Magic

The magic 5%

You know, ad-supported businesses are not that deck anymore. So all consumer startups are searching for alternative ways to make some money$. Why not make users pay for…say no ads, or better features, or better looks? Surely this will work much much better and soon your company will need David Hasselhoff to rescue you from the all the $$$ you’ll be about to drown in, or will it?

Some numbers

Let’s look at our options and back’em up with some numbers. As a baseline keep in mind that CTRs on ads typically range from the nirvana of ‘not giving a f@*k’ of <0.1% (e.g. Facebook) to the ‘I actually click on those’-rate of 2% at Google, which is why it’s a number’s game. Obviously, most companies won’t survive on a below 1% diet. They therefore rely on alternative ways of making cash: YOU and I or in the words of Andrew Lewis:

If you are not paying for it, you’re not the customer; you’re the product being sold.

Now without further ado, the stats:

Conversion rates of different consumer monetization options
Company Share of paying users Selling Source Comment
LinkedIn 1% Features SEC Assumption: Distribution of premium subscribers amongst the 3 premium tiers: 80%;15%;5%
Zynga 2% Digital Items SEC MUP/MUU
Badoo 3% Features CNET; Socialtimes MUP/MAU
Dropbox 4% Space Forbes /
Evernote 5% Features Doeswhat /
Hulu 5% Content Venturebeat /
Ubisoft 5%-7% Digital Items Torrentfreak /
Spotify 8% Features, No Ads, Content Telegraph /

Not too bad, eh! Most are superior to ads. And those that show ads, like Spotify, additionally charge for not showing ads. Pretty, pretty, pretty good.

Control your fortune

Another disadvantage of ads is that they usually are beyond your control. You can only guess when the next inappropriate call to action will appear next to your content. Or how long it will take for your site to rank on those fail blogs. Business-wise, you can only do so much to increase CTR on ads until disgruntled users start throwing rotten tomatoes.

On the other hand, when you’re controlling the products you’re selling, improving sales often means improving the product. And we all love great products! The success can also be considerable: World of Tanks is phenomenally converting 25%-30% to paying users. Oh giddy!

{If you’ve come this far, why don’t you share your ideas and experience in the comments and follow me on Twitter to discuss this topic and receive more information.}