The Genius Business Model Behind Vercel: $200M a Year Giving Away Free Hosting
TThe Coding Koala
Computing/SoftwareAdvertising/MarketingSmall Business/StartupsBusiness NewsInternet Technology
Transcript
00:00:00Vercel is hands down one of the smartest tech companies I have ever seen.
00:00:04You are probably using it for free as most people do.
00:00:07But do you know the company that just hosted your website for free
00:00:10is currently valued at $9.3 billion.
00:00:13And it made $200 million last year.
00:00:16So either Vercel is lying about their numbers,
00:00:18or there is something much more interesting going on here.
00:00:21And trust me, it's the second one.
00:00:23And if you think they made $200 million by selling you their $20 Pro plan,
00:00:28you cannot be more wrong.
00:00:29Because what Vercel figured out is one of the most clever business tricks
00:00:33in the entire tech industry.
00:00:35And once I explain it to you,
00:00:36you are never going to look at a free developer tool the same way again.
00:00:40So to understand how Vercel makes money,
00:00:42we first need to talk about a guy named Guillermo Rauch.
00:00:45Before you skip ahead,
00:00:47thinking I'm going to talk about some Silicon Valley founder story,
00:00:50just hold on for a second.
00:00:51Because this one actually matters for understanding the trick.
00:00:54Guillermo grew up in Argentina,
00:00:56taught himself to code as a teenager.
00:00:58And by the time he was in his 20s,
00:01:01he had already built something that millions of developers were using
00:01:04without even knowing his name.
00:01:06Any guesses?
00:01:07Here's a hint.
00:01:08You wouldn't be able to communicate in real time inside a web browser without it.
00:01:12It's called Suckit.io.
00:01:14Because he was a developer himself,
00:01:16he understood other developers' habits really well.
00:01:19He understood how they think,
00:01:21what they hate,
00:01:22and what makes them actually adopt a new tool.
00:01:24And in the early 2010s,
00:01:26what developers really hated was deployment.
00:01:29Getting your web app from your laptop onto the internet was a genuine nightmare.
00:01:33You were configuring servers,
00:01:35and dealing with AWS settings that looked like they were designed by developers themselves,
00:01:39rather than designers.
00:01:40So Guillermo had this idea.
00:01:42What if deployment was just,
00:01:44not a problem anymore?
00:01:45And in 2015,
00:01:47he started a company,
00:01:48originally called Zeet,
00:01:50which he later renamed to Versal,
00:01:52with exactly that goal in mind.
00:01:53But there is a move that most people overlook,
00:01:56and it is honestly one of the main reasons Versal became what it is today.
00:02:00Before Versal was a billion dollar company,
00:02:03their team built something called Next.js.
00:02:06And then they gave it away,
00:02:07completely free and open source.
00:02:09Now I am sure you already know Next.js,
00:02:11but here's what most people don't think about.
00:02:14The majority of Next.js developers eventually end up on Versal,
00:02:18because Versal is quite literally built and optimized for Next.js projects.
00:02:22So every developer who adopts it,
00:02:24without realizing they come one step closer to becoming a Versal user.
00:02:28And since Next.js has tens of millions of developers using it worldwide,
00:02:33that is an enormous pipeline of future users,
00:02:36all of whom arrived without Versal spending a single dollar on advertising.
00:02:40Now let's talk about the main thing.
00:02:42What's the business model of Versal,
00:02:44and how are they making millions from developers?
00:02:46It basically works in three layers,
00:02:49and each layer is cleverer than the one before it.
00:02:51Layer 1 is what they call the free tier,
00:02:54and this is the part that hooks developers in the first place.
00:02:56You sign up,
00:02:58you deploy your project,
00:02:59everything works,
00:03:00and Versal doesn't ask you for anything.
00:03:02But here's the catch that isn't really a catch.
00:03:05The free tier has limits.
00:03:06Not limits designed to annoy you,
00:03:08but limits designed around scaling.
00:03:11When your project is small,
00:03:12you stay free forever.
00:03:14But the moment your app starts getting real traffic,
00:03:16real users,
00:03:18real usage,
00:03:19that's when Versal's meter quietly starts ticking.
00:03:22And the beautiful part is that by the time you hit those limits,
00:03:24you're not some student deploying a side project anymore.
00:03:28You're a startup or growing product.
00:03:31And suddenly paying that $20 makes sense,
00:03:33because the value Versal is delivering is actually worth it.
00:03:36In other terms,
00:03:38this is also called vendor lock-in,
00:03:40where you simply don't want to switch to a different platform.
00:03:43Layer 2 is where the real money lives.
00:03:45This is kind of Versal's main strategy,
00:03:48so listen carefully.
00:03:49So what Versal basically does is,
00:03:52it stops thinking about individual developers
00:03:54and starts focusing on companies.
00:03:56Companies notice that half their team is already using Versal.
00:04:00And what usually happens is that developers' preferences matter more
00:04:03in what platform the company runs on.
00:04:05And since developers already love Versal,
00:04:08what's their first suggestion?
00:04:10This is the primary strategy of Versal I was talking about before.
00:04:13You might have noticed,
00:04:15Versal doesn't really market much.
00:04:17Versal doesn't need to convince developers to use their product,
00:04:20because developers are already convincing themselves.
00:04:24And then they go to work and convince their companies too.
00:04:26This is what the industry calls product-led growth.
00:04:29You build a product so good
00:04:31that your users become your marketing department.
00:04:34And they do it voluntarily,
00:04:35because they genuinely like the product.
00:04:38That shift from selling to a developer to selling to a company
00:04:41is where the money actually multiplies.
00:04:44And when you get to the enterprise tier,
00:04:46we're talking custom contracts,
00:04:48dedicated support,
00:04:49compliance features,
00:04:50the whole package,
00:04:52which costs really good money to enterprise.
00:04:54Brands like Under Armour,
00:04:56Nintendo,
00:04:57Porsche,
00:04:58and the Washington Post
00:04:59are all running on Versal.
00:05:00These aren't companies that picked a deployment platform
00:05:03because it was easy.
00:05:04They are paying serious money
00:05:05because their engineering teams chose Versal first,
00:05:08and then the companies followed.
00:05:10So moving on to Layer 3,
00:05:11it is the newest one,
00:05:13and honestly,
00:05:14the most interesting.
00:05:15If you haven't seen V0 yet,
00:05:17it's Versal's AI tool
00:05:19that generates full front-end code
00:05:21from a plain text description.
00:05:23It costs money on its own,
00:05:24separate from everything else.
00:05:26And as of early 2025,
00:05:28V0 was already generating
00:05:30an estimated $42 million
00:05:32in annual recurring revenue,
00:05:34despite launching just over a year ago.
00:05:36But the genius of V0
00:05:38isn't just the subscription fee.
00:05:40It's that almost every app
00:05:42that is created on V0
00:05:43ends up hosted on Versal infrastructure.
00:05:46So Versal gets paid twice,
00:05:48once when you use V0 to build,
00:05:50and again every month
00:05:51when your app sits on their service.
00:05:53That is not a coincidence.
00:05:55That is their funnel.
00:05:56So when you zoom out
00:05:57and look at all three layers together,
00:05:59what you're actually looking at
00:06:00is a funnel that prints millions every year.
00:06:03And that's the overall Versal story.
00:06:05Free product,
00:06:07three-layer money-making machine,
00:06:09developers as marketers,
00:06:10and a $9.3 billion company.
00:06:12If you want to see the same breakdown
00:06:14for another company,
00:06:15let me know in the comments,
00:06:17because there are about 10 more
00:06:18of these I want to make.
00:06:20And if you haven't already,
00:06:21make sure to subscribe,
00:06:23because I promise the next one
00:06:24is just as interesting as this one.
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