Tipjoy is a web startup for tipping web authors/personalities funded by Y Combinator. It went live in February to decent press coverage. The concept is simple—if you see something you like tip the author by either clicking on participating author’s link, using the Tipjoy bookmarklet or going to the Tipjoy site and entering the URL.

It’s a good idea and the founders have worked hard to overcome a number of the inherent problems with small money transfers. However, there’s one little problem remaining. It’s not generating revenue.

On the main page of Tipjoy the technically savvy, but perhaps not as financially savvy, authors post their latest statistics:

$2,519.01 (red arrow) is not a large sum of money. Compound that with the time period indicated by the blue arrow. Elsewhere in the site founders explain that they charge a 3% transaction fee. In other words they pulled in $75.57 over 4 months. Nice. Probably doesn’t even cover hosting fees.

Of course this isn’t the full story. There is likely between a few hundred up to a few thousand dollars sitting in accounts either waiting to be given out as tips or claimed by the tip recipients. With money markets at around 2.5% that may represent another $20 in interest. Thrilling.

It appears the failure to generate revenue has had it’s costs. The founders haven’t blogged for nearly a month—and previous postings are uninspiring to say the least. It seems that around the end of March the founders attention wandered from the site—after less that 2 months live! How many successful businesses ever got it right in that short of time? <Right now imagine a typical rant about generation Y’s failure to follow through>

OK, now clear those thoughts. Generation bashing is never fair. Let’s look at the site itself.

First, what’s right.

Design: It’s an easy to understand, easy to use site. The color scheme is clear and inviting. Concept: The idea is simple and the implementation is straightforward. Technology: Excellently implemented. The site isn’t foundering through lack of technical expertise. Ease of use: It took about 15 seconds to sign up. Try it.

So what went wrong wrong? Let’s disassemble it a bit:

Product: In my opinion the product stinks. No, not the idea. The idea is great. Not the implementation. It’s a solid web site. But the product. Let me illustrate. As you may know I live in Tennessee and it gets hot in the summer. A few years ago a deer got hit by a car along the road I drive to work. After a few days of that mid-summer heat that thing could be smelled from nearly a mile away. Some people may take from that experience that deer stink. Well, not all deer. Rotten deer. This product is rotten.

Tipping is a very abstract “product”. “Social well being” is probably as close as it gets. One evening my wife and I dined at our local Olive Garden and by bad luck ended up with a barely competent–if that–waiter. Luckily the lady serving tables near us was very good and bailed him out a couple times. Understandably his tip was very small. But on the way out the door I slipped her a couple bucks. She felt good and I felt good.

Replicating that experience on-line is difficult. Tipjoy is notably lacking in that regard. The main page is made up of a bunch of (dry) statistics. Hello, this isn’t Microsoft Excel! What are they trying to sell—business analytics?? Where’s the sidebar advertising how your Tipjoy data can be added to your Facebook/Myspace site? Where’s the banner that says “Show your girlfriend you really like her latest Facebook post?”. Where’s the “attach a message to the tip” feature? Tipjoy is a social site—it must market itself as a social service. It must integrate into life, or life will continue to pass by outside of it.

Advertising: People have to know about a site in order to use it. Tipjoy did enjoy good initial coverage from TechCrunch and other scattered outlets. However, it lacks long-term support. If I were them I’d contact as many bloggers and Myspacers (if that’s what they’re called—I’m getting too old school for that stuff) to include links on their sites. Tipjoy must become integrated into the social framework.

And one last thing. No credit cards? Hey dudes, it’s 2008, Web 2.0. Instead of “Coming Soon” it should say “transaction charge”. Leave the choice to the consumer.

Lesson: To succeed in Web 2.0 your site can not be an optional layer added to people’s lives. It must be inserted directly into the lives of the consumer. Until Tipjoy finds that recipe it can only founder.

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Disclaimer: I have no investment in Tipjoy, nor do I have any business relationship with the company. I don’t know the founders personally, but best wishes to them. I have only the greatest respect for anyone who has the guts to start a new company. My analysis may sound harsh, but remember that anyone who gets as far as Tipjoy is clearly a star.

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