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W20: Building a Web 2.0 Bus. Model
 Session: A web 2.0 Company with a Business Model
Speaker: John Witchel, CTO of Prosper (former CTO of eLoan)
This
was an interesting track because John and his business partner, Chris,
had both lived through the successful launch of Web 1.0 company, eLoan.
For a CTO, Chris is amazingly user friendly (he's obviously done this
before). He was well spoken, friendly and had a decent sense of humor.
I was torn between this session and two others ("syndication" and
"giving your corporate website a web 2.0 makeover"). It was a tough
choice but this proved to be a worthwhile use of my time.
Here are the notes:
What is prosper?
Prosper is a website
that allows people to lend and borrow money directly from one another.
Users create eBay-like listings on prosper.com with goal of loan and
the rate the lender is willing to pay. Prosper then pulls users credit
ratings to give users a grade.
Key Stats:
- Launched: February, 2005
- 260K users
- $52M in loans
- 110,000 listings
- 10K loans created
- 286K discussion posts
Note: fewer users on prosper.com default then the national average (prosper is very transparent about this process).
Prosper
has a thriving community. 260K users but also meet face-to-face in NYC,
SF and LA. These users get together with or without prospers blessing.
Prosper also did their own user event called "Prosper Days" (like eBay
live). 300 people showed up.
Someone wrote a book about prosper (they've also garnered tons of press and blog coverage).
Distribution
of lenders is pretty evenly distributed across the curve (this was in
response to a question I asked about the distribution of users).
It
took 6 engineers 4 months to get the site up and running. Chris (CEO)
and John had been working on the project for a year and a half before
taking an "A round" of funding.
Question: How does Prosper make
money? They take their money from the lender in fees (small percentage
of money lender gets paid goes to Prosper). All loans are three years
and are fully amortizing (will be completely paid off after three
years).
Difficulty with Web 2.0 business models.
- You don't own your own inventory (reviews, postings, listings belong to users)
- Customers expect everything will be free
- Charging for service after it's been free is a bad business decision
- Using
an ad revenue model can create some revenue but it's difficult to get
enough users to get relevant ads in front of them (click through rates
then decline)
Some important rules for building a Web 2.0 business:
- Web 2.0 is fun but that doesn't make it a good business model
- Focus on the community/the people, not the implementation -- people will make or break you
- Be honest about your value, what you're providing and the role you intend to play
- Look
for opportunities where people expect to pay a fee and already paying
it someplace else -- it's hard (if not impossible) to change human
behavior
Recommendations on building a team in a Web 2.0 company:
- Don't take out an ad
- Leverage your relationships -- work with people you've worked with before if possible
- Build your team one person at a time (be patient)
At
the end of the day, prosper is about the people. The customers that use
their service appreciate the fact that they know who they are lending
to or borrowing from. This is what differentiates Prosper from the Bank
of America's of the world. Without people, Prosper wouldn't exist (this
is not the case with eLoan or BofA).
Tue, Apr 17 2007
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