3/6/2015
Global / Digital Start-Ups
Social media giant Twitter dominates the global market with almost 300 million monthly active users. Yet it took almost eight years to turn its first profit. Find out how Digital start-ups often have to forgo monetisation in its nascent stages in order to build a strong user base, an essential prerequisite for success.
How long should a new digital company take to turn a profit? Most do not face the massive upfront costs that burden traditional enterprises, such as manufacturing or logistics. So, it is tempting to expect any digital start-up worth its salt to start churning out profits instantly. After all, who hasn’t heard tales of geeky college dropouts becoming overnight tycoons after writing breakthrough software codes or devising killer apps in their suburban bedrooms and garages?
But look beyond the hype, and you will see most digital start-ups fail. Often it is because the sector’s low-cost entry barriers act as a double-edged sword. Almost anyone with a “good” idea can get into the game, and optimistic would-be digital entrepreneurs launch new enterprises all the time. But while it is easy to launch, it can often be easier to crash and burn. And, with so many players out there, the competition for clicks and cash can be fierce.
Those who succeed are those who can beat out their rivals by building huge subscriber or user bases on their proprietary platforms. The need for this type of scale is very high and often cuts across national boundaries. The more users or subscribers that a digital company amasses, the more chance it has of fending off potential rivals. For this reason, the pursuit of monetisation, at least in the early stages, is often sacrificed in the chase for bigger audience share.
Take for example the social media giant, Twitter. It dominates the global market with almost 300 million monthly active users. Yet it took almost eight years to turn its first profit. Monetisation can also be fleeting when fashions and habits change, or when a “copycat” rival takes your great idea and makes it even better. Audiences can be fickle, shunning a once favourite platform and clicking on competing providers.
As a new digital company navigates across all these challenges it must balance growth and revenue over time. True, the digital world is fast-paced. But, as in most investment environments, profitability needs perseverance and a strong business model.
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