What are the practical steps for monetizing a web service?

49 points by AgathaTheWitch 11 years ago | 27 comments

I've been working on a library for a while and I've come up with a way to monetize it by making a web frontend for it. With a bit of marketing I think it could make some money (not a lot, maybe ~$10,000 a year given my sense of the rather niche market) I want to know what are the practical steps you take with this sort of business.

Do I have to form a company? Should I be patenting and trademarking logos and stuff? If I just make a website and start taking payments, what are the tax and legal implications? My library is Apache v2 licensed but I imagine the frontend / service would be proprietary. I heard I should consider switching the library to MIT.

I am planning to move abroad in a few months so I don't really want to start a company in the United States. I've just never created a paid service before so I'm really naive about how to go about it. If anyone has experience here or a good link, I'd appreciate it.

greywood 11 years ago |

You're worrying about all the wrong things.

Chances are that this idea will go absolutely nowhere (as most ideas do), and as you're new to this you're prone to vastly overestimating the probability of success and estimated returns.

My advice is to relax, and focus on learning what you're doing instead of focusing on "monetizing a web service".

If you want immediate practical direction, set yourself up with a Stripe merchant account (and whatever is necessary for that), and start selling. If you can't get past this, everything else is a waste of time.

AgathaTheWitch 11 years ago | |

Thanks for the advice. I think I'm going to hold off on actually making a service and consider doing something like Kickstarter. I want to see if I can get some funds to put together a better product and get a sense of the market / interest level.

Are there any protective steps I should take before doing that? I mean stuff like licenses / patents / trademarks / company formation etc.

deweller 11 years ago | | |

If you can find the time, I highly recommend reading this:

http://theleanstartup.com/book

This book changed my perspective on these things significantly for the better.

jt2190 11 years ago | | |

One reason you incorporate or patent or trademark is to protect your capital (money) from taxes and lawsuits. If I understand you correctly, you currently have very little capital to protect. Once you've accumulated enough capital that it'd be painful to loose it, it's time to start thinking of protecting it with patents, trademarks, incorporation, etc. For now, just have fun.

ascendantlogic 11 years ago | | |

Even before a kickstarter, you could set up a landing page detailing the features of a future product using the library and offer a beta signup. Nice way to gauge interest before even involving other people's money.

deweller 11 years ago | |

Yes. This.

idlewords 11 years ago |

Wait until you earn $2000, and then talk to an accountant, who will explain the tax stuff. Forget about patents and trademarks. Good luck!

pseudometa 11 years ago | |

Agreed. Be sure in the meantime to set asside 30% of any money you take in and keep it for when taxes are due. Once you register as a business, you'll get various tax advantages, but for starting out while you test an idea, keep it simple.

kaoD 11 years ago | |

Wait.

Are you telling me that, wherever you're based (I assume the US) you can just wait until you earn $2000 and then start worrying about taxes?

bprieto 11 years ago | | |

Mostly. In most countries that I know of, either there is a limit under which you don't have to pay taxes or don't have to register a business. Perhaps your country taxes that kind of income as personal income.

And in the worst case you only risk a small fine, as the amount is small.

Much more probable is that you don't sell anything or have only a small amount of sales that no one cares about, so first check that you have a business and not a dream.

chiph 11 years ago | | |

No, until that point you're not sure if you have a business service that people are willing to pay for.

And that dollar amount - you'd just pay ordinary income on it -- because it's not worth the hassle of setting up a business structure. So set aside some money from your sales to pay the taxman.

chatmasta 11 years ago |

The advice in this thread to "wait to form a company" is just flat out wrong. Form an LLC immediately. Use it to open a bank account, and use that to open a credit card. Use those accounts for every single thing you spend money on relating to this business.

Even if the project goes nowhere, you can use this account for other side projects you want to make money.

Accepting any money from anybody to your personal account is just stupid, and will make for a huge nightmare when you want to transition to being a huge business or paying taxes.

dmarlow 11 years ago |

You should wait on the company/patents/trademark stuff. Heck, you can even wait on making a web frontend for it. Something I've learned is to get a good idea from the community about who is actually interested in the idea/service. Create a landing page to collect signups and register in the countless sites to get interest. Then, you'll know whether or not to build it.

PaulHoule 11 years ago |

It is not at all hard to set up a payment system with something like Amazon Payments, Stripe, Square, PayPal, Balanced Payments and such and charge people for access to an API.

Do that and worry about the rest once you have enough money.

Silhouette 11 years ago |

Sorry, but the advice in this thread to just get going without even learning about little things like taxes and record-keeping and incorporation is crazy.

Sure, on average a start-up will fail. However, if either it does work out or it fails because you screwed up and someone came after you, and you didn't get a few basics in place up-front, then you are up the creek without a paddle and may not be able to salvage the situation after the fact.

It will probably take no more than a quick chat with an accountant to figure out the minimum you need to do to comply with your local tax laws and whether it's worth setting up some sort of company at this stage. The total spend required to do that in my country, including both the accountant's advice and the legal fees to register a new company and get the proper documents created, is less than a day's salary. This does vary significantly by country, but again a local expert can advise you because they do this all the time.

Likewise, if you're potentially bringing in thousands of bucks per year, spending a couple of hundred to get a real lawyer to look over your terms and answer any general questions about licensing things you really need to know right now is probably money well spent.

None of this is to say that you won't decide to just set up a site and start charging anyway, assuming you can find a payment service available in your location that will let you take payments as a private individual of course. Maybe that really is the right path for you at this stage (though at least if you were in the same position in my country, IMHO that would be unlikely).

But seriously, any accountant and lawyer used to working with small businesses will understand the situation you're in and be able to give you some basic advice about what you really do and don't need to worry about right now, and it will cost you a few hours and a day or two of salary, and even if things don't work out this time you'll still have the useful background knowledge if you decide to do anything else commercial later.

You should concentrate on making what you make and marketing it so you have a business that is worth having in the first place, but part of running a business professionally is knowing how to deal with the administration and keep the overheads in proportion, and it's much easier to do that if you just get something basic but sufficient set up from the start.

digitalboss 11 years ago |

Also, you can try http://quickmvp.com to gauge interest, etc.

lukebennett 11 years ago | |

Not seen that before, looks useful, thanks for the heads up - however, no info on pricing anywhere so not something I'd consider using myself as things stand. Who signs up to services without knowing in advance what commitment is going to be required to continue using it? I really don't understand businesses that operate like that.

AgathaTheWitch 11 years ago |

Thanks a lot for the advice everyone, I feel a little less overwhelmed now.

oafitupa 11 years ago |

Just use Bitcoin. If you don't know how to, then just use BitPay, which today has announced a free forever plan, so it's a no-brainer.

psykovsky 11 years ago | |

Man, people are really butthurt with bitcoin around here. You gave him the best answer of all and all you got was downvotes and a sympathy comment from me... ;)

uptown 11 years ago | | |

From a practical standpoint (which is literally what he asked for), using a bitcoin as the sole method of payment is likely to artificially limit your potential customer-base. Bitcoin isn't widespread enough where most consumers can be expected to utilize them for payment. You may create a phenomenal web service, only to see it fail because people can't figure out how to pay for its use.

* Don't hire anyone * Don't lease an office * Don't buy goods on credit. Buy high quality goods when you can't afford to have a problem with them. * Have an "as is" end-user license agreement. Be very cautious about making service quality guarantees. Don't sell software that can cause damage or personal injury.

> Incorporation? Incorporate when you have a good > reason to. (I still don’t, but I might do it after I > go full-time, largely for purposes of dealing with > Immigration.) If you’re selling B2C software, your > number one defense against getting sued is promptly > refunding any customer who complains, and that pretty > decisively moots the LLC’s (oft-exaggerated) ability to > limit your personal liability. You’ll be personally > liable for debts from the business, but since the > business is fundable out of your personal petty cash > that isn’t the worst thing in the world. If sales > collapsed tomorrow I’d be on the hook for my credit > card bill, which runs about $1,200 a month — not a > financial catastrophe for an employed professional, > particularly when the business generates far more > than that in profits well in advance of the bill > being due. Sole proprietorship — i.e. merely > declaring “I have a business” — is the most common > form of business organization, by far. )