Yola is known as a “Software-as-a-Service” business – which basically means that it’s software inside a web browser. This is a fast growing space and we’re constantly looking to innovate and pioneer an industry. We quietly released the first phase of a large part of our long term business model earlier this week, with the launch of our Premium Styles store. The really tricky part of building a SaaS business is that essentially what you’re offering is a software product that people can access from their web browser – no shipping or cd’s or installations. It’s available on demand. Combined with the traditional SaaS model, we also added another aspect to that – our product is largely free for the majority of our audience (also known as Freemium).
Virtual goods are essentially digital items – which I’m sure everyone is familiar with, like the “gifts” on Facebook or buying “weapons” on World of Warcraft. We’re extending this idea to the website building world – and now looking at styles as a virtual good that can be created and sold. The demand for people trying to create a website has risen massively in the past few year and it’s trend that is not slowing down.
For those who may not know, Yola.com is a free platform, focused on enabling SME’s to create their own websites and establish a presence for themselves on the Internet. Our goal is to become the largest destination for enabling small and medium enterprises worldwide to participate and transact on the web. In pursuit of this goal, we decided from the very beginning that we wanted to create a business where the basic services are all free (website hosting, free site building software, free bandwidth, and no advertisements) and we charge our customers for add-ons and other value added services (domain names, premium styles, subscription packages for extra features – coming next month).
The way we think about our business is that the basics of having a website is really commoditized these days (there are a million hosting companies out there, for example). What differentiates us from them? Well, for starters – hosting is absolutely free – why charge for something that doesn’t really cost us much – and I’m not going to delve into the virtues of the free model here, I’ll leave that to Chris Anderson, author of Free!
Where we feel that we can absolutely differentiate our services is by allowing users to customize their websites and instill a sense of individuality and uniqueness. The cost of creating great looking themes and styles for a website built on any CMS (Content Management System) platform often costs hundreds, if not thousands of dollars. Traditional companies that provide CMS, blogging or website building tools have a limited selection – for good reason, the costs are prohibitive – and therefore this is an area with a problem looking for a solution. One of the challenges faced is that there is a point of saturation – some companies with a million users only have 50 styles/themes for their users (20,000 users/style). Everyone’s website starts to look the same – and that’s a big problem. So, how do you then scale the business profitably when you have 10m or 20m users? You cannot possibly building all those styles for free and Yola now has nearly 2.5m users and we’re growing so quickly, that we simply cannot afford to keep creating free styles for our users.
Our virtual goods business model is to launch a premium styles store – filled with expensive designs – but instead of paying hundreds of dollars – users can spend as little as $29.95 (once off) to get access to a better looking style for their website. Right now we have about 18 premium styles and will be adding many, many more in the months to come.
We think that this is a very innovative way of creating a sustainable revenue model for a SaaS business. Jeremy Liew from Lightspeed Ventures wrote a good post for the Wall Street Journal on Virtual Goods recently, and Susan Wu from Charles River Ventures also contributed a good post in Techcrunch, calling Virtual Goods – “The next big business model“. We agree.