Are you getting funded or are you making a profit?

Posted: January 18, 2011 in Uncategorized
Tags: , ,

The company will also announce that it has raised $800,000 in venture capital, the first step in moving along the path from building an app to running a profitable business.

The New York Times on Pulse growing and making the app free

I’m happy for the Pulse team. Pulse is great. But this quote, for which the blame lies more on this article’s author, is (probably unintentionally) ridiculous. Unfortunately, the media loves zeros and gets carried away by any announcement that involves a big figure.

Hundreds (if not thousands) of iPhone and iPad apps are made by profitable businesses that didn’t raise any venture capital. In fact, making the app free is going to remove its biggest revenue stream, which is likely to be generating at least $25,000 per month.

I’m sure the Pulse team put a lot of thought into this and have a good chance of making money later in other ways, as the article mentions. But in the short term, this move is likely to make them quite unprofitable. That’s why businesses raise venture capital: to cover their costs when they’re unprofitable so they can grow into something that’s hopefully larger and very profitable later.

It’s ridiculous, incorrect, and insulting to those who have chosen the traditional business model — charge money, spend less than you make — for this author to suggest that giving away your product for free and paying your expenses with VC money is the “first step” to make your app development “a profitable business”.

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