If you are a developer who’s interested in starting a new business or even just earning extra cash on the side, you have a few options that can lead to scalable profits and passive income. The most popular choices these days are SaaS (Software as a Service) and iPhone/iPad development.

Choosing web application or iPhone OS development is a matter of personal taste, skills, goals, technical requirements, and so on. If we are looking at things solely from an economical perspective though, it’s interesting to consider for a moment which of the two is most likely to be profitable all things being equal.

In my opinion, despite the horror stories, it is far easier to make money with iPhone/iPad development than with charging for a service provided by a web application. The reason for this is very simple. Users don’t expect to pay for websites. They occasionally do for the useful ones, but it’s a relatively new approach and people are still adjusting to it.

Due to the hosted nature of SaaS offerings, they often require a monthly or yearly subscription as well, which is harder to sell than a single one time purchase. $9.99 here, $19.99 there, all adds up very quickly to an uncomfortable monthly bill.

iPhone and iPad applications on the other hand have a major advantage. Apple created an incredible ecosystem where millions of users are ready to pay for tiny applications that solve one small problem or are amusing enough to install. Low prices without the need for a subscription encourage impulse buyers to purchase applications without giving it a second thought.

You’ve probably been on the web for many years now, yet how many web applications do you pay for? However if you have an iPod Touch, an iPhone, or an iPad, how many applications have you bought? I own an iPod Touch and rarely use it, yet even I’ve paid for some applications.

It’s a matter of expectations and Apple did a marvelous job in that respect. When you buy an iPhone, you are almost expected to get cool apps for it. That, along with web access, is the whole point of having an advanced smart phone device. There are no such expectations for web applications.

Take a look at this list of applications and their sales. Most of them could be easily ported to the web, yet their limited scope and functionality wouldn’t even justify calling the resulting sites web applications. Few people would pay for them, even if one were to price them at $0.99. (And I’m not talking about apps for which being on a phone is the key feature). Conversely, porting a free Flash game from the web to the iPhone, for example, would almost certainly lead to sales.

Android is an option too, but I feel that Google has done a much poorer job at setting expectations. Furthermore their marketplace is a lackluster version of the App Store, users from several countries are unable to purchase applications or have to jump through hoops to do so, and developers from countries such as Canada, cannot publish and sell their apps on the Android Market.

The question is, will Google do a better job with the Chrome Web Store that was announced yesterday at Google I/O? If so, it may become a good extra channel through which to sell web applications; an App Store for the web if you will. The distinction between web apps and offline mobile apps may even fade away at some point. That would be a great thing for developers. For the time being however, it is my opinion that developing for the iPhone OS is a safer bet in terms of achieving profitability.

These days, highly popular search engines are worth billions of dollars, mainly thanks to the massive advertisement businesses that can be built on top of them. The incentive to get a slice of that huge pie is clearly there. But can we do better than Google? And will such innovation necessarily arrive from the research labs of giants like Apple or Microsoft?

The answer to the first question is obviously yes. There is always room for improvement. The latter question may appear equally obvious as well, but let’s take the tale of two different search engines into consideration.

One of them was started by xooglers (ex-Google employees) with plenty of experience in the field of search engines; it had a team dedicated to its development and could afford to have a VP of communications. They received plenty of funding ($33M) to get the ball rolling, and garnered a fair bit of press coverage when they first launched.

A very different search engine, however, was started by just one person. It was bootstrapped (no external investors), came wrapped in a silly name, and virtually no one paid attention to its launch.

The first is Cuil (pronounced ‘cool’), which as many know, has become something of a running joke online. It’s the perfect example of how not to create a startup and of everything that could possibly go wrong with an ambitious software project.

From day one the results were so incomplete and irrelevant, that one has to wonder if the $33M they received was spent on developing the technology needed to clone Samuel Becket and place him in charge as the chief architect of the project. The absurdity of Cuil’s search results even led to the development of a highly entertaining Cuil Theory.

A few days ago the Cuil team launched an automated Wikipedia of sort, called cpedia. The end results were so terrible, that they will serve as an eternal cautionary tale against the indiscriminate use of Markov chains.

Unless Cuil/Cpedia is a practical joke aimed at the tech community, they may as well shut them both down. At this point they really are just wasting their time (and ours).

The second search engine, the one with a rather wacky name, was created by a single person (Gabriel Weinberg) and is called Duck Duck Go (a play on the name of that old childhood favorite, ‘Duck, duck, goose’). However, much to the surprise of many, there is real innovation going on here (particularly presentation wise).

Duck Duck Go’s zero click information is very useful – as is dividing the results by topic (for example, the word “ruby” can have different meanings in different contexts). Presenting all the search results on a single page (via AJAX) was a smart and handy feature as well. With this search engine your privacy is respected, particularly since your IP is not even logged.

This site is still as niche as it gets, but it’s reaching a tipping point amongst the ultra-geeks — not to mention that more and more people (myself included) are adding Duck Duck Go as their default search engine within their browsers. Is it better than Google? No, not always. It depends on the type of query. Sometimes it’s better, sometimes it’s worse, but it’s usually quite usable and is a concrete attempt to innovate the search engine realm.

Duck Duck Go serves as a poignant reminder to the software world that David can still strike Goliath.

BlogBabel, the aforementioned site/web app, is a blog indexing and aggregation service that began in 2006. Amongst its features are the ability to detect and show the most popular blog discussions, weekly posts, books, videos, and even popular blog entries based on their location (through geotagging). It also features leaderboards of the most popular blogs.

Its codebase uses Python and Django, and consists of 27,359 physical lines of code (roughly equivalent to 6.46 person-years, according to sloccount). The R&D alone makes this application worthwhile to an interested party.

At this stage, BlogBabel has an Italian interface (located at it.blogbabel.com) and aggregates almost 15,000 Italian blogs and 5 million posts. Changing the interface to make it an international project that’s available in several languages, or switching to English (solely), would not be challenging in the least (they used to run a Spanish version as well, for example, but decided to discontinue it so as to focus on the Italian one).

BlogBabel has been featured in the mainstream Italian media and has had a noticeable influence on the Italian blogosphere. One could argue that it has been the yellow pages of the Italian blogosphere. Because of this, Ludovico Magnocavallo (the site’s creator) received substantial offers to buy BlogBabel in the past, but he turned them down because he wanted to continue building this site. Now however, due to personal circumstances and lack of time/resources, he’s willing to sell this application for what may amount to far less than its true value. And here’s the real bargain, the starting price, without a reserve, is 4,999 Euros. This is of course, a ridiculously low price for the value being offered. But Ludovico believes in letting the market decide.

If I had the funds lying around, I would buy it myself and gear it towards the English speaking world (in conjunction with the pre-existing Italian version). It’s a prepackaged, virtually ready-made startup with a great deal of potential both in its current state and in terms of what it could grow to become.

To recap, the auction includes:

• The domain name blogbabel.com (it.blogbabel.com has a pagerank of 6);
• The full codebase (almost 30,000 lines of code);
• A database containing 3 years worth of data relating to the Italian blogosphere (more than 30 GB, lots of data-mining opportunities);
• 4 hours of work to help you with setting up the site on your own servers.

BlogBabel has been running smoothly for three years, and is currently under-marketed. Optimizing ads, affiliates, and similar sources of revenue wouldn’t be hard at all, especially if one were to aim this site at the English speaking world.

Also, Ludovico has already implemented most of the code that’s necessary to allow users to have accounts (through OpenID), but since these “social features” are not fully implemented yet, they have not been deployed in production. A buyer could decide to disregard them or finish implementing them and roll out a technorati-like service. The winner of this auction could decide to implement support for Twitter, comments on social networks, sentiment analysis, etc, on their own. The possibilities are really limitless when you start with a solid engine and crawler, and already have a great deal of data at your fingertips.

I know Ludovico and he’s a stand-up guy. If you are interested in this great deal, you can bid here. If you have technical questions about this auction, please feel free to contact him directly through eBay.

UPDATE (September 8, 2009): Ludovico received an undisclosed offer for the site and a few years of maintenance work, so the auction for the site alone was suspended.

Recently however I’ve been reflecting on the ad-based alternatives that I’ve tended to dislike in the past, as a sentence in John Gruber’s recent article really stroke a cord with me:

Undeniably, there is money to be made in digital publishing with free reader access, but whether that revenue leads to profits depends upon the scale and scope of the organization. The potential revenue does not appear to be of the magnitude that will support the massive operations of existing news organizations. What works in today’s web landscape are lean and mean organizations with little or no management bureaucracy — operations where nearly every employee is working on producing actual content.

He is right. Ad-based models are generally not going to make huge amounts of money and therefore be able to satisfy your grandiose dreams of wealth. You’ll have to keep your team “lean and mean”, and cut down on expenses as much as you can. This is true for any business, but there is little margin for spending extravaganzas in this particular arena.

So long as you are not kidding yourself into believing that you’ll make it big, free sites that sustain themselves through sponsors, ads, and reputable affiliate programs like Amazon, are still an option that’s worth keeping on the table. And this business model doesn’t have to be exclusive, it could easily be mixed with others, like some bloggers/writers do when they promote an e-book they’re selling to their audience.

Last year, without trying to become a new media “conglomerate”, I saw several sites of mine generate a bit of revenue on the side. I ran these sites entirely as a hobby. Yet, come tax time, I figured that last year I made $4000+ from these sites, which happen to be three or four relatively unknown blogs, that get updated sporadically whenever I have the time.

These are small, somewhat uncultivated online “properties” that are fairly under-optimized. I know I’m leaving money on the table. What would happen if I were to have a more business-minded approach in terms of managing them? For example, I could optimize them for SEO/SEM, strategically position and A/B test ads, actively pursue new sponsors, post on a regular basis every other day, invite external writers or pay for some highly sought types of articles, and so on.

My guess is that I wouldn’t get rich even if I took these steps, but I could generate a fair amount of extra income every month. I’ll confess that this idea is tempting me, not just for the extra money, but also for the hidden benefit of having several distinct audiences that I could reach. Not to mention, the thrill of watching those online “properties” of mine, and any new ones that come along, slowly grow and become more useful to my readers. Pulling this off would require hard work in my limited spare time, but it could be done.

DHH recommends building a “small Italian restaurant on the web”. And I agree, but I’m starting to believe that building a “small publishing company” of one’s own on the web is a valid alternative.

In fact, over the past few days I have been contacted by several people who were curious about ThinkCode, some of whom asked me to send them an email when we release English content. Meanwhile, we found our second native English speaker (who’s a very solid programmer) who agreed to work with us to narrate and create original English videos.

It’s clear that things are moving fast and we realized that the presence of two distinct product lines, one in English and one in Italian, generally appeals to two different audiences. As such having a single (Italian) newsletter just won’t cut it. So today, we are pleased to announce our English newsletter, which I invite you to join if you want to stay in the loop. We haven’t decided yet if we are going the “private beta” route or not, but joining today will guarantee you early access if we do.

This way, English speakers can join our English newsletter (where only English content will be announced or discussed), and Italians on the other hand can continue to join our Italian newsletter (in which both Italian and English content will be announced in Italian; this to account for the fact that some Italians may be interested in purchasing products that are available in English only).

We’re really excited by positive responses we’ve already received and are really looking forward to providing you with amazing educational material. If you are interested in becoming an author, are a company who would like to strike up a partnership with us so that we can adapt and sell your videos in Italian, or simply would like to get in touch, please drop us a line at info@thinkcode.tv.

1. I’d like to start by tracing your background. What did you do prior to Zooppa?

Programming, programming, programming. I started out working for Neato Europe as their “one-man-band programmer”, building their e-commerce site and taking care of their infrastructure (nothing more than a bunch of servers). In those days my love of FreeBSD, PostgreSQL and dynamic languages started to grow exponentially. As the only employee I had to find a way to produce quantity and quality at the same time, and the technologies above were a perfect fit for the job.

After leaving Neato I did consulting work for a few years, for customers like Monte dei Paschi di Siena and Italian Telecom. Albeit those are big names, it was with the smaller scale customers that I enjoyed working the most. I won’t mention them by name though as they don’t impress people as much as big banks. I used to work primarily with Python, while developing a growing interest in Ruby, which blossomed when Ruby on Rails was released.

In the meantime I was helping Marco Ceresa writing the first book in Italian about Ruby (thus cheating on Python officially for the first time) and working part-time for Assembla on their Hotchalk project.

2. What led to the creation of Zooppa and how did you become its CTO?

Zooppa came from an idea that Davide Lombardi, an Italian journalist, had to found a company with the help of Riccardo Donadon and his firm, H-Farm, an early stage startup incubator. I joined Zooppa almost by accident, having answered a job posting thinking that it was some kind of consulting position for RoR from a forward-thinking employer. I soon found myself talking with Riccardo and Peter Caiazzi (of Netscape fame) at a wonderful countryside farm, full of fellow geeks. I was immediately sold.

I was first hired as a consultant and a few months later become the CTO. I guess the reason is that I’m a good programmer. You should ask Riccardo.

3. Can you explain to our readers who may not familiar with it, what Zooppa is? (Think an elevator pitch.)

Zooppa is a web application for designers and other creative types. It’s based on a new approach to online advertising and on a value proposition that goes beyond the simple “click” formula. We give our users a brand that is looking for a commercial, they create ads through a competition (videos, print ads, radio commercials, banners or simply concepts), and these ads are voted on by the site’s community. Eventually the ad makers win money (I think we’ve awarded $400,000 to date) based on the popular vote and the choice of the customer who commissioned the project.

In my opinion it’s a wonderful way for people to show what they’re able to accomplish for companies like Google, Nike, TomTom and many others. And based on the number of people from our community who have been hired by these companies, it is clear that the companies agree as well.

4. What kind of funding did the company receive?

No funding other than that of H-Farm. I strongly believe that you need to have a product before you ask for funding. I’m absolutely against the “promise-based” economy we all know. We’re going to be looking for our first round of substantial funding very soon, as we’re now able to show our polished product and our large community (something we couldn’t do one year ago). We have been able to give Zooppa its own character and goals, and we proved that it worked. Now we are able to make promises that we can stand behind.

5. How are things going? At this stage have you been able to be profitable, and can you disclose a few statistics about Zooppa? How many employees, users, pageviews and so on?

No, we haven’t been profitable, but we’re getting very close. We are somewhat akin to a combination of YouTube, Flickr and Facebook (in the sense that we serve videos, images and have a timeline), and we had huge startup costs, so it was basically impossible to be profitable initially, which we knew from the get-go.

We have 40,000 users more or less, 12,000 print ads, 2,000 videos and so on. It’s quite impressive when you consider that these videos are the result of a creative process and not, say, simply the recording of your cat a la YouTube. In terms of employees, we’ve got about 20 people.

6. It seems to me that the idea is innovative, the videos are fun, and there is a solid business model behind it. Why do you think the company has received little attention outside of Europe, especially by specialized blogs that cover all kinds of startups? Can you tell us about your struggle to get exposure?

Oh well, you’re opening a can of worms with that question… We made a huge mistake at the beginning: we focused on our own market without “attacking” the US one. Other than that, we didn’t receive any coverage outside of Italy, even if I did all I could to reach out to the biggest blogs that cover startups. It seems to me that you only get coverage if you are burning VC money or in some way are doing something that’s fashionable at the moment (such as with Twitter right now).

I’ve even seen one of our clones getting more coverage than us, which is kind of ridiculous as that competitor implemented the idea horribly in my opinion. I would say that the originality of the idea doesn’t really matter to such bloggers, just the funding and related issues (not to mention the various possible conflicts of interest…). Honestly this is very hard to swallow.

7. How did choosing Ruby on Rails impact the project?

We are incredibly productive. We normally code a prototype and write specs before putting it online. This is awesome, I can turn ideas into code in no time, test and refactor them later if I realize that performances are not as I would like them to be.

I strongly believe we wouldn’t survive without Rails. I still remember the presentation I gave to RailsToItaly, I just had done a complete redesign and rewrite of the site in 38 days. My presentation’s title was “Productivity with RubyOnRails or how I stopped worrying and learned to love Zooppa”. I think this title speaks for itself.

On a side note, I would also like to say that as an old school web developer and early “Railer” (you can find my posts whining about DB serials stretching as far back as 2004 with answers from DHH himself ). I think we have the best provider ever. I work with EngineYard and their service is terrific. I have no idea how they can offer the sort of support they do and still keep prices so reasonable. Never in 10 years on the web have I experienced the type of service I get from EngineYard. They are one of our most precious assets.

8. As CTO for the company, what are your main duties?

I code like crazy, as I already mentioned, and I take care of our architecture and its evolution. I’m in charge of other developers (http://twitter.com/oscardelben/, http://twitter.com/michelegera and http://twitter.com/smash) and provide them with specs to implement. And I whine about everything. Whining is the defining skill of every CTO, trust me.

9. Where is Zooppa heading and what plans do you have to bring it to the next level?

I want to integrate Zooppa with the major video and image platforms. And with Twitter of course. I would also like to experiment with Sinatra for a Facebook application. As well I’m coding my own blog/static site solution with Sinatra and Metal (I really dislike WordPress). And I do so in my free time, which means BSD license all the way. I also plan to use CouchDB for our timeline.

We have a lot of stuff going, and we’re going to hire more employees, so feel free to send your CV to nwieland@zooppa.com, and be sure to include Erlang and Haskell if you are brave (I received complaints about my choice of technology, because it’s hard to find Ruby developers around here. If I start requiring Erlang and Haskell skills I will definitely establish a record number of complaints here in H-Farm). It’s going to be a lot of fun, really.

I really want to thank Nicholas for his time, and I invite my readers to stay tuned for more interviews. An Italian translation of this interview is available on Stacktrace.it.