May 30th, 2006
Show Me the BUSINESS MODEL!
Robert Young provides the latest example of the unbearable lightness of 2.0 business strategy, arguing that media companies should create American Idol-like platforms for individual self-expression:
Think of this way… what if “American Idol†had been produced solely by the capabilities of the contestants themselves, without the expertise and talent of the show’s producers, directors, writers, etc. As talented and entertaining as the contestants are, the resulting production quality, the level of emotional engagement, viewership/ratings and monetization potential of the full package would likely be far inferior to what we all see on the air today. Well, social networks should be seen in a similar way… people want to express themselves and the platforms that allow them to do so with the most creativity and production value, are the ones that people will flock to.
There are two huge problems here:
1. What if people don’t care about production values (and other such Old Media standards)? Look at MySpace — it has perhaps the greatest compilation of poor production values in the history of media, and yet it has 70 million users and a gazillion page views (at least for now).
2. What’s the business model? As Nick Carr points out, “American Idol works in the context of traditional television, but most self-commoditization occurs on the web itself, and even highly popular platforms, like MySpace and YouTube, have yet to prove they can turn an attractive profit.”
If the business model is “gather audience, sell advertising,” that’s not a recipe for innovation or growth, given that it’s now everyone’s recipe for growth.
All Robert is really advocating is a new — free — way to create content for the same old paid media advertising model.
But paid media advertising is on the decline.
Consider Vonage vs. Skype:
In 2005 alone, it lost about $210.3 million, nearly quadrupling losses from the previous year. It currently has a deficit of about $467.4 million. Most of the loss stems from an aggressive marketing program that plasters the orange-and-blue Vonage logo in national TV advertisements, on Web pages and throughout print magazines.
Putting aside all debates over who pays for what and whether Skype was a smart buy for eBay, there’s no question Skype is one of the great word-of-mouth stories. As CGM goes, this is a brand that’s left an unprecedented trail of what I’d call “digital lipstick.” These love prints dot every corner and crevice of the Internet with enthusiastic, if not religious, tributes to Skype.
Vonage has nearly killed itself on the cost of paid media advertising — it’s like standing in quicksand.
Robert is right that consumers are the new medium — but unlike Old Media companies, they’re willing to deliver your message for free.
So I’ll keep asking — where’s the BUSINESS MODEL?
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Keep asking. It needs to be answered to insure some important services aren’t disintermediated, when they are so very, very neccessary.
Read more Umair:
viz Adsense & MySpace.
Asking how to monetize before you build kills the ability to create an innovative business model. And this is exactly why old media is still struggling with unbundling, social networking, yada yada yada.
Kareem,
I’m all for developing new business models by learning and doing…lot’s of people are doing…so where’s the learning? Where are the dollars? What is there beyond Adsense — is everybody mortgaging their future to Google?
And didn’t we try the whole build it first and figure out how to make money later thing already in the late 90s?
just doing won’t get results; doing it right might. waterfall software development, and building monetization models to prioritize projects likely won’t result in innovative business models. gotta throw stuff at the wall and see what works, and frankly, there’s no excuse not to these days–it’s so damn cheap to do that it’s laughable that most big media aren’t experimenting.
Look at Threadless & StarDoll for potential models. Innertube could be heading in the right direction. The key is experimentation; the landscape has really only heated up in the last 6-9 months (Techcrunch isn’t yet a year old; MySpace was sold less than a year ago).
Sure did. But it’s several orders of magnitude cheaper to do it now.
big companies like Amazon.com, Ebay and AOL, so maybe one or more of the social networks will become a major player? Of course, companies like Amazon, Ebay and AOL actually sell things: products, auction services and subscriptions. Scott Karp saysShow me the Business Model and notes that everyone’s business model today is “gather audience, sell advertising.” So far nearly all the Web 2.0 models focus on bringing in revenues by selling ads. Some of the Web 2.0 start-ups even focus solely on contextual ads. A lot of these
To paraphrase Jack Nicholson in “A Few Good Men”: You want BUSINESS MODELS?! You can’t HANDLE business models!!
Scott,
I with you a little more than half way.
I agree, there is no business model here. However, I also think that “traditional” business models must change. I think this becuase, the traditional is far to process oriented, too structured. This inhibits innovation at conception. Do I know where the happy medium is? No.
What I think will happen that will be interesting to see is “rules of thumb” develop that we use to value such things as social networks an online communities.
Where are the dollars? How about suppliers/companies having the likes of you and me (consumers) as members of their brand or product based community? There’s value in that for sure. Market research for a start. The potential to turn us into advocates - reduced marketing cost.
Last point, an example of a network that may have value would be one that had specific expertise that benefitted a specific business. An example of this would be a chemical or pharma company buying Innocentive.com. However, this is a completely floored example as buying the network achieves little when you already have access to it as a subscriber.
One of the places this leads to is us all earning money from multiple sources through our networks. This one way in which we will become fractional/portfolio workers in the future.
Stuart
Targeted advertising around good content is the future. Why are you fighting this?
Stuart — “The potential to turn us into advocates - reduced marketing cost.” In other words, less paid media. More Skype. Less Vonage. Less paid media business.
Dhyana — “Targeted advertising around good content is the future.” Really? How is that working for you at Designorati.com? Looks like you’re currently letting Google extract most of the value from your good content. I realize that you only recently launched, but I’m curious whether you’ve found companies who would rather spend money to advertise with you directly rather than through AdWords.
I’m not all that familiar with the revenue stream at Designorati … I’m just posting content I’m interested in. I have noticed, though, that the Google advertising that ends up on our site has everything to do with design and my area often has newspaper-related ads. So targeted advertising does seem to be the bread and butter. And the better our content is, the more ad dollars we would be getting.
You seem to have a belief that there’s not enough ad dollars to go around. I just don’t see this. Targeting ads to people interested in the content on that page is what will make the ad dollars go around. News media companies, however, still have to get their heads around how to do this without compromising their news judgment.
Dhyana — Do you know what percentage of the ad revenue that Google receives for those targeted ads actually gets shared with Designorati? Not much. (They won’t disclose the percentage, and there’s a good reason for it.)
There’s plenty of ad revenue — but brokers like Google are going to take the lion’s share of it, leaving only crumbs for the niche sites in their network
But Google is our enabler …
OK, seriously … there are a lot of niche sites trying to get noticed. But let’s talk about traditional media companies. They have a corner on their local markets. They have an established audience. And they are not extracting ad revenue at Google’s mercy.
Traditional media companies’ sites are at Google’s mercy to the degree that advertisers decide to advertise through Google rather than through the companies’ sites directly. It’s a problem of scale — traditional media companies are making 10s or at best a couple $100 million. Which is good. But Google made $6 BILLION in 2005.
Google is temporarily king. Bow to the king. They get to charge what the market will bear.
I understand that on the margins, and for companies that don’t have a lot of ad dollars to spend, that Google must be an attractive option.
But the media companies have localization going for them. That may not be so easy for Google to compete with. The media companies need to find appealing ways to keep ad dollars. And targeting ads to certain types of stories may be part of the answer for them.
That’s just my opinion. I think you have a lot of great opinions, and you’re on to something here, but I just see a lot of potential in ad revenue, carefully managed.
Scott,
I appreciate your pragmatism, but I think right now it’s ok to throw hundreds of ideas out there and see what sticks - back in the ’90s, that cost millions of dollars, but now you can whip up a web app in your spare time. Yes, a bunch of these will fail, but the ones that draw large audiences *will* be able to monetize down the line.
As for Google taking the “lion’s share”, all the evidence suggests that Google gives 75-85% of the revenue to the publisher. I think that’s perfectly acceptable.
Pete, where’s the evidence of Google sharing that much? — I’d love to see it.
I’m not suggesting that just going out and trying isn’t the right thing to do. I just wish there as much free discussion of business models as there is of hot new apps.
in an advertising partnership, MEANS INCREASING THESE TWO SPONSORED LINKS SUPPLIERS’ VALUE, NOT YOURS. Where are the dollars? What is there beyond Adsense  is everybody mortgaging their future to Google? byScott Karp Despite this, Myspace, Youtube and all the others still sub-contract the control of their advertising spaces. What I am explaining, is that revenues controlled by a proprietary solution are what makes the value of a Web 2.0 company, and not
[...] This post got me to thinking that as Big Media conglomerates scramble to lock down “their” content with new formats and distribution methodologies / technologies, and they make it harder or more difficult for us to consume it, there’s a huge opportunity for “not so hot”, crappy or even God-awful consumer generated content to be “seen”, “consumed” and enjoyed by “we the people”… this does not bode well for them.From DigitalMediaThoughts:”Having grown tired of one war, we’re on the eve of another, complete with alliances, secret codes, and laser beams. No, not Iran — it’s the fight over the next generation of DVD devices. The real battle isn’t between Sony (SNE) and Microsoft (MSFT) and their chosen formats, it’s between the manufacturers and us — the consumers, the ones who ultimately pay for it all. And the battle is over Digital Rights Management (DRM), because in addition to increased storage, these new disks are packed full of copy-protection functions, some of which impair our ability to use the content we pay for, the way we like and are legally entitled to.”Link to Business Week article via DigitalMediaThoughts blog… and this is kinda what I’m talkin’ about. [...]
[...] I just had an interesting conversation with Scott Karp over at his Publishing 2.0 site regarding the role of Google, niche sites trying to get noticed and how they feed Google’s profits. [...]
The prophecy has been called web 2.0. But plenty of folks dismiss the web 2.0 hype, saying that that’s all it is: hype. And maybe they’re right. After all, if the prophecy of web 2.0 is real and true, where are all the successsful web 2.0 business models? The most visible business model seems to be selling ads — namely, Google AdSense. Some are dubious. The reason the prophecy has not come true, though, is because we lack the heroes willing to believe in it. We don’t have enough individuals willing