Mark Stevens, best-selling author of “Your Marketing Sucks” (one of my favorite books) wrote a post on his blog about how your public relations efforts can turn out to be a huge disappointment when not aligned with your sales goals. After all the anticipation, all you get is 15 minutes of fame and nothing to show for it. Your photo showing up in the paper may seem great at first, but if the coverage doesn’t drive action, it’s nothing more than just your photo showing up in the paper. Today, businesses and PR firms staying on top of today’s technology (and in-tune with today’s reading habits) are leveraging news SEO, channel sites, and bloggers to push out their message to intended viewers. According to Pew Research Center, the audience for online news has jumped from 2% to 31% of Americans and the audience for nightly network news slipped from 42% to 28%. 75% of journalists search the internet for previous stories on their subject.
One of the things I’m doing this week is preparing for a presentation at Web Builder 2.0 on how to monetize mashups in Las Vegas next week. Consequently, I’ve been pulling together notes, talking to mashup creators, and studying real-world examples of how companies are applying innovative ways of generating revenue with Web 2.0 applications and open APIs. Though there are all sorts of interesting emerging stories, such as the new Second Life millionaire, product developers are increasingly trying to explore the options beyond the obvious: namely big value acquisitions ala YouTube or the often fickle, if mostly workable, online advertising route. But the biggest question that comes up is that if you let your users generate most of your content and then expose it all up via an API, how can a profitable business be made from this?
This has been the question from the outset, and though you can build enormously successful sites in terms of numbers of users and amounts of content using Web 2.0 techniques, the best means of monetizing this remain a larger unproven endeavor. I wrote a while back on the struggle to monetize Web 2.0 where I explored in detail the strategic and tactical methods for making next generation Web sites financially viable, even successful.
If you refer to my original article on monetizing Web 2.0, I identified three tactical means for generating revenue (advertising, subscriptions, and commissions) and a series of strategies that can support them. While it’s usually fairly clear how the direct revenue models work, it’s usually less clear to people how the indirect strategies can directly influence the opportunities.
Strategies for Making the Most from Web 2.0
- There are direct (the 3 items above) and numerous indirect ways to monetize Web 2.0 that often go unappreciated
- Some of the indirect ways which lead to revenue growth, user growth, and increased resistance to competition — which in turn lead to increased subscriptions, advertising, and commission revenue — are:
- Strategic Acquisition: Identifying and acquiring Web 2.0 companies on the exponential growth curve before the rest of the market realizes what it’s worth (early exploitation of someone else’s network effects.)
- Maintaining control of hard to recreate data sources. This is basically turning walled gardens into fenced gardens: Let users access everything, but not let them keep it, such as Google providing access to their search index only over the Web.
- Building Attention Trust – By being patently fair with customer data and leveraging user’s loyalty, you can get them to share more information about themselves that in turns leads to much better products and services tailored to them.
- Turning Applications into Platforms: One single use of an application is simply a waste of software. Turn applications into platforms and get 5, 50, or 5,000 additional uses (Amazon has over 50,000 users of its line of business APIs) for example. Online platforms are actually very easy to monetize but having compelling content or services first is a prerequisite.
- Fully Automated Online Customer Self-Service: Let users get what they want, when they want it, without help. Seems easy but almost all companies have people in the loop to manage the edge-cases. Unfortunately, edge cases represent the The Long Tail of customer service. This is hard but in the end provides goods and services with much tighter feedback loops. And it’s also a mandatory prerequisite for cost effectively serving mass micromarkets. In other words, you can’t directly monetize The Long Tail without this.
Lying directly in the primary tenets of Web 2.0 however, are a series of two-edged issues from a revenue perspective. Though the concepts and ideas are powerful when applied appropriately, they can also pose significant short-term and long-term challenges. Below are the basic principles of Web 2.0 along with the positive and negative revenue implications for most companies on the Web today, even ones that aren’t fully embracing it yet.
Revenue Implications for Web 2.0 Principles (not meant to be exhaustive)
- Principle 1: Web as Platform
- Upside: Revenue scalability (1 billion users on the Web), rapid growth potential and reach through exploitation of network effects
- Downside: Competition is only a URL away, often requiring significant investment in differentiation
- Principle 2: Software Above a Single Device
- Upside: More opportunities to deliver products and services to users in more situations
- Downside: Upfront costs, more infrastructure, more development/testing/support (costs) to deliver products across multiple devices
- Principle 3: Data is the Next “Intel Inside”
- Upside: Customer loyalty and even lock-in
- Downside: Lack of competitive pressure leading to complacency, long-term potential antitrust issues
- Principle 4: Lightweight Programming & Business Models
- Principle 5: Rich User Experiences
- Upside: More productive and satisfied users, competitive advantage
- Downside: Higher cost of development, potentially lower new user discoverability and adoption
- Principle 6: Harnessing Collective Intelligence
- Upside: Much lower costs of production, higher rate of innovation, dramatically larger overall content output
- Downside Implications: Lower level of control, governance issues (increased dependance on user base), content management issues, and legal exposure over IP\n
- Principle 7: Leverage the Long Tail\n
- Upside Implications: Cost-effectively reach thousands of small, previously unprofitable market segments resulting in overall customer growth
- \nDownside Implications: Upfront investment costs can be very significant, managing costs of customer service long-term
I hope that helps. I\’m barely on track for 4pm, but let\’s talk anyway and review the latest…\n
\n\n”,0] ); D([“ce”]); //–>: Much lower costs of production, higher rate of innovation, dramatically larger overall content output
- Upside: Cost-effectively reach thousands of small, previously unprofitable market segments resulting in overall customer growth
- Downside: Upfront investment costs can be very significant, managing costs of customer service long-term
While a great many startups are not generating revenue in huge quantities yet, the companies that have been diligently exploiting open APIs such as Amazon and Salesforce are in fact generating significant revenue and second order effects from opening up their platforms and being careful not to lose control. This is actually a large discussion, and as large Web 2.0 sites continue to emerge, we’ll continue to keep track of what the successful patterns and practices are.
What other implications are there by putting users in control of content generation and opening everything up?
…We’re trying to figure out whether there is demand for a web and technology conference in Southern Africa, and we’d really appreciate your help if you can spare a few minutes.
What’s the big idea?
We’re convinced that there should be web and technology growth in Southern Africa, so we’re really interested in getting together a bunch of leading, internationally respected speakers and thinkers from the industry to discuss what’s happening and what’s possible.
Some of the things we’d like you to get out of the conference:
* Hear international speakers and authors presenting in your own back yard.
* Discuss what the global web and technology opportunities are over the next 5 years
* Understand what technologies are making the biggest impact
* Thrash out how the web can positively play a role in the development of (Southern) Africa
* Create a fun, informative event where you can meet and interact with other people like you
Of course, there are loads more things that are important and that could be discussed, so this is why we’re asking for your feedback – we’re committed to a bottom up conference where you get value for money, you make new friends, and where you walk away inspired.
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Tell us what you think by filling out the questionnaire below. Stay tuned, and tell your friends! We’re looking forward to seeing you in 2007.