“Whats your Revenue Model?”. It sounds like such an informed question to ask an entrepreneur. I have been asked this question not only by the people who really matter, but even by people who are far from gathering even 5% of the courage required to start up. Its a glamorous question to ask, and its so much fun to show contempt when one doesn’t get a convincing answer, or when one hears that “advertisements” are going to be the revenue generator.

That brings me to think: How relevant is this question for an early stage start-up venturing into Consumer Internet. I have the following reasons to think it is not a very relevant question:

1. In consumer internet, the user never pays. If we look at start-ups outside India, in their initial days, they concentrate on creating value by getting a large number of users, engaging them deeply, and making a lot of them return to their service. They hardly ever concentrate on monetizing very early, and that, probably is behind the success of many start-ups.

2. When the user does not pay, but is engaged by the service provided by the start-up, then it makes Advertisements not only the only, but also the most lucrative way to earn money. Various innovative ways of Advertising and Promoting on web apps have evolved, and if one looks at the top 30 internet startups in the world today, a very large number of them are banking on Ad revenues as their primary revenue stream.

3. In my opinion, the raison-de-etre (The Reason to BE) for a consumer internet start-up is to create value by deeply engaging a very very large number of users. This is probably the only value that a consumer internet start-up can create today. Very few of them really succeed in doing this, probably just 1-2%. For those who are confident of doing this, it is a good thing to bank on a buyout by an established company which really knows how to monetize this huge user base.

This, I think, is the rationale that consumer internet start-ups abroad have followed.

Would love to know what you guys think about this. Whether it is, and is going to be any different in India? Why, and How?

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