Creating a
desirable product is disconnected from trying to monetize. In consumer
products there’s a great deal of pressure to distort your vision by
squeezing monetization into it. We’d rather focus on evolving our
product. It’s also just more fun

Like garage bands that want to hone their chops and grow a fan base
before taking on any paying gigs, more Web 2.0 startups like Crusher
are electing to put off pursuing revenue streams until they get their
act and their audience together. Microsoft’s and Disney’s recently
announced intentions to buy dozens of startups apiece validated many of
these entrepreneurs’ implicit exit strategies: Work hard for a couple
years, then sell out to a big company.

Unlike the early dot-com era, when the mantra was Get Big Quick,
these bootstrappers can afford to be patient. Thanks to open source
tools, cloud computing, cheap storage and virtual organizations,
startups can do a lot more with a lot less. Things that would have cost
$10 million during the bubble can be done for $500,000 today. In the
bubble times companies would spend $10 million just to get eyeballs,
without any notion of whether they would stick. Now the burn rate is
being used to evolve the product, to see if they can get it to be
adopted virally. That requires a lot more patience.

Of course, without metrics to guide investors, revenue-free
companies are better able to trade on their hype and potential in order
to inflate their value to potential acquirers. But this is more common
of open source software firms than Web 2.0 startups.

Web companies need to demonstrate a clear path to revenue
generation, even if they’re not planning to get there any time soon,
notes Mike Kwatinetz, a general partner with Azure Capital.

Yet in this stage of the Bubble 2.0 era, startups derive more value
from their virality — how rapidly and broadly they are adopted — than
their profitability.

“Numbers clearly matter,” says Hans Peter Brøndmo, CEO of Plum,
a site that allows users to share music, videos, web pages and other
forms of content. “But the numbers that matter most are not the ones
with dollar figures attached, they’re the ones that measure page views
and site engagement. If I go to a VC and say, ‘We have 2 million active
users a month,’ they’ll probably get pretty excited. If I said, ‘We did
$2 million in revenue,’ they probably won’t. If we can do both, and
show we’re on a path to make hundreds of millions of dollars in the
future, obviously any investor will look at that and say that’s a
compelling story.”

Sources:

http://www.wired.com

http://www.azurecap.com/index.php

http://crush3r.com/