Having coffee at 4am after an all-nighter with my co-founder and wife a few days ago we came up with a rather obvious but interesting concept. I’ll call it The Sleep Test.Unless your business earns revenue while you are sleeping, it won’t scale.If you’…

1. A service that attracts huge numbers of an attractive demographic that can earn you ad revenue or
2. A service that is so valuable to a group of people that they will pay you for it, preferably on a recurring basis

Your web app business must also:

1. Not require additional staff time per customer
2. Not require additional staff time per dollar earned
3. Market itself. If it’s marketing is limited by your time, you wont’ scale.
4. Earn you substantially more money than your business costs to run.

This type of “Web App” just seems idealistic but the value add must be sooooo compelling, and I question the sustainability, especially with the thought that it will surely attract competitors and well established players

An example is FourSquare, simple location based blogging that’s currently one of the hottest startups, next to Twitter, but as more hype revolves around this company, the competitors get even more fierce – Gowalla is expanding internationally, and Yelp just released a check in system. With Gowalla silently scaling and raising more money than FourSquare, and with Yelp, with an already established user base and brand, releasing the checkin feature, copying FourSquare, may blow them out of the water.

Then comes the monetization because if the service does make money while you sleep, new competitors will swoop in with less margin and take your customers, which is why in internet startups, it’s best to earn enough money to breakeven – hence facebook decreased their ad inventory to prevent clutter, even though its less revenue, but to look less spammy, and why twitter has yet to turn a profit, because it will deter their customers.

Monetization is very difficult business and with web apps, the barriers to entry are so low that a new service that takes your idea and adds incremental improvement may have a serious impact on your business (xanga -> myspace -> facebook)

Since the internet is still so new and with the development of new platforms (smartphones, iPad, iphone, facebook, twitter), new business can be created on top of new technology because of all the new capabilities these machines have, and hence can provide new services that currently doesn’t exist. this creates room for the next facebook, amazon, microsoft of the new decade

Ultimately, I think if your web app does pass the sleep test and is sustainable (i.e. you have a competitive advantage that can’t be imitated), you will either be acquired or scaling globally to become an internet juggernaut, alongside facebook and google