StackOverflow

I am a bit odd. I will rarely if ever answer a question on StackOverflow (SO). If I do its because I didn’t have any other easy way of answering the question. This is entirely by design.

StackOverflow is not a new business model. I was involved at one point with a company with a similar business model. Experts-Exchange.com. Did you know it has the dash because it is also ExpertSexchange.com? I have heard rumours that originally the domain name was that :)

At Experts-Exchange, users are awarded points for answering questions asked by other users or writing articles the general community values as resourceful. This results in a competition for obtaining more points to achieve various experts’ certifications.

Sound familiar? It started in 1996. It went defunct and was basically built up from community around 2000-2001. It was a community site at that point, and it grew rapidly as such. Everything was free and community driven. I won’t go through all the history here, you can read about it here. At one point you were actually paid to answer questions! EE screwed up really bad. Many of us saw it coming a long ways off. Legacy code, alienated community …

I was very active on EE back then. I acquired 2,782,577 points. Yes thats right and at 500/question (with bonuses the max you could get was 2000/question but you rarely got that). I probably answered 3000-5000 questions and most questions were multiple posts trying to help people out. They don’t have them any more but I would not be surprised if I had 10,000 posts. Let’s do some quick math assuming 5 minutes per post thats 50,000 minutes of my time. Or roughly a half year full time weeks of work. I think the time is actually higher than that though.

The idea of the business model is to pay people in imaginary currency and sell what they do for real currency. Best is if you can make your imaginary currency seem like it has some value.

What’s really great is that the Intellectual Property that you pay people imaginary currency for has value not just to the person they are helping but as a searchable help database over time. For the one person that was directly helped often another 100 will get their answer from the answer originally given.

There are some issues with the business model. First I need to get experts (few) to start answering the questions of the askers (many) and I need to build up a reasonably sized database of previous answers. This is not a small task. SO is using the same model that EE used, Community. They are making it “community driven”. This gets people involved. There are no costs for answers everyone is relatively happy. This builds the critical mass.

Generally speaking the growth would follow a pretty stereotypical S-Curve.

Scurve

This is where things start to get fun. In order to move up the S-Curve you have to keep capitalizations to a minimum. It may start with something small let’s say some ads (you know to help support all our infrastructure). Or we are building off this side business (job ads). Nothing too big, if we do too much it will slow the growth thats what needs to be avoided.

The whole point here is to make as much money as possible. If the goal were to build up community you wouldn’t need to set them up as a centralized broker of the information, it would be distributed. But this is a truly community centric viewpoint and there isn’t a good business model here.

As you get to the top of the S-Curve when growth starts slowing this is when you start to apply the pressure. You can be more aggressive at this point as well because your community itself has huge value just because creating a new one would be such a massive undertaking. EE did this. Milked the cash cow. The biggest most controversial change was when they put up the answer block and moved to subscription based models.

Joel: 2010 was an absolutely amazing year here at Stack Overflow. We grew from 7 million visitors to over 16 million, putting us in Quantcast’s top 400. We raised $6 million in venture capital, and we went from three full time employees to 27. We built a 7500 square foot office in New York, and we launched a ton of new features and sites, like Stack Exchange, a network of 33 Q&A sites on diverse topics from cooking to computer science. Stack Exchange grew 51% in December alone. Wow.

Would a VC give SO millions without looking at capitalization strategies down the line? I think not. The only thing they have of value is your brain and the intellectual property you assign them rights to use. They are not innocent nor do they give a flying @#$! about the community. They only care about keeping the community happy enough that they keep giving them intellectual property for imaginary currency so they can sell it for real currency.

Monopoly

btw: You might ask why I give intellectual property rights to CodeBetter then since they technically do the same thing :) They donate funds to charities. They have setup a scholarship for university for female CS students amongst other things.

8 Comments

  1. Posted March 2, 2012 at 11:49 am | Permalink | Reply

    One thing to note is that all user generated content on the stackoverflow sites are under Creative Commons Licence and downloadable.

    http://blog.stackoverflow.com/category/cc-wiki-dump/
    http://blog.stackoverflow.com/2009/06/stack-overflow-creative-commons-data-dump/

    So if they would move to a subscription model it would probably only take days for someone to put up a free rival site with the exact same content.

    • Posted March 2, 2012 at 11:50 am | Permalink | Reply

      That just means you need to come up with a different milking strategy.

      • Posted March 2, 2012 at 12:06 pm | Permalink

        True, but I think that the fact that the data is freely available for use severely limits their options for milking strategies. Any milking strategy that hurt or affect the usability and ease of access of the site could potentially result in them losing all their customers.

        Maybe they will first try to implement some lock-in features (to make potential rival sites with the same data less valuable), and limit the licence & availability of the data. But anything is possible, but just because there is VC involved does not mean they control the company. Facebook managed to take in enormous VC without Zuckerberg losing control.

        But I agree that there is a potential & risk that the stackoverflow company will betray the community. But in this case I doubt it is likely.

      • Posted March 2, 2012 at 12:07 pm | Permalink

        But does it mean any ‘milking strategy’ is going to be so much harmful? (as making your data available ONLY to payed customers) If it’s going to be ads or payed communities hosting for private usage, is it guaranteed to be not milky enough for them to stay alive? I’m not convinced that they have to be evil to continue operation at least at some point.

        If you can contribute and get reasonable amount of answers for your own questions in return, it seems OK. Probably investing serious amount of time into Q&A community needs another type of motivation :)

  2. Posted March 2, 2012 at 1:00 pm | Permalink | Reply

    @Torkel,

    Like Greg summed up in the last paragraph, VC’s are usually not investing for karma. Eventually they’re going to want a ROI. Facebook generates money, and there’s a business model, that’s why Mark continues with control.

    • Posted March 2, 2012 at 1:02 pm | Permalink | Reply

      and VCs generally want > 30% return / year. Thats minimum. Generally they want 10+/1. Thats quite a valuation being forecasted then isn’t it.

  3. Posted March 2, 2012 at 4:34 pm | Permalink | Reply

    Your reason for supporting CodeBetter does not make it stand out from Stack Overflow; Stack Overflow has and continues to donate to charities (http://blog.stackoverflow.com/2011/12/stack-exchange-gives-back-2011/, http://blog.stackoverflow.com/2010/12/stack-overflow-gives-back-2010/,http://blog.stackoverflow.com/2009/12/stack-overflow-gives-back/).

    In addition, the business model may not involve monetizing the Stack Overflow (or Exchange) content but instead, the community that surrounds at (as is the case with StackOverflow Careers).

    • Posted March 2, 2012 at 5:07 pm | Permalink | Reply

      last I checked brendan is donating *all* of the income.

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