Business models, or the lack thereof: A case “study”

A short, necessary introduction: I’m playing World of Warcraft. It’s a MMORPG (Massive Multiplayer Online Role Playing Game) where I run around as a Troll and slay dragons. I rule. To be able to slay monsters with fellow adventurers I pay a monthly fee to Blizzard. To play, I need to log on to a server. These servers have a limited player capacity, and it can happen that there are already too many people logged on, so I can’t play (imagine a gym subscription but the place is all packed up some days).

Now theres a new business: YouPlayorWePay, explained by the founders here.

How it works

You pay a monthly fee. If you can’t play, you get refunded, up to 1.75 times what your monthly payment is. That way you can actually get money back, thus reducing the monthly bill you pay to Blizzard. I’m always open to new ideas, and basically the whole thing sounded interesting. So I had a very optimistic approach when I read the interview. Here’s my conclusion of what this business is about (now would be a good time to read the interview, if you haven’t already):

• help like-minded people (= fellow players)
• a prepaid insurance model with for-profit-approach per user, per month
• a business plan that relies on advertising
• no product to apply any of that advertising to
• a lot of “we plan to”, “we hope for”, “we probably”, “we think of”
• not the smallest idea if what they do is legally correct
• a business based on someone else’s product, without having contacted them
• they cannot really explain what they do for me, not even in a 2-page interview
• no such thing as a business model whatsoever

I’ll quote a small part of an answer out of the interview here. Read it. If someone would walk up to you, wanting you to buy his product, throwing this sentence at you – what would you think?

So primarily we aim to benefit people rather than be a business. So as long as we have the possibility to stay functional, then we’re going to do that and we’re going to try and find ways that we will be able to do that. I think the biggest issue that people have is that you’re saying, we want to compensate you, we want to help you out, but then you’re charging the fee up front. I guess a lot of people don’t understand what the fee is buying them.

Uhm, what the heck?

We want to help people. So we charge them a monthly fee. They don’t get that this is a good thing. We understand, we don’t get it either. But we think it might work. While I’m by no means a business specialist and have never founded a company, let me get some things straight:

If you have a product you want to sell …

• you better believe in it
• you should be able to explain it’s benefit in one straight sentence
• you do not doubt your own product
• you have to aim for “more income than expenses”
• you have to offer a benefit to your costumers that you can justify
• you better not include “advertising income” if you do not publish anything

Money as your product

You can have a business model based on taking money for the chance of getting money back. Insurances do that. Lottery does that. Investment companies do that. Banks do that, kind of. But in my book, there’s no room for a working business model based on incoming monthly fees and higher outgoing monthly refunds. It’s simple mathematics: Not gonna work.

Insurance companies work, because everyone pays, but only some get money back – their benefit is security. Lotteries work, because the sum of ticket income is higher than the outgoing price money – their benefit is a shortcut to unimaginable wealth. Investment companies work, because they make more out of your money, and keep a share of that – their benefit is get more than you gave. Banks work, because they charge for everything you do – their benefit is keeping your money safe and easily accessible.

And you?

How does your business plan work, and what the heck is my benefit?