We’ll show you the money — or at least a plan for making some.
After commanding big bucks from investors and enlisting legions of users, the next generation of tech startups is focused on revving up the revenue engine. Companies like Foursquare, Tumblr and Pinterest have all in recent weeks revealed designs on monetizing their services.
Not content with massive user bases, companies that are creating a more social and mobile world need to show investors they provide value, said Lawrence Lenihan, founder of FirstMark Capital, an investor in Pinterest, a social site that is among the fastest-growing platforms.
“Guess what? Revenue matters,” Lenihan said. “Revenue used to matter. Revenue will always matter.”
The most dominant tech companies can move from cutting-edge to catching up. Not even Facebook has the winning money-making formula nailed down, as the social network — built in the age of desktops — scrambles to figure out how to make money on mobile devices, where its users are going in increasing numbers to access the site.
Tumblr, a blogging platform led by David Karp that just cracked the Top 50 Web properties, has begun to experiment with ads. Foursquare, the check-in pioneer, is looking to make money through its merchants.
“Tumblr and Foursquare in particular are now about monetization,” Lenihan said.
Too many startups think the path to riches is a big sale, such as the $1 billion that Facebook paid for Instagram even though that photo-sharing app did not generate revenue, Lenihan said. His point: Instagram was a one-time deal, not a realistic business model.
The right time to flip the money switch is not always clear, however, and even Facebook has held off aggressively pursuing advertising on mobile because of “product decisions” — meaning it doesn’t want to ruin the experience on smartphones with excessive marketing.
Startups like Tumblr and Foursquare have reached the money-making stage. Others are still intent on signing up users. Among the latter is Mobli, according to CEO Moshiko Hogeg, the founder of the mobile startup that bills itself a “real-time visual media platform.”
Mobli has tallied more than 3 million downloads on smartphones, and Hogeg is focused on getting that number above 10 million before turning his attention to the top line.
He plans to cast a few lines for revenue: selling virtual goods like filters for photos, pushing promoted posts like those on Twitter, and compiling data for delivering targeted ads.
Pinterest is starting to cash in through sales generated on its site, and the company is monetizing at twice the rate that Facebook had been at a similar stage in its development, according to a person familiar with the business.
The revenue question is key as the startup boom threatens to bubble over, and companies have to justify ever higher valuations.
“A lot of businesses are getting funded on bogus claims instead of understanding the underlying business model,” one venture capitalist said. “But eventually there will be a lot of pretenders going home.”