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The trouble with CS finances

No, is not in financial trouble… Yet.

On June 19th, I published a analysis of the CS finances (sheet) , predicting that CS (technically it’s actually just Casey) would be able to hire 3 to 5 extra “employees” by the end of this year. It happened a lot quicker than I thought however (Jim Stone and Mattthew Brauer got hired as well as a thus far unannounced and unnamed developer). This is the part where I say “See! i was right!” and continue speculating.

Let’s have a look at where this money comes from. As far as we know, there is only one source of income for Couchsurfing: donations. This is logical, since there are no banner ads, no paid subscriptions or anything and Couchsurfing has been unable to register as a 501(c)3 organisation in the US so far, which excludes the organisation (actually, just Casey and his friends, since there is no officially elected board) from US government money.

But! Surely people that (mostly) like to travel cheaply cannot afford to collectively donate over 150.000 $ a year (projected for 2007)?!? You’re right. They aren’t donating, they are “getting verified” at 25$ per person (or less if you can prove you live in a poor area of the world). Verification is essentially proving to CS that you are who you say you are and nothing talks like money. If it was just verification they were offering, money wouldn’t need to be involved. I’ve heard of CS meetings where you could bring a passport and 25$ to get verified by an admin. Why would you need to pay if you could just show your passport and be done with it? Because, of course, this verification/donation scam is the main revenue stream for CS. Yes, a scam. If CS was genuinly interested in getting people verified for “security reasons”, a showing of passports would be more than enough. However, I have thus far never met anybody who was able to get verified without paying cold hard cash. The administrative cost of sending you a “verification code” is also negligable, a 2$ “donation” would be much closer to the actual need since all the physical posting is done by volunteers anyway.

In and of itself, this verification/donation scam is mostly harmless, even if the “sliding scale verification” is pretty cynical if you really think about it. (We’re asking people to pay as much as they can affor, so they can “prove” their identities and get the same benefits as those who can afford it, how’s that for intercultural understanding.) I mean, even I fell for it and payed to get verified. Then why is it such a problem?

The trouble is that verification money scales directly with new subscriptions to CS. This in turn means that CS can only continue to afford paying people like Jim Stone if people keep registering (and verifying) at the current rate. This definitely explains why there is so much “verification spam” on CS (visible when you haven’t “verified/donated” yet). If at any point the amount of new users starts to slow down, verification/donation money will automatically slow down as well. If CS ever hits the peak of possible subscribers, income will fall, rapidly. Subsequently, Couchsurfing cannot afford it’s employees anymore and soon it will be in real trouble.

How likely is this? Well, Hospitality Club seems to have hit it’s high point already, with subscriptions slowing down significantly. We can only assume that it’s only a matter of a year or 2 (at the most) before the same thing happens to CS, since both organisations tap more or less the same userbase.

At that point – as they say – things will start falling apart. CS will be practically forced to work with volunteers again at the “top of the food chain”, which no doubt will cause enormous amounts of stress on the tightly formed group that is privately running CS right now. Note that Casey is not preparing “his” organisation for this. It doesn’t appear that any of the donation money is being saved (for instance by not hiring Jim and Mattthew but opening a savings account) and long-term thinking doesn’t appear to be a strength of the organisation anyway. Couchsurfing is technically running on “borrowed” time, on finances that will only last as long as new users keep coming in.

An organisation like CS almost has to run on volunteers, unless it drastically changes its business model. So, either we see banner ads, “payed subscriptions”, “golden accounts”, regular “donation drives” or whatever or we’re going to see a financial breakdown. When that happens, and it most likely will, we’ll be here to pick up the pieces.

11 Responses to “The trouble with CS finances”

  • There were some alternate revenue methods thought of / in the making a few months back, but I don’t feel it’s not my place to reveal them, or speculate what’s the current state of these plans.

    Also, you might want to take a look into Triple’s replies to some of the recent Brainstorm threads and assess their viability.

    In the meanwhile, I’m wondering if it would be possible to get back the money I donated on top of my verification fee… I’d rather use it to sustain my own life and travels than keep fattening someone else’s account.

  • “due to still pending financial reports for the second quarter of 2007, I no longer feel comfortable donating to CS.

    I am kindly asking if it would be possible to get refunded for the amount I donated up until now that exceeds the 25€ I paid for verification through the European bank system.

    At the time of donation the amount was not a big deal for me, however now I would rather use it for my personal benefit.”

    Sent to:

  • I think it will slow down, it won’t disappear.

    Couchsurfing can charge to re-verify you if you change address (most people only live in a place a few years), and there’s a whole bunch of people that will loose their account and create a new one later, or young people only getting into travel.

    From what the finances reveal, there are absolutely no savings. I once pondered what the effects of a system failure would be (can’t get verifications if there’s a failure).

    In the case of the last crash, it lead to increased awareness and donations. I’m not sure it will be the same every time.

  • Personally, I doubt CouchSurfing will get 501c3 status any time soon. Casey said it was “practically tomorrow” [sic] over 4 months ago and there’s no progress as yet. I think when the financial crash hits, somebody will have the bright idea that they could sell CouchSurfing to a commercial travel web site. Without 501c3 status in place, it’ll be a piece of cake and the inner circle will most likely pocket a nice wedge of cash.

  • My inquiry for refund was responded to promptly, and besides the “coming soon” statement for finances (which have been ready, just not put up on site, for weeks now) I’m happy to let you know I will get my money back :) (I chose to maintain my verified status, only asking back the surplus I donated over the 25€ Euro-verification)

    Anyone up for a drink, my treat? (well if you happen to be around Italy-Austria-Switzerland) :P

  • You might want to check your facts before quoting that CS has no financial reserves. The financial pages pretty clearly spells it out.

    Also, is there any other organization where you can donate funds and then ask for them whenever you feel like it because you’d suddenly “rather use it for my personal benefit”? That seems like a reckless way for any organization that relies solely on member contributions to operate but good for you, I guess, for taking your money back (years later, even!) to buy people drinks.

  • Well, i think it’s better to use YOUR money to buy your real friends some drinks, and enjoy together, rather than having some other people enjoying their drinks bought with YOUR money without your presence! ;)

  • Sorry, but after a year of free labour and a call to hire coders just AFTER everyone critical involved was finally off the team I damn well feel entitled to get my money back. Financial information has been ready for weeks, yet not published. We have heard of 501c3 for a full year yet there is no tangible information on any progress whatsoever (newxt month, practically tomorrow, time and time again). A matter of principle, if nothing else – and hopefully a wakeup call for the leaders.

  • Interesting, CS has indeed put money aside during the second quarter of 2007, with in the comments: “The goal of the fund is to provide for 3 months of operating expenses.”

    While this in itself is good news and definitely the kind of thinking-ahead that the organisation needs, it fails to address the broken business model though. When the time comes, it will only postpone financial troubles for a couple of months. But then, simply firing Jim and Matthew at that point should stretch that kind of money a lot further than 3 months.

    So yes, a good thing indeed.

    Perhaps it’s not common for organisations to repay donations that have been made, but that’s totally missing the point. If your (ex-)key volunteers start to ask for “their money back”, shouldn’t that get you to thinking if your organisation is making the right choices? I know CS is not really willing to address (=solve!) any of these extremely serious issues within CS that so many people are raising, but this sort of hand-waving (“we aren’t doing anything wrong”) is obviously not helping anyone.

    So, anonymous amazing poster, I ask you this: Are you really sure you’re on the right track?

  • Interesting analysis, Thomas. But I somewhat disagree on some points.

    I’ve always felt that members recognized the $25 verification fee as a donation. This was easier to justify when CS felt like a community, not a service.

    I suspect the model once CS reaches critical mass will be an advertising-based one or sponsored (ie. partnering with travel sites). There are also other revenue streams there have not been fully utilized (eg. Surf shop). As CS becomes more mainstream, I’m sure these methods will be more accepted by the members.

  • Finally, the Q2 finances are out! Check

    I wonder why they were not visibly announced anywhere that I’m aware of.

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