Angel Investment Journal - Angel Investing and Entrepreneur Blog

For the third time in as many weeks, I have come across an entrepreneur with great software but is struggling to monetize it.

The problem is that a lot of software targeted at consumers is starting to become cheaper and cheaper to the point of where people have access to an amazing amount of great, free software.

These entrepreneurs, along with countless others, only consider 2 main monetization options…

1) Charge the users per month
2) Use a freemium business model

However, many entrepreneurs get so focused on trying to be the next facebook (or insert the name any other site that has a large number of users) they only focus on going after the consumers.

Doing so not only requires the entrepreneur to figure out how to acquire customers, but also determine how to monetize the users.

The good news is that there is an often overlooked option that addresses both of these issues. Entrepreneurs can license software to larger companies. Larger companies will then provide the software to their customers (either for free or for a cost). This does a few things:

1) Comes with its own distribution channel
2) Allows you to make a few big sales as opposed to thousands (tens of thousands or even hundreds of thousands) of smaller ones
3) Will likely require much less start up capital.

A recent deal involved an entrepreneur that licensed his software to a company for $100,000. He is now looking for angel investments to raise money so he can take try to sell the software to consumers. My recommendation…. try to sell more $100,000 deals. Then, if you would like, you can take that capital and develop your direct to consumer offering.

The WSJ had an article today about personal finance tools.
Taking our monetization method of licensing the software, one of these financial software providers could license their technology to a bank or financial services firm who could provide it for free to their customers.

The bank or firm would then be providing a great tool and adding serious value to their services. Also, many print publications are trying to figure out how to adjust to the online business model. Maybe a publication like Smart Money could license the technology and provide all subscribers with a really valuable tool for being a member.

This is by no means a new idea, it just happens to be one that gets overlooked far too often by developers seeking 9 figure valuations.