I didn’t get a chance to go to SXSW, so have been happy to see slides that have come from some of the presentations. One of the more interesting ones was Barenaked App: The figures behind web apps. It’s an essential read for anyone who’s interested in building a web-based application for a new business and wants some reference for the costs involved.
According to the presentation, here’s how much it cost to build some successful web applications (design, development, hosting, legal, accounting, etc.):
- DropSend: $48,012
- FreshBooks: $20,000
- Maya’s Mom: $70,000
- Mobissimo: $60,000
- Wesabe: $200,000
And here’s how much they cost to maintain each month (including employee salaries for some):
- Dropsend: $3,625
- FreshBooks: $46,000
- Maya’s Mom: $30,000
- Mobissimo: $150,000
- Wesabe: $3,000+
While these numbers are certainly not representative of every type of web application, the presentation shone light on the types of things to think about when planning a web business. Here’s what I took away from the slides:
1. It costs a significant amount of money
There’s a popular myth that you can hire a developer to build something for $50, post the URL to Digg, then watch the $1B buyout offers flood your inbox. OK, maybe nobody believes that exactly, but I think people largely ignore the fact that web businesses operate under the same maxim that brick-and-mortar businesses do: it takes money to make money.
Generally speaking, anything that costs an insignificant amount of money will probably face a large number of competitors and knock-offs. Even if you somehow managed to protect your business from that, any major application with less than 100 hours of work behind it probably isn’t going to be designed with a great user interface, won’t scale with increased traffic, and will be riddled with bugs.
2. It doesn’t cost that much money
On the other hand, those numbers are within reach of most would-be entrepreneurs through funding from angel investors, small business loans, or a line of credit. Most successful web applications don’t require venture capital to get started, if ever at all. Web applications are a lot less capital intensive than most businesses — retailers would probably be overjoyed if they could open new stores with startup costs that low.
3. It still costs money after it’s launched
The second part to the $50 myth is that once your application is up and running you can just sit back and count the profit, without spending any time and money to maintain. Ongoing costs will vary widely depending on the business, but it’s fairly safe to say that some amount needs to be budgeted at least for customer support and ongoing hosting if not for development of new features.
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Out of curiosity, did these numbers seem reasonable to you? What else struck you about the costs?
3 responses so far ↓
1 christian // Apr 2, 2007 at 7:36 pm
One interesting point that people might want to think about is the power of research and original thinking. Brin and Page’s deceptively simple idea for the Google search engine, for example, wasn’t the first search engine to market, and it certainly was quickly followed by what appeared to be decent knock-offs - until people started using it. What immediately became apparent was that Google was based on sound science and a lot of good research that provided superior search, while the others were not.
This research doesn’t only have to be academic or scientific, of course. It can consist of observation, personal experience, community knowledge - but one thing’s for sure, it has to be there. Ade, you’re absolutely right: apps that are built inexpensively (and even some expensive ones) are ripe for knock-offs. Just having a cool app, therefore, probably won’t cut it in the long run. The idea behind it needs to be sound.
As an example, I am working on a startup right now that is also deceptively simple at first glance. It is based, though, on 10 years of informal observation, 5 years of experience, and 2 years of academic research in the social, technological and operational aspects of our prospective customers and in the ecosystem in which they live. Without this, i suspect we’d probably just be building another calendar app destined for the TechCrunch Dead Pool..
2 ade // Apr 5, 2007 at 9:41 am
@christian: excellent point. There’s the “eat your own dog food” saying, which advises would-be entrepreneurs to build something that they have a need for themselves. If I may, what you’re saying can probably be summed up as, “what qualifies me to make dog food?” A great company takes more than an idea and cash in hand … like you said, it needs to be backed by solid research and experience.
3 christian // Apr 5, 2007 at 9:58 am
exactly. to stretch your analogy beyond where it probably should go: the more that i have done my homework on dog nutrition and seeing if they dogs witll actually eat the food, the greater the competitive advantage i have over potential knock-offs - particularly in a commodified market, where the financial barriers to starting a competing dog food company are relatively low.
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