December 17th, 2007
Revenue 2.0: Is it really just about advertising ?
Currently most institutional Web 2.0 investors seem to think of advertising as the key revenue driver for any type of web-project. Considering the advertising market being a rather volatile one, to me this still seems to be a quite strange move for someone basically caring for someone else’s money to multiply in foreseeable ways.
So what to do, if you are about to start a web business and going the vc-funded, giving-it-all-away-for-free, over-hyped, profit-through-exit way is not an option to you ?
Chris Shipley and Jens Kunath discussed the need of alternative approaches to generate money from the companies’ business on their blogs these days.
But, as you can see from the comments they got on these posts, there are not too many people agreeing with them, that enough web users would be willing to pay for an online service.
Scenarios are, there would always either be a well-funded competitor giving it all away for free or the service would likely start cannibalizing itself by offering a great share of its value for free in order to attract more ‘future’ paying customers to the particular site.
As we should probably ignore the IMHO foolish aspect of the latter approach for a second – what other than giving away your product for free to all and trying to sell it to some at the same time may drive people crazy enough to consider paying for an online service ?
Subscription or sponsoring have not really been powering the big success stories these days…. Revenue sharing has been huge with eBay or Google and also taken grip with German companies like my current employer Spreadshirt or (more recently) laying the foundation for the success for the physical-media sharers at Hitflip. Though it needs a huge number of customers to provide a steady flow of income for the service provider.
When considering various business models for SemaWorx I’ve come up with the following (admittedly quite manageably sized) list of approaches on how to get people to pay real money for an online service and especially to provide a reliably contnuous cashflow for the venture itself:
1. Sponsorship of Membering
Ever visited a website living (either in part or even entirely) from Sponsoring (where I will leave out common keyword or banner-link adversing) ? A well know example to this could be the XING site. A variety of more or less well known firms offers discounts on their products inside the special ‘Premium Member’ section of the site.
Did you ever take them on such an offer ?
Let’s dissect such an offering:
- Sixt holiday cars – Vacation car hire at a carefree fixed discount price
- 10% off vacation car hire worldwide
- 3,500 outlets in 85 countries
- Including all taxes, fees and insurance cover
This is an excellent example of an advertiser and platform operator thinking only of their own needs, rather than their customers’ outcomes.
Sixt holiday cars – Vacation car hire at a carefree fixed discount price
Is XING a travel portal ? Does anyone get there considering renting a holiday car; (as XING is a business networking portal like LinkedIn) ?
3,500 outlets in 85 countries
Is there likely to be someone on XING not being aware of Sixt’s huge rental car fleet ? What does this tell me ? Being able to go from Europe to China by car ?
10% off vacation car hire worldwide
Is a 10% discount a ‘gain’ if the competition is offering 30% rebate to any Automobile Club member (the vast majority of German car drivers) ?
Including all taxes, fees and insurance cover
Doesn’t one have to pay these anyway or the other ?
How can sponsoring inside on a Web 2.0 platform be successful, if everything customizes around the users, just the business model doesn’t ?
This is just plain WYSIWWPTSY.
The sponsoring needs to be directly related not only to the target group and their oucomes, but also to the company it finances and the business relationship it has with its customers.
Companies living on sponsors’ wallet should avoid sponsors providing no value or these will soon start avoiding them because of missing success from their offerings. ‘Connected’ value provided needs to be immediately obvious to the customer.
Good examples for related privileges provided by sponsors may be free welcome snacks or a service upgrade for hotel chains, shorter check-in intervals for airlines and finally sponsored premium memberships for the corresponding online services.
2. Be Your Own (Cashflow-)Bank
The Fuggers did it. The Mafia did it. And, of course eBay did. And most recently they did it either: Setting up an own payment infrastructure, that is.
Isn’t that cool: Own the money, before you own it !
Do it like the big Casinos have been doing it all the time: Let yout users cash-in the money even before they have actually spent it. This very cleverly camouflaged version of pre-payment is the method to secure your cashflow. Call your virtual currency 'Game Dollars', 'Flips', whatever you like or just leave them named €uros or Dollars.
It’s just important, your company is trustworthy enough to make your users pay-in early and (hopefully) not wanting to be paid out again – at least not until your cashflow has grown to some reliable steadiness. And also keep an eye on the inflation of your lit(t)erally self-mad(e) richness… 
3. Create Value-Sharing Communities
The porns did it first ! If you are a lonesome man, admit it: You have noticed them on your lonely, nightly roundtrips on the web. The 'Gold Card' networks promoting flat-rate access an often quite huge set of porn portals (obviously equally often run by one and the same person…) spreading across red light advert-farms everywhere – always trying to lure your credit card details into their databases for 'later' deployment, while promising a lot of instant fresh flesh in return.
May their concept occasionally be lewd — the promoted business model isn’t so at all.
On the web it’s currently a bit like back in the early days of loyalty cards; you needed to keep a separate one for every shop or store causing your wallets and, yes, occasionally even your pockets wear out faster then they were used to before.
But it needed some both wise and influential store-managers to recognize the dilemma and come up with one card to pay them all: Welcome to the first credit card.
Even though the need for standardization nowadays is a wide-spread word on the net, talk lacks a lot of action as mostly all existing approaches have either security leaks or require at least a minor degree in information technology to be used.
Greed at upstart young ventures (originally out to provide reasonable solutions to the issue) and big corporation trying to prevent establishing an open system in favour of their proprietary solutions have each had their share that we are to re-sign all payment and delivery details with every damned vendor we are going to do business with over the web.
So if anyone of you has a proper solution towards this issue, please drop me a hint and I will be proud to be one of the first to join.
4. Franchising ?
"That’s for the big guys only…", is what reportedly Fred DeLuca throught either, back in the early days of one of what has become one of the worlds biggest franchise food-chains: Subway.
Especially being a young company one cannot be everywhere in the world out there and much less finance rapid growth from a just freshly inflamed cashflow.
Why not let this be financed by other people businesses who are laready in the market, providing an entire bunch of customers waiting to be served by your product and, in return, leaving the franchisees their share of the earnings while keeping to what you can do best: Care about, develop and improve your product.
This may be one of the few ways for truly rapid expansion without taking money from investors or being a millionaire in advance yourself.
5. Product Placement
And finally, for those who really dare to jump onto the advertising bandwagon, what about the still rarely deployed flavour of product placement ?
Selling computer games ? Shoot the advertisers’ product to dust. That guy is selling food ? Throw it at your mates ! Selling trips to Florida ? Create them a bagage-packing game. Let them name it !
Hopefully my guesses could spark your own thoughts on how to make reliable money from your own Web 2.0 app. Any ideas, critics or suggestion I missed ? Leave me a note in this article’s comments and I will be happy to start exploring any new approach.
Tags: business model, cashflow, community marketing, online marketing, revenue from online services, web economy
Posted by Bardo N. Nelgen at 21:40 CET
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:-)
