1990s and one interesting historical nugget is that the general attitude that everything on the Internet should be free was nonexistent.

Enter Angie’s List, which has always been a subscription service.

Because this was 1995, nobody was yet shouting from the rooftops that information wanted to be free. “Some of the choices we made early on were dictated by the world we lived in,” Ms. Hicks said. “People paid for content.”

Angie’s List went public in November, 2011 at $13, jumped 25% and trades close to that number today.

Angie’s List has over a million subscribers and around three quarters of them renewed in 2011, up from 62 percent in 2008.

The business is built entirely around user-generated content, but differs in a very significant way from other rating sites, think Yelp.

Angie’s List allows no anonymous reviews and the staff goes to great lengths to keep the content authentic.

If you are developing an Internet company counting on advertising revenue is the norm, but the idea of targeted ads is facing a major backlash. The only way to target is to track.

73% say they would…

NOT BE OKAY with a search engine keeping track of your searches and using that information to personalize your future search results because you feel it is an invasion of privacy

The subscription model is making a comeback and it is one you should consider—assuming you are offering something of real value.

Image credit: Angie’s List