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Why is that the obvious implication, especially whith the two home-run examples he gives? Starbucks and Microsoft are built on smaller transactions than one would expect from enterprise software. Starbucks does it $3 at a time. Microsoft established itself selling desktop software for for a few hundred a pop, and for quite a while, it was selling a couple of copies at a time until they gained enough momentum to sell their desktop software to whole departments and later even whole enterprises. Interesting to consider that the average annual revenue Starbucks gets from a regular customer, is probably similar, or even a bit more than the annual revenue Microsoft gets per-seat from its best enterprise customers. A reminder that one should balance the difficulty of acquiring a customer against the lifetime value of that customer. Getting $1 from a million people might be a tough business, but getting $20/year from 50,000 people one dollar at a time is conceivable. Flickr might be a good example (though a little on the big side). When they were acquired by Yahoo, just a little over a year from their debut, they already had ~400,000 registered users. Within a few more months, they had a million, and a few months after that a million more. I'd postulate that nearly all of that post-acquisition growth (and much more) came from existing momentum rather than their association with Yahoo. I don't know if the same ratios held back then, but when I looked a few months back, about 15% of flickr accounts were flickr pro accounts bringing in $24.95 in annual revenue. Thats 300,000 x $24.95, or $7M in annual revenue, just from pro accounts. Margins were low, or negative, because they were going for growth, but they had various knobs they could twiddle. First off, a little after the Yahoo acquisition they cut the pro subscription price (by half, I believe). In addition, they controlled the amount of storage and upload bandwidth available to both free and pro account holders. Taken together these variables gave them latitude in picking margins. Even a relatively paltry 13% margin would have generated $1M in profit. |