I was having a discussion over the Friend Feed Social-Media room if people thought there were any parallels to the Dot-Com (Bomb) days with Social Web companies. Some great points were made that there is a much larger audience now versus then and one comment that software platforms are more accommodating and the barrier to market is a lot less. Both excellent points and the last one dovetailed into one of my other questions stuck in my head, “Why would anyone develop on the Google Application Engine knowing that they could change pricing within 90 days?” Why? Low cost entry and instant scalability.
Now developing on GAE does not mean success for a business. Let us suppose the favorite application architecture discussion going these days: Twitter. Twitter has had quite a few outages in the last month. Clearly as a result of hockey-stick growth they are enjoying. So the argument and test applications on GAE have been developed, why don’t they just use GAE? Well there is one problem: Money. Twitter is a great application with no revenue stream. So if they developed on GAE and they hit the hockey stick, how are they going to pay for all the bandwidth, CPU and disk? The infrastructure is no longer a fixed cost but a variable one if you want to scale that number of users. I assume Google will place some sort of limitations on billing and application usage. But the problem all comes down to money. Let’s assume Google does limit resources your application can consume. If you app is Twitter, then do you turn off the application when those limits are reached for the month? Surely that will not work for the business, however you can not spend more then your cash reserves allow you to spend!
Once again money becomes the single problem to crack. More importantly, cash flow. If the business model does not a have a revenue model built into the business plan, your dead already. If the business model is spend money and be popular and sell, you best go play poker in Vegas. The business has to have a revenue model that works. If you develop on GAE, the barrier to entry is small but you have to have a scalable revenue model such that you know the cost of each user addition. So when your business does hit the hockey curve, you can increase the resources available without worries of running out of cash.
Writing a business plan is key to the success of the business, the underlying idea for the business does not ensure success. In that regard, there are a lot of social web companies that look very similar to the dot-com days with VC money pouring in and very little revenue coming out. Revenue must be around the corner according to this article on Information Week
