How to Turn Your Startup’s Audience into Profit

We're back for another session of Technology Ventures: From Idea to Exit. Today’s focus? Monetization—how to make money once your tech startup has an audience. Over the past several weeks, we’ve covered everything from brainstorming startup ideas and selecting co-founders to raising venture rounds, launching a minimum viable product (MVP), and developing a go-to-market strategy. Now that you’ve built a product and attracted users, the question becomes: How do you turn that audience into revenue?

To dive deeper into this, we had three expert speakers share their insights: Paul English Co-founder of KAYAK and head of Boston Venture Studio, Luis Poggi, entrepreneur and former VP of Product and Engineering at Zillow, and I discussed strategies on pricing, partnerships, and automation. Together, we explored how successful startups can leverage technology, creative business models, and team dynamics to achieve profitability and scalability.

Paul English: Building Teams and Mastering Pricing Strategy

Paul English kicked off the session by walking us through his journey of founding and successfully selling six companies. A key takeaway from Paul’s talk was his emphasis on the importance of the people you surround yourself with: “Your team will either push you to be better or hold you back.”

Paul then dove into KAYAK’s early days and the evolution of its business model. KAYAK started as a free service before transitioning to a paid platform once its value and scale was firmly established, a move that led to high profitability and significant value creation. KAYAK had a clever dual business model -- cost per click (CPC) and cost per acquisition (CPA) depending upon the preference of the airline or online travel agency which was advertising on KAYAK. Paul shared his ongoing approach to pricing experimentation at his venture studio, explaining that sometimes pricing a product too low can undermine consumer perception of value, while setting prices too high can deter adoption. He stressed the importance of testing and iterating on pricing as a way to both refine your market position and better understand consumer behavior.

Monetization Strategies in Search and Travel

I followed Paul by comparing the search algorithms of Booking.com and Expedia Group, two titans of the travel industry and companies I know well. I was fortunate to cofounder Hotwire which we sold to Expedia Group, and then oversaw the hotel product at Expedia. We discussed how a slightly different monetization model between Booking and Expedia resulted in massive value creation for Booking -- over $100 billion of incremental market cap! Booking's genius was allowing hotels to set the margin which Booking received based on different dates of stay rather than having a one size fits all margin for every night. This, and other small changes, allowed Booking to monetize its audience slightly better than Expedia which allowed them to plow extra profit into additional customer acquisition and shareholder value creation.

We then walked through the Google vs Yahoo story which is a similar tale. Both companies were similarly sized in 2004 but 20 years later, Google is worth trillions and Yahoo is not. So what happened? While Yahoo relied on a straight auction model for its search results display, Google incorporated a "quality score" concept which considered the relative click through rates of different search results on the page. As a result, Google provided both a better consumer experience and better monetization per page view. Just as Booking.com did, Google then plowed those extra profits into growth, improving its core search engine but also buying additional search distribution through Android and Safari on iPhone. Of course, Google's success has caused the DoJ to evaluate trying to break it up, which is the ultimate compliment of one's success at monetization!

The lesson: continuous optimization matters. The way you present information to users, especially on e-commerce and search platforms, can determine how successfully your product converts visitors into customers. It’s a reminder for entrepreneurs to always be in test-and-learn mode, as seemingly minor changes can yield significant profit outcomes.

Luis Poggi: AI, Automation, and Customer-Centric Pricing

Luis Poggi rounded out the session with a forward-looking discussion on the role of AI. He envisions a future where individuals and businesses will rely on multiple AI assistants to handle various tasks, creating more efficient workflows and enhancing productivity. With experience at Expedia and Zillow, and deep knowledge of AI and automation, Luis sees enormous potential for AI to transform how we interact with services, particularly in real estate.

Luis also emphasized customer-centric pricing, advocating for a data-driven approach to understanding consumers' Willingness to Pay (WTP). By asking key questions such as “What do you consider an acceptable price?” or “What would be prohibitively expensive?” startups can better gauge their market’s perception of value. This methodology allows companies to align their pricing strategies with what their customers are willing to pay, rather than solely relying on internal costs or competitor benchmarks. Luis emphasized that, especially with B2B products, you should start thinking about monetization in the very early days of product development.

Luis stressed the importance of customer segmentation when developing both product offerings and pricing models. He explained that when starting a company, you can’t create a one-size-fits-all solution. Instead, founders need to identify their target segments and tailor both the product and pricing to meet each group’s specific needs. Beyond what you charge, how you charge is equally critical. The way pricing is structured can significantly influence customer perception and ultimately determine the success or failure of the business. This holistic approach to pricing not only builds value but also strengthens customer relationships by aligning the product's cost with their expectations.

Key Takeaways

1. Test Your Pricing: Don’t be afraid to experiment with pricing until you find the sweet spot where customers see value and you stay profitable.

2. Build Strong Teams: Surround yourself with people who lift you up and push you to be your best.

3. Leverage AI: Automation, especially with AI assistants, has the power to transform industries by boosting efficiency and improving customer experience.

4. Optimize Continuously: Even small tweaks in e-commerce can lead to huge gains—never stop refining.

5. Focus on Partnerships: Building strong partnerships, like Paul did with airlines for KAYAK, can open up major growth opportunities.

Office Hours and What's Ahead

As usual, I did over 10 sessions of individual Office Hours this week and enjoyed them greatly. Many of my students are working on startups and it is exciting to see their progress week over week. Many students are also evaluating different career paths, so it is fun to coach them as they start their professional journeys.

Next week we will learn about network effects, marketplace businesses, and pivots.