Last week a client asked for a free extension to her job advertising and CV searching because, she explained, “it doesn’t cost you anything”.
I think the problem here is a lack of knowledge about how web businesses work. The truth is, there’s actually nothing particularly clever or different about how web businesses work. There’s no special status for those of us who run web businesses; we’re exposed to all the usual sets of costs. It’s the same for us as for any other, offline, business. Our P+L sheet would look very familiar to you – with costs of sales and a long list of operating expenses.
This particular client, of course, has been suckered in to the lie that web businesses are somehow immune to the pressures of daily running costs. It’s easy to see how this happens. The recent issuing of Facebook shares gives a sense that, for some reason, a web-based business can magic up capital. It happened a lot in the late 90s too. People saw all these web-businesses heralding a future of untold riches.
Usually, a business is evaluated on the profit it makes. But not during the dot-com bubble. Valuations were based on a possibility. Facebook enjoyed the same, with a valuation of over $60bn on an annual profit of just $1bn (“just” – a valuation at a multiple of x60 is incredible). Which is probably why the shares have already fallen 20% in less than two weeks. It’s also why many serious traders ignored Facebook’s floatation.
I lost my first proper online job as a result of the dot-com bubble bursting fiasco of the late 90s and can’t believe people have such short memories. Worse still, it gives credence to the lie I spoke about above, namely that web sites aren’t subject to the usual checks and balances of business.
And it’s this that leads to people asking us to offer our services for free. After all, Facebook is operating in this fantasy land where it all appears free, but so utterly profitable.
Only time will tell if Facebook can either grow its user base exponentially with the same return per user, or grow its advertising sales considerable with more return per existing user. But in the meantime, we’ll keep running our business like any other one, with a bunch of costs that we need to cover before we make a profit. And, unfortunately, we’ll have to keep charging for our services too.