I thought we were over this in the late 1990s. But today the Wall Street Journal reports:
Technology companies that bleed red ink are once again lining up to go public — and once again finding plenty of takers. A number of unprofitable tech companies have launched initial public offerings in U.S. capital markets since the beginning of 2006, and more than half the tech companies now in the IPO pipeline are in the red.
Note please that by the time Google went public, they had already been profitable for three years. Indeed, since the bubble burst, we have seen a lot of entrepreneurs start their companies on the cheap without taking VC money — and ask their users to pay for their service.
There are a lot of successful companies out there such as 37 Signals that launched their products without massive amounts of investor money. 37 Signals has free and paid versions of their very useful web applications (most popular are Basecamp, Highrise and Backpack). Their philosophy is simple is better (see their Signal vs. Noise blog, which I recommend highly). Although many of these startups eventually accepted money from outside investors to grow their businesses, the founders are still leery of the “grow big at any cost” 1990s mentality.
Free is not a business model
Om Malik wrote an excellent post entitled Free: a Tactic, Not a Business Model where he explains that if you give away your services for free, someone else, e.g. advertisers, should pay you.
In the area of municipal wireless broadband networks, companies such as EarthLink and MetroFi, are experimenting with giving away free wireless access, supported by advertising. And it’s not working.
UPDATE: MetroFi has gone out of business and EarthLink exited the municipal wireless business.