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I once answered a question that asked how Stack Overflow makes money, but that was before the time of VC.

Now, Stack Overflow has cash, and they have an ever-growing list of employees, but where's the business model?

The Experts-Exchange team took the time to answer its own Q&A about its site (since it wasn't included in the roundup by Fortune magazine), and just about the only dig in there that halfway has merit is the business model dig:

We switched to a premium model to keep out of the Venture Capital business (been there, done that, got the t-shirt). Companies like StackExchange couldn't do it without the VC cookie jar. Where's the model? Huh, Spolsky? (I’m sorry. Did that slip out?)

It hurt, but I can't help but wonder if they're on to something. How would Stack Overflow Internet Services pay back the VCs? Ad revenue alone? There is only one 'paid' product, Stack Overflow careers, but it doesn't seem like that could sustain a business as large as Stack Overflow (Joel once mentioned on his blog that his jobs board brought in an extra million a year in revenue).

So what does Stack Overflow do when the VC cash runs out? Is this a get-big-and-take-the-company-public maneuver? Is that the only viable business model for Stack Exchange?

Edit: With the size of Stack Overflow's team, it isn't a stretch to say that payroll is at least $2 million a year, probably as much as 4 when you think about benefits (average 120K for a developer in New York City; x2 for benefits/taxes/all-that-other-good-stuff). Office space can't be cheap, so how long does $6 million last before you need another VC infusion?

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YEAH! What am I doing with this fly-by-night no-business-model-having need-a-third-thing-with-hyphens company anyway?! –  Jason Punyon Feb 15 '11 at 21:23
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For the record, you don't have to "pay back VCs." They have invested in the company in exchange for partial ownership. –  Joel Spolsky Feb 15 '11 at 23:55
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@Joel excellent point. I don't know much about Venture Capital; just that I figured they wouldn't be doing it unless they got their money back somehow. –  George Stocker Feb 16 '11 at 1:59
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You tell that guy from EE that @Jason –  Ivo Flipse Feb 16 '11 at 10:43
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Most Q&A sites (StackExchange included) let the community vote for the best answer, when really the person whose opinion matters most is the one who asked the question. that man is not in the business of answering questions himself much, is he?... Anyway, the number of Stack Exchange references in that article makes me think they are doing something right. First they ignore you, then they laugh at you... –  Pëkka Feb 16 '11 at 13:59
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then they send clowns! AAAAA NOT THE CLOWNS!!!! –  Joel Spolsky Feb 16 '11 at 21:16
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Great question, just posted it up on Hacker News. news.ycombinator.com/item?id=2228621 –  Evolve Feb 16 '11 at 22:32
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Isn't that semantics? Not to be obtuse, Joel, but what is the difference between 'pay back' and 'return on investment'? –  Marcus Shockley Feb 17 '11 at 1:10
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@Marcus you borrow money from me to buy a new car. You paid me back. We have nothing to do with each other. If I were to have partial ownership... –  SyaZ Feb 17 '11 at 3:56
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@Syax Marcus nailed it. An equity investor always expects much higher payback than a debt provider , so while SO may not have to pay back the VC in a strict debt sense, the VC guys are certainly looking to get back much more than they tipped in. –  brettdj Jan 1 '12 at 10:26
    
£75k for a developer in New York?! Let me guess, trading companies (you don't get to go home) –  Chris S Feb 24 '12 at 21:29
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Just for the record, although I see many numbers about PPC and advertising as a form of revenue, I USUALLY DON'T click on these ads. I just get my question answered and move on... Perhaps it's just me :) –  itsols Jun 16 '12 at 11:51
    
How much running costs in $? –  user205243 Dec 28 '12 at 19:43
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Jeff Atwood keeps using a time machine and taking money out of his wallet (after that, he'll again use the time machine to bring more money) –  Ramchandra Apte Oct 26 '13 at 12:01
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@JoelSpolsky - would be very interesting to see any updates from 2011/12 data. Thanks –  DVK Feb 2 at 18:07

7 Answers 7

up vote 94 down vote accepted

Three ways:

  1. Job listings (e.g. the traditional classified ad model)
    http://careers.stackoverflow.com/employer/about-listings

  2. CV Search (e.g. the new-fangled and IMO vastly superior dating model)
    http://careers.stackoverflow.com/employer/about-search

  3. Traditional, but respectful (e.g. no animation or flash or pop-anything) display advertising on SO, SF, and to a lesser extent SU. http://stackexchange.com/about/contact

It's not difficult to do the math here yourself and estimate how much we are making. Also, remember half the team is remote, and does not live in NYC.

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Not to mention that three of the SE2.0 sites are already generating more than 10k visits/day each. Eventually several of those sites should be quite profitable in their own right. –  C. Ross Feb 16 '11 at 13:07
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@C. Ross I don't remember the source, but I seem to recall someone saying that there wouldn't be advertising on the SE sites. –  George Stocker Feb 16 '11 at 13:19
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@George Jeff has said not now, probably not soon, but sometime. What would be the point otherwise? –  C. Ross Feb 16 '11 at 13:23
    
@c. Ross: Thanks for the link! –  George Stocker Feb 16 '11 at 13:35
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10k * $6 CPM (very high but that's what HuffPo claims). is only $60 a day. That's $1800 per month per site in raw revenue. This isn't adding in job listings, but that's not even enough to support one programmer. –  Marcus Shockley Feb 17 '11 at 0:03
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@Marcus: You don't need a dedicated programmer for each additional site - the marginal cost of running an additional site is extremely low. If the "big three" pull in enough to run all the servers and pay the staff, any revenue from the SE2.0 sites is straight-up profits. –  Anon. Feb 17 '11 at 0:44
    
@Marcus you should add that to your answer. –  George Stocker Feb 17 '11 at 1:09
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@Marcus, you're conflating impressions (M) with visitors. The average pageviews per visit might be 10 or even 25+. And a unique visitor might return more than once per day, maybe 1.5 times. So the 10,000 visitors per day could easily be 375,000 pageviews per day. At your $6 CPM, that would be $67,500 in monthly advertising revenue per site. (However, the CPMs are likely closer to $1. $6 CPMs are only for homepage traffic. Still, that's $10k/mo/site.) –  Portman Feb 17 '11 at 6:17
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I pay a lot of attention to ads on Stack because they are really relevant to the things I'm interested in. If you're looking to target a developer of X, Y, or Z this is an ideal place to go. Further your conversion rate will be a lot higher. I bed the ads here do pretty well. –  Alex C Feb 17 '11 at 14:48
    
@Portman that is valid but it could also be 10,000 page views. According to QuantCast, the average page view per user of SO is about 3. That means 10,000 visits = 30k views, or $180 a day. SO is getting 3.3 million PV a month, which is significant, but only about $20k per month in revenue. That's not VC level return. These are not hard numbers, even the $6 per CPM claimed by HuffPo has been questioned by critics. I'm just using it as a recent example. –  Marcus Shockley Feb 17 '11 at 15:55
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@marcus are you unfamiliar with stackexchange.com/sites ? Look at the visits/day column –  Jeff Atwood Feb 17 '11 at 23:00
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@Marcus: Forgetting house ads for a moment, You're missing a factor of 3 because we show 3 ads per page to the vast majority of our users. –  Jason Punyon Feb 18 '11 at 0:11
    
Maybe I'm being blind or silly, but I can't see ads on SO, SF or SU. I suppose they've been removed since 2011. But then that leads me to wonder what SE's main source of income is now. –  Leo King Jun 15 at 14:48

Joel's right -- you don't have to pay back Venture Capitalists. You can go broke leaving them holding the bag and walk away from it to get another job at some other company, like the idiots EE's VCs hired back in the last century. Or go back to blogging and speaking at seminars.

Nobody at EE ever ignored SO, let alone laughed at it. In fact, before SO got started, Jeff was asked why he was such a hater, and his responses showed how little he knew about EE, but EE gives him credit (although they know Joel does all the heavy lifting and Jeff is the mouthpiece) for actually getting off his duff and building something he thinks is better. But there's a difference between getting a whole bunch of people to sign up and play and having a business plan that's based on something more than stealing underpants.

Joel IS ducking the question -- not because he doesn't know the answer, but because he DOES know the answer. He knows that wht Marcus posted about his revenue stream, and knows the implications for his website.

People who think geeks buy things should talk to anyone who runs a casino during CES. Geeks show up in Las Vegas with two things: a crumpled shirt and a crumpled $20 bill... and they leave with both. They don't buy things from ads, and don't spend any money they don't have to -- and the people who place advertising know that. Sooner or later, the advertising has to pay off -- or an advertiser isn't going to buy. Besides... SO gives ads away. That tells you exactly what SO thinks advertising on its site is worth.

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Et tu, Brutus? ♪ –  Grace Note Feb 17 '11 at 20:48
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For full context: A Case of Mistaken Identity –  Diago Feb 17 '11 at 21:03
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+1 for geeks being cheap. Fortunately stackexchange is targeting a much larger market. –  Adam Davis Feb 17 '11 at 21:05
    
I think SOIS would have been fine without VC money, but you either go big, or go home, and they are betting the farm on the idea that this system will work, and will profit them sufficiently to keep it running. One of the best parts about their decision, though, was to use CC-WIKI. Thanks for taking the time to respond, btw. –  Adam Davis Feb 17 '11 at 21:13
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Geeks are cheap? Maybe, but they need expensive tools. There's plenty of money being spent in IT.... I would be interested to hear what you think is the answer to the question? –  Pëkka Feb 19 '11 at 12:13
    
@user157455, if the "geeks" aren't buying anything then they are the product, thats what the whole jobs model is. –  user146401 Aug 11 at 18:49

There are currently two products that SOIS, Inc. sells:

Having hired an ad ops campaign manager, I'd presume that SOIS, Inc., being one of the #200 sites in the world, can command quite high advertising rates. I'm sure that as other SE sites grow, advertising slots will also open up on those.

In addition, I think that at this point, SOIS, Inc. is still in the early stage and is probably still examining various other revenue models. For example, I think that SE Chat, if needed for revenue purposes, could be licensed. And I'm sure they have more ideas up their sleeve that could build on the wide user base they're currently establishing.

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"being one of the #200 sites in the world" and addressed to people who buy damn expensive stuff! (and even on the internetz sometimes) –  Trufa Feb 15 '11 at 22:12
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If SO can make a respectable amount from advertising, and then you spin off a whole bunch of clones with slightly different demographics which will attract their own advertisers, then suddenly you have a gold mine. –  slugster Feb 16 '11 at 8:14
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@slugster Two years after your comment, does it feel even more true than when you said it? –  corsiKa Mar 13 '13 at 14:51

Listen, The Hyphen Site just drew attention to themselves and got a tiny bit more relevant for a while. The fact is, their business model is basically trying to get people to pay for an answer that MAY be there. It may work as long as they are listed on Google, etc., but it doesn't scale (to people who are smarter than that) and it is probably not going to last: if Google and other search engines decided to exclude The Hyphen Site, their revenues would drop like a stone.

Let them do their thing. Stack Overflow makes money in the following ways for now.

1) Ads for the relevant audience, which can fetch a premium for being targeted by keyword. The psychology is, Stack Overflow is helping you, so you are more inclined to click the ads -- especially if they fit with the message of helping you (by giving you the developers some tools). So I expect Stack Overflow ads to convert better than your average site.

2) Jobs site. Stack Overflow should really beef this up and make it more of a cash cow, in my humble opinion. Look at Craigslist: they generate the majority of their revenue from charging for a few sections, most notably job posting. I would suggest letting each user put up a resume for example, and charging a monthly fee for recruiters and other companies browsing this site to see the resumes, and purchase credits to contact the actual users with job offers. Just a thought.

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2) is pretty much already done isn't it? (careers.stackoverflow.com) –  Benjol Feb 17 '11 at 5:40

Why not sell a private, hosted version to individual companies?

I can imagine the organization that I work for benefitting from SO functionality with data secured and visible only to its employees.

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Most people have answered:

  1. ads (which show you stuff to buy)
  2. careers

I would add:

(3) lead generation: for each stack, there are companies that want you to become their customers, and will pay Stack Exchange every time they drive a new customer to their site. For example, GitHub, MSDN, and Red Hat may not necessarily want to show you ads to get you to buy stuff, but they would like Stack Exchange to get you to come to their site and sign up so they can later market to you.

(4) brand awareness. quick... which company sponsored Watson versus Human in Jeopardy this week? If you can answer this question, you now understand brand awareness.

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Right off of the bat, I'd suggest selling the user data to brokers, plus paid job listings and advertising. Add in PPC ads and it's the Facebook model.

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selling user data? Scandalous. –  George Stocker Feb 15 '11 at 21:29
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Maybe so, but at the going rate of $3 a pop per record, that would be my first guess. –  Marcus Shockley Feb 15 '11 at 21:54
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Yes, and they should add all manner of tracking cookies. Maybe also use exploits to give us free rootkits! That's another $3 per user/machine, at least. :) –  Awesome Poodles Feb 16 '11 at 6:22
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$3 per user lol... sure, show me that site. If it does exist they are going to want a lot more information on me than my name/dob and if I know HTML. –  Tom Feb 16 '11 at 11:50
    
This is the "quantity over quality" model... and frankly, I think Facebook has it about wrapped up. Think, "matchmaker". –  Shog9 Feb 16 '11 at 13:29
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$3 per user to data brokers is the going rate for name, salary, age and browsing habits. But I'm not saying that's what SO is doing. I'm saying that's where a lot of big sites expect their VC return. –  Marcus Shockley Feb 17 '11 at 0:05
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"Selling Data" can mean different things. For example Twitter sells access to their full update stream to Google+Bing for millions. –  Mike Buckbee Feb 17 '11 at 1:23

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