Grabbing Hanuman’s Long Tail - Jacob Singh online

I was reading Hank William’s blog: whydoeseverything suck, and I particularly enjoyed his last couple posts about the future of the internet and the barrier to entry for new online startups because of VCs proping up “free” software services.

Here are the posts:
http://whydoeseverythingsuck.com/2008/04/artificial-abundance-and-bubble-20.html
http://whydoeseverythingsuck.com/2008/04/chris-andersons-voodoo-economics-of.html

As an aspiring net entrepenuer who has primarilly built websites people don’t need for many years (as many of us do), I’m of course gun shy about throwing myself into a new venture. Anyone who has been developing web applications for last 10 years would be. I mean, for any webdevs reading this:

What percentage of businesses you have developed software / sites for have ever turned a profit online? Be honest with me, it’s not a mark on your abilities as a developer, but more likely the overzealous of your clients. I can’t say for sure in my case, I think about 5%, but then, I’ve done about 70% NPO, academia and government sites.

I’ve often told myself that I’m going to stop working on other people’s bad business ideas, because a non-prospering client is not always an easy client, where as a prospering one is. The question now is, how can we avoid free business. Here are a few ideas:

• Make something which costs money, which is just marginally better than a competitor and go for the corporate market. Corporates are affraid of free, because they think in terms of longevity and strategy, not costs. Software costs are about the same usually as the pay that goes to the CTO to evaluate it and their application team to integrate it, not to mention the training. The problem there of course is the fact that as an entrepreneur without VC, you’re not big enough for corp houses to trust you. They don’t know if you’ll be around.
• Build APIs (esp pay per use). By doing this, you are simply enabling other people’s dumb internet ideas, not risking your own The downsides to this are few, which is why so many people are investing right now. Developers are not like corps, they will bet on bleeding edge stuff quite often, so you can probably be small and make a big impression in this sector. Downside to this model however is that it’s fairly easy to be dethroned I think. You don’t have as many hearts and minds, so if some VC throws a shitload of money at a competitor or Google does it for free, they can probably replicate whatever tech you have, and all your developers will switch, they can even provide a middle teir conversion layer between your API and the new competitor
• Go very niche, and very small and try to be relevant for 6-12 months and then sell or move on. I like this approach because it means if you have sweat equity (or noggin equity as the case may be), you can throw something out to the world quickly, and just not expect much. Because you are very niche, marketing is easy (you can name your customers hopefully), and sales can be automated through a freemium service. Downside is you may not get any payday from it, but the experience from it is useful, and you can make a name for your firm / yourself in many areas, giving you lots of future possibilities and connections.

What do the people out there (all 3 of you) reading this think? Do you feel there are other models online which will still work and not be VC funded and free?