Alan Gibson

Alan Gibson

Chewing through the 'net

© 2019

You Can Compete With Free When It's B2B

Retool has announced that it raised $50M from Sequoia only 2 years after launch for what is essentially a front-end builder. While explaining to a non-developer friend how you can build a business selling something that countless web developers can cobble together out of free open source components, I accidentally busted this rhyme:

You can compete with free, when it comes to B2B, because for businesses no-charge isn’t free

Look at it from a business’s point of view. Let’s say they pay a web developer $100 / hour. If it takes that dev 10 hours to piece together a front end from React, Bootstrap, and several tends of thousands of Javascript packages, that app cost them $1000. The fact that they don’t pay for the open source components is irrelevant.

Now imagine they could get the same app with 2 hours of effort using a tool that costs $100 / month. That $100 tool ends up costing them $-700. Paying up starts to sound like a pretty good deal

There are lots of examples of this economic story playing out if you look for them. Any development team can replicate the essential elements of Algolia with Apache Solr or Elasticsearch, but Algolia is going strong. Open source CMS options abound, but Contentful raised an $80M series E recently.

The big caveat here is that this does not apply in the B2C world. Consumers are famously blind to total cost of ownership, both monetary and intangible (like giving up any semblance of privacy for a ‘free’ navigation app). Free really is nigh on impossible to beat when you are targeting consumers. And the false economy of cheap-but-fragile junk is so compelling that finding things that won’t break in a couple of years is an armchair sport.

Next time your trying to think of a business idea, ask yourself this question:

What are businesses dependent on that they aren’t paying for directly but they are paying dearly for in employee hours?

Whatever answer you come up with, it’s a million dollar idea.