TLDR: If making B2C software product, make it free, monetize layer-2 type users, and don't think about profit 💀
B2C software products are near-impossible to monetize. Anyone who has built a B2C software product and is reading this is nodding their head in agreement. In my experience with Deep Meditate, I've come to realise that there are a few reasons for this:
- 99% of users expected the app to be free
- Of the 1% who remain:
- Most expect the cost to be sub $100
- Cost of acquiring users has been growing annually like clock-work
No matter the quality of the end product, there will always be users who complain if a software app isn't free. "Aren't websites / apps supposed to be free? At the most I will pay $1 but only if it's really really good."
For context: I learned all this after monetizing Deep Meditate 1 year after it had gone viral. The app was getting around 2000 free downloads per day thanks to word of mouth and it's main USP was that it was free. This all changed after I started monetizing the app. Even $5/month for power users was a turn-off. In a matter of a few months I saw downloads shrink from 2000 to 500 to 100 per day. I needed to run paid ads and try to get inorganic downloads. In the end, it was a painful and marginally-profitable decision. Not only did I have to annoy 99 of a 100 new users, the ones that remained became my only source of revenue and I spent way too much time optimizing the paywall and writing ads instead of serving my users. Deep Meditate continues to be a fantastic app to learn meditation and generates a 1-2 hundred dollars a day in profit. However this came to be only after I spent an obscene (and unit unprofitable) amount on ads.
My learnings from this have been that to build a wonderful B2C software product that is profitable and loved by users, one needs to have the freedom to pursue growth without the pressure of monetization from day one.
B2C is not like B2B. A B2C software product needs to be able to work with the following constraints:
- The product should be free for the end user
- Have a plan to eventually monetize the super-users once the audience size reaches a certain large size
- If monetized, 99% of the product should still be free. Only charge the entities who are saying "shut up and take my money" for whatever value your product has created for them. This could be super-fans (0.1% of the userbase) or external entities that would benefit from your project.
- The product should be designed to grow fast and have a $0 cost of acquisition.
- Think incentivized referral programs, not paid ads.
For this reason, I don't think paid ads work for B2C products. We've all heard stories about how someone scaled their FB ads budget to $100k/month and is making a killing. But in my experience these don't work either. I think it's snake-oil, but maybe I'm just not part of the right circles.
I believe more apps would succeed at serving their users if they skipped monetizing their B2C products the way B2B products are monetized.
Making a product free means accepting the fact that you won't be paid for your effort. This is why I would not recommend creating a B2C product for first-time founders. If you don't have the financial padding to support yourself and your plans, you won't survive the harsh winter that is $0 top line revenue. A B2C founder needs to be in growth mode, not survival mode. If you're budgeting and saving cash while your userbase grows but your business makes no money, your business won't last. I have personally experienced this with Deep Meditate.
How to monetize B2C software products
Instead of charging the user, think who can get value from this project you've built. Or, is there something this audience wants that I can provide. Don't monetize the bulk of your audience. Focus on either super fans or users who can benefit from the audience you've attracted. In the former case, you will need high volume because prices will be low and conversion will be low as well. Think Telegram, Discord Nitro, Duolingo. In the latter case, you need a high value for your audience. Think Google, Facebook, reCAPTCHA.
Examples of successful B2C monetizations
Google monetizes by charging businesses to show up to consumers. Same with Facebook.
Duolingo monetizes by charging only the super users of the app. In fact, Duolingo hadn't turned on the monetization until very late in it's life. The initial years were $0 top line, which says something about what one should expect when doing a B2C: expect to not make any money initially, focus on growing the audience, but have a plan for how you can monetize the audience later. Most importantly, have financial padding as a founder. Don't build a B2C startup if you're not able to stomach $0 in revenue for a few years.
reCAPTCHA monetized by changing their captcha from random images, to images of books. This way they could crowdsource the digitization of text for free. Eventually the best monetization for reCAPTCHA would be a purchase by Google since they would benefit extremely from this analog to digital data conversion for enriching their AI dataset. All the while the end user gets a service for $0.
All in all I think $0 is essential for software B2C products. It is contrary to a business to not focus on revenues or profit, but in the case of B2C, this is the only strategy that seems to work. Consumers hate paying for stuff but the market is so big that if one can figure out how to acquire users for very cheap (or free) and not charge directly then one can build something amazing.
