Web Applications – The True Price of Free
VinFolio’s recent financial troubles bring up some legitimate concerns for Web Application pricing models. Too often web applications are built without consideration for sustainable revenue or long term impact on the user community. Many companies such as Vinfolio built web applications as lead generation devices. This method is wrong and too often ends badly when the generated leads fail to provide the anticipated revenue.
Like many web applications, VinFolio does not charge customers to sign up and use their cellar management tool, VinCellar. Customers can use this application to keep track of the wines in their wine cellar, receive real time cellar price evaluations, and interact with the VinCellar wine community. Why does VinFolio offer all this functionality free of charge? VinCellar is VinFolio’s lead generation device for wine storage and their wine auction marketplace. VinFolio pays its bills and payroll through commission on wine sales.
Sounds like a win win. VinFolio gets a steady flow of wines to sell and wine collectors get a great application to manage their cellars free of charge.
Not so fast. What happens if wines stop selling? What is the price of free? Now that Vinfolio is circling the financial drain, the future of VinCellar is in jeopardy.
VinCellar clients have invested many hours inputting wines into this system and adding tasting notes.
Vinfolio is not in the business of providing cellar management. The web app was a fancy lead generation front. VinFolio gave the service away in the hopes of profiting from the sale of the user’s wines. The problem is that the commission did not pay the rent.
VinCellar is a case of different primary benefits between the site owners and its users.
Users:
Primary – Keeping track of their wine cellars
Secondary – Interacting with the Wine Collector Community
Convenience – An easy way to sell wine
VinFolio:
Primary – Selling users wines through the marketplace and auctions
Secondary – Storing user’s wines for a fee
Unlike other sites such as Ebay and Amazon where the users and site owner share common primary goals, VinFolio’s goals were not aligned with its users.
At Nimbletoad, we firmly believe that a site’s goals should be aligned with the users of that site. Web Applications should derive their sustainability from the user community. This can come either from subscription revenue as in the case of BaseCamp or Freshbooks, or from advertising such as Facebook and Myspace.
January 28th, 2010 at 8:26 am
You say that Vinfolio is “not in the business of proving cellar management”. If you meant “providing”, then you are incorrect. As a Vinfolio customer, I can assure you that they are in the business of cellar management. They have several collector services for which they do charge, including an onsite inventory service which then extends into VinCellar.
January 28th, 2010 at 10:20 am
Actually, you don’t know what you’re talking about, and given your work on VineCat (let me guess, a subscription model, right?) not exactly unbiased. Vincellar was originally a subscription model too, and would never have generated the revenues required to justify the investment made in its creation and redesign (which my company http://www.hydrantsf.com did) Vinfolio’s business model was always and has always been retail wine sales and wine storage fees, and Vincellar was merely a value add service on top of that.
It’s pretty silly to argue for a subscription model for wine cellar management with the existence of CellarTracker in the marketplace for free.
Vinfolio’s bankruptcy had nothing to do with Vincellar not delivering, and was a function of missteps in how cash was handled in the business. Over the past few years the company’s revenues grew significantly.
January 28th, 2010 at 11:49 pm
Alder, (BTW great work on VinCellar) Yes this post was biased. Yes, Vinecat will be based on a subscription model. I don’t fault VinFolio for being in wine retail. I was for many years. As a business this is great. I just wanted to point out that the value add (mainly because of your company’s kick ass app) became a bigger draw than the retail marketplace in 2009. People got it for free, invested time into it, and now because it is “a value add” and not a reason for existence. Its future might stand in jeopardy.
CellarTracker might be free, but there is a pretty hard push for donations once you sign up. When do donations end and customer buy in and subscriptions begin?
January 28th, 2010 at 11:55 pm
Daniel, sorry for the typo(s). You are correct VinFolio does a fantastic job on “collector services.” They do an awesome job of active management, storage, acquisition, and sales of wine cellars. My point is that VinCellar is not a direct revenue generator. They use it as a lead generation tool for the services you mentioned.
January 29th, 2010 at 12:04 pm
[...] up a few points about the web application, Vincellar, much more succinctly than I could. He wrote, “[Vincellar] would never have generated the revenues required to justify the investment made [...]