Yahoo Groups Business Model Discussion

May 20, 2003

My Background:

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Cynthia Typaldos w Typaldos Consulting

Software Marketing w Web Collaboration w Social Software

Founder & President, Software Product Marketing eGroup

Interview on About.com Entrepreneur section | Biography | Blog

Founder, RealCommunities 1998 w Co-Founder GolfWeb 1995

ct@typaldos.com w 408 867-8875 (office) w408 828-1370 (cell)

IM: buffypumpkinelsa w Saratoga, CA 95070

typaldos.com w Instructor: UC Berkeley Extension
Web Communities "The way to gain a good reputation is to endeavor to be what you desire to appear,” Socrates

Participation in YG:

· Moderator and founder many groups, one with over 4,000 members that has been featured in the New York Times www.softwareproductmarketing.com

· Member in over 70 groups, about 50 active.

· Use approximately 40 groups to manage current organization

· Groups are all primarily business-related.

Proposal for a Yahoo Group Payment System:

The days of VC and capital market money propping up unprofitable services are over. If people want services on the Internet, they have to pay for them, or the services disappear. While paying for services is not a popular view, it is certainly one that is being grudgingly accepted. Of course, the devil is in the details – as with any product or service, the value must be there, and the price must be right. (Note: I designed, managed, led the entire team to build and launch the GolfWeb Players Club in 1997, a fee-based membership service. Ask for details if interested.)

I believe there will be tremendous resistance to paying for just information – "Information wants to be free" – but what people will pay for is the manipulation of information into something useful for them. However, there is less resistance to paying for services.

In 1994 I did a half-day consulting assignment for Ehud Shapiro, founder and president of Ubique, an early "virtual places" interactive tool (later bought by AOL: http://www.cs.columbia.edu/~hgs/internet/online.html, and after that Shapiro spun it out again as a separate company after AOL bought ICQ). Shapiro's question to me was whether or not Ubique should charge members for the service, or offer it for free. My recommendation was to charge, even a very small amount, because once you establish a price of $0 you will never get anyone to pay. Well, I was wrong in a short term sense because Shapiro went on to sell Ubique to AOL for $14M (a large sum at the time), and the whole Internet went down the path of giving services away for free. But, I was right in a long-term sense in that this is just not sustainable. We can blame the VCs for buying into short-term business models where they made a LOT of money but didn't create viable companies. My point though is that people will pay for services they value; these last 6 years of free services was just an aberration.

Corporate services require better stability, customer support and administrative costs. This market requires a whole different level of support and most likely licensing of the software rather than the service model. While I have done extensive thinking on this subject, it will not be addressed here.

Payment Guidelines*:

*There is a rationale behind each of these that I can either explain on the phone or in a future meeting.

• Don’t nickel and dime.
• All features of the service are available to all groups. Don’t price based on features.
• Price based on value; what the market will pay for.
• YG founders are the creators of value…they should not be charged and in fact should be able to actually make money.
• There are two key pure types of groups:
• Member-based (typically individuals, non-commercial)
• Organization-based (all types of organizations including small businesses, not-for profits, corporations)

The pricing scheme must seamlessly accommodate both.

• Porno Groups are not addressed in this pricing proposal.
• Ease of Use by members and group founders and moderators is absolutely critical.
• The scheme also must be relatively easy to implement technically, however I cannot take this into account rigorously as I do not know the underlying software architecture of YG.
• The exact price is not specified in this proposal, only the structure of the pricing model. Exact pricing is extremely important and careful research must be done to set it appropriately.
• Customer service must improve dramatically. In fact, there does not seem to be any customer service at all right now. This belief that YG does not support the service must be dispelled.

Pricing Model:

Overall Description

· YG members can buy “membership tokens” in packets of 10, 25, 100 and so on (exact number of packages and tokens/packet and prices TBD).

• Tokens are like concurrent user licensing – they are only “used up” when a member has actually used a token to join a group. When the member leaves a group, the token is freed and goes back into the member’s personal token pool.
• Tokens expire each year on the anniversary of their purchase and must be renewed.
• Payment with CC or PayPal.
• Group founders set the number of tokens required for a member to join a group. The number can be set at zero, in which case the group founder uses a separate payment mechanism (call it “group-fee”; it’s based on number of members).
• Group founders can discriminate between who has to pay the token(s) and who does not.
• Groups that bring in > $X/year in overall fees to Yahoo (the corporation) pay the group owner a fee for developing and managing the YG.

Benefits

• Takes away the direct psychological connection between a member paying to belong to a particular community and puts the onus of payment required on the group founder, not on Yahoo the corporation.
• Delivers cash to those that make money for Yahoo, thus encouraging group founders to use Yahoo rather than another service. Shows that Yahoo values their dedication and energy. Note that the system cannot be spoofed…group founders can puff up membership by creating fake members but they either end up paying through tokens, or the group-fee mechanism.
• Allows groups to form where members are not required to pay (the group owner pays using the group-fee mechanism) – these groups could be of various types:
• Those where a membership fee has already been paid and being in the YG is a part of the overall package,
• Corporate groups, where corporations, especially consumer corporations, want to encourage members to participate without any barriers (of course, moderators can always determine who gets to join, who is kicked out, and who is banned, as they do now).
• Mixed-use groups where some members must pay a token to belong, and others are “honorary”.
• YG run by not-for-profits could either go the group-fee route, or the token route. Supplying the IRS with the tax write-off for YG membership would be solely between the member, the not-for-profit organization, and the IRS, not Yahoo.

Miscellaneous:

• Yahoo Groups needs to prove they can provide support before charging for groups. Support should be put into place a few months before the new pricing takes effect, and it must meet user expectations of what “paid” support delivers.
• The underlying software for token pricing could be an off-the-shelf software package for concurrent user licensing. This could save Yahoo time, money, support of specialized code, and better yet, these packages have been around for years, are robust and stable.