ChatRoulette - Fail Fast, Scale Fast

Post date: Oct 24, 2011 9:54:26 AM

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There wasn't too many Internet start-ups in the years following the 2000 dot com bust. However, ten years later the story is very different and it has nothing to do with venture capitalists re-entering the market rather lightweight, scalable business models that have been made possible through cheaper hardware, free open source code, free marketing and distribution and powerful programming languages reducing the need for large development teams (Graham, 2008).

Competitiveness in the global online market relies on developers delivering products before their competitors and when they arrive they need to be cheap. Speed is of the essence as Van Grove (2010) puts it "the company with its name in lights is the company that most often will prevail". She was speaking about a recent start up ChatRoulette which is a service where users have video conversations with random users around the world. ChatRoulette is a great example of a business which experienced growth at a viral level a scaled appropriately.

How a company receives revenue is directly related to how much the consumer pays for the product. Using the example of ChatRoulette the service is provided for free and revenue is generated through advertising. Costs a kept low because the bandwidth of the video is not ran through the server (CamChat, 2010). ChatRoulette's founder is quoted saying he turns a profit through such advertisement. Watson(2010) has suggested it is important for such companies to diversify possible revenue streams because the advertising market cannot alone be relied on.

Viral marketing is a cost effective method of promoting a new product and it doesn't happen by accident. Web pages such as YouTube make it easy for users to share their content with their friends using buttons such as email or share this article. Considering our example of ChatRoulette Andrey Ternovskiy (founder) used internet forums to publicize his new service (Bidder, 2010). Word of mouth caused his service to go viral and move from 500 users per day to 1.5 million. To cater for the sudden growth in demand Ternovskiy relied on outsourcing.

Businesses can access server storage and bandwidth as a service meaning they only pay for what they use (see one services pricing below).Chatroulette used a similar cloud service which enabled them to quickly scale with demand when the service went viral. Ternovskiy also outsources development. He is currently employing four programmers from around the world who are working on improving the service. Outsourcing provides companies such as Chatroulette cost effective flexibility and allows them to focus on their core activities (Bucki, 2010).

By utilizing re-usable code, viral marketing, multiple revenue sources and outsourcing hardware services can experience fast growth and make quick returns on relatively (to traditional models) small investments (O'Reilly, 2005). Chatroulette took 17 year old Ternovskiy 2 days and 2 nights to create and is now worth an estimated 10 million euros (Bidder, 2010). He focused on the core functionality, released quickly and without the need for venture capitalist . This new business model is known as lightweight and scalable and is profitable (Zawodny, 2004).