So maybe it’s time to take my training in post-colonial literature studies and apply it, in an ever-so-esoteric manner, to Web 2.0 and the problem of monetization.
As the New York Times once again trumpets the possibility of a dot-com bust (see today’s article Silicon Valley Start-Ups Awash In Dollars, Again), I am beginning to believe the issues presented by web pessimists are somewhat pertinent: once again money is being thrown at sites that can only guarantee eyeballs… and in most cases not even a lot of eyeballs (sans MySpace, Facebook, YouTube, etc). It appears many are forgetting that guaranteeing eyeballs is not a sound revenue model. Even with successful advertising campaigns running on these sites, that still does not make up for other costs. YouTube is a prime example of delivering a significant audience, but with the bills they must pay for bandwidth alone I can’t foresee them making acceptable margins.
So why is it so hard to create business models around this new venture in media? I think it’s because we are trying to do something completely new; honestly, I cannot think of another instance in history where it has been done before.
The Real Question
I’m not an economist, but from what I understand a free market economy runs by taking natural resources, land, and labor and turning those materials into a commodity that is then sold at a profit. This commodity is bought at the expense of a ‘thing’ that has an arbitrary exchange value attached to it (money, for instance). But what are we trying to do with Web 2.0? Let’s use Facebook as an example: we are trying to monetize relationships. So rather than using materials to create a product that is sold, we are using materials to facilitate relationships. Cell phones facilitate relationships, but people are willing to pay for tools like an iPhone and for an outrageous monthly bill, keeping shareholders for Apple and AT&T happy. But ask anyone from the generation that is utilizing Facebook if they would pay for it (and keep in mind, this is the same generation doling out oodles of money for that iPhone and monthly bill). What do you think their answer would be?
I thought so…
Three effective business models are typically subscription fees, commission fees and advertising. The latter is being utilized heavily in Web 2.0, but I feel this will not make the majority of sites profitable. How do you monetize interactions between people? Dating sites such as eHarmony do exactly that, but finding a significant other is a critical priority for many people… commenting on a friend’s new highlights or hair cut not so much. So maybe we are asking the wrong question; maybe we should ask why isn’t Facebook such a great service that people would pay for it? But even then, Generation Y and on are used to free services; we’ve spoiled them (free MP3’s, free email accounts, free Facebook, etc).
All this said, maybe one channel for revenue is a great program that aggregates these services and allows users to access all the sites they use through one portal. Online services such as Netvibes are doing this, but I have yet to experience a robust application that is also easy to use. For access to their sites and API maybe Facebook and MySpace could charge the developers of these programs. Anyways, this is just one thought, but it still does not address the more direct question of how to monetize personal interactions and relationships; I’m really at a lost for that…