Struggling to Monetize Web 2.0

This one of the most insightful articles on web 2.0 that I've seen for months. I hope Michael Arrington from techcrunch reads this. I dont see how "Give it away and good things will happen" is a viable business model for anyone but the open source community.

It's hard to think of something that could not be argued into one of those three categories. How about productisation? If Wikipedia sold books containing highlights of its content, what would that fall under? How about if Flickr started a cable channel to leverage its visual content? Maybe Memeorandum could license its daily clustered feed to newspapers?

Creating a new non-subscription product (or an analogue of an old one) out of your data stores and then selling it would not fit Phil's boxes, since instead of taking commission on someone else's transaction, you're the seller.

I think productisation will be vitally important to successful 2.0 ventures. It will become clear over time that creating and monetising your own data store is far more potentially lucrative than mashing up those belonging to other companies.

It seems to me that most of the data/content produced by Web 2.0 sites/services is simply too random. It reminds me of the saying "How long would a million monkeys have to type on typewriters before they produced the novel War and Peace?".

In order to make money, regardless of the business model, people have to figure out the "million monkey" problem. And then, they have to show consumers that the output of the million monkeys is trustworthy enough to be useful and not simple trivia.

The answer to the million monkey problem is survival of the fittest

I certainly do not agree with models that undo the essence of web 2.0 which is the culture of openess (to produce, share, remix and receive content). Subscription and walled gardens models will instantly place any activity out of the web 2.0 world and into more traditional schemes. We see web 2.0 as user generated and remixed content with still very hybrid text based interfaces. So value could be generated from: * offering the frame for communities formation and then selling ads * creating higher quality user experience

Why does a business model have to be a new one? Why would none of the already known business models work? I still buy bread the same way my ancestors bought it. Things don't change quite so quickly, just because they are on the web and are versioned 2.0.

IF mashups can figure out a way to make money, their data sources could charge them for API accesses. It's an old model in the Web 2.0 context.

Otis, it has to be a new model for the reasons I listed:

1) Advertising is ugly, intrusive, and very often competely unwanted.

2) Subscriptions aren't worth it for small footprint services.

3) Transaction commisions are often not applicable for many content situations.

And yes, I know you can convert advertising income to transaction fees for your API usage of another service but I don't think it's viable for several reasons.

So, other models that might work is a re-vamped micropayments system or something completely innovative (though unfortunately exploitable without heavy duty infrastructure) like a ratings tax on content consumption/website visitation that is paid back to content creators.

Those are just two models that are out of the box and have both pros and cons. There are many others. Let's try to get some of them fired up and tried out.

Best,

Dion

Dion, I wouldn't want to be responsible for a company that needed to wait around for a new revenue model to emerge. Which of my guys is in charge of 'creating new revenue models'? The VP Engineering? VP Sales? VP Marketing? Who's accountable for making this happen?

Companies that fail to generate revenue eventually dis.appe.ar. And that's the way it ought to be.

I like the micro-payment idea. Maybe some sort of syndication thing might work - your micropayments could pay for services on more than 1 site. There are probably ways to highlite more traditional advertisers products/services in manners which aren't ugly and/or intrusive. Whoever figures that one out pretty much wins the internet game, I think.

I think that we might focus a bit too much on the _web_ part of web 2.0. Since one of its major elements is pervasiveness - web 2.0 isn't really about web sites or browser based applications. I know we all know this - but even I keep falling back on browser-based concepts for information provision and user interaction.

I've blogged an example of this in my article on web 2.0 and driving. I'm giving some other thought to it for another post but it hasn't totally gelled yet.

Also, Dion, are trackbacks working? I trackbacked this and it didn't come through.

TAD,

If your micropayments pay for services across multiple sites, isn't that a *subscription*?

Personally, I don't buy the micropayments idea at all. I agree with what the Techdirt guys have been saying - introducing micropayments forces the user to ask "is this content worth 30 cents?". Transaction fees will be the biggest business model for successful web companies.

Do you know any new ways to make Web 2.0 services generate revenue?

Sure thing except you have focused on how to generate 'new' revenue instead of how to generate revennue through 'savings'.

What if all of the 4 year colleges and universities in the country (about 3000 of them) put up $1000 per year into a pool that is paid out in bounties to faculty to write open source textbooks - IOW, textbooks that are electronically given away free to students as PDFs, HTML or whatever? Assume that each author is paid $10,000 per book which means this system would fund the creation of 300 new textbooks every year. That could cover a LOT of courses and would start saving 'students' thousands of dollars per year. Boom, you just lowered educational costs forever with pocket change from universities. The textbook publishers go out of business, sure, but since the new textbooks are electronic and free - the collective intelligence of the teachers can be used to keep them up to date or to allow them to be "mashed" up in a rip-mix-learn/wiki sort of way.

You cannot sell the textbooks, but you have created value and freed up money so that it can be used in other places.

More efficient processes also "make" money if they free up other money in the larger system.

Came over here from Slashdot - disagree with the "too much buzzwords" complaint.

Regards, John

We plan to charge for value added services. Somebody experienced in a fortune 500 company once told me that its the way to go. Presently, open brainstorms are free on http://www.brainreactions.net but private brainstorms (no ads plus unlisted, therefore secured from spam, access restricted only to those who know the URL with key) cost 99 cents per month. This can be categorized as "subscription" model, but I think there is a difference in being a value-added service model as opposed to being completely subscription based.

- Anand Chhatpar http://www.brainreactions.com http://www.brainreactions.net

I always enjoy reading Dion's enlightful web2.0 blogs but don't think there will be 4th or 5th business model categories other than Phil's 3 revenue models. Commercialization of web2.0 will actually reinvent the existing three models. To date, the ad category in broad sense advanced relatively faster than other two. Google's success on long tail sets a good example of performance driven ad placement (charge by click-thru as opposed to banner view, we should give the credit to early web1.0 experiments by DoubleClick, BeFree, LinkExchange). Such unique ad campaign doesn't exist with traditional media (newspaper, radio, TV). Ebay gives us another good example with the transaction model. Google and Ebay do differently from the conventional advertising and trading but still they are in these two categories.

As Dion stated clearly in the first paragraph, web2.0, or in general, web*.* is able to provide much more efficient and effective value chain. This is the key to the revenue. Making money by saving people's money would be more convincing. A free web2.0 service is good, but there could be a better one for particular need. There will be a tipping point between pure free and paid solutions (even paid by advertisers).

In fact, there were many great business model ideas during web1.0. Most of them failed because the market was not ready and the online service was immature. For example, there were handful of ASP based CRM players attempted to collaborate various parties in partnership and contract management space. I can see great potential to apply voo2do concepts and components for vertical industries, specially niche markets. Subscription is the proven model (e.g. salesforce.com, webex). The profitable business is justified by much lower cost of solution including the advanced web2.0 technologies (imagin the engineering effort and cost to create voo2do with the web technologies in 1999, and the marketing effort to build voo2do mindshare in 2001).

While I do buy the 'charging for value added ' service I disagree with the idea that removing ads is any value add.you basically introduced an annoyance and are charging for removing it.Even Opera now gives the ad free browser free of cost.

Removing annoyances is really not adding value.There really must be some additional value add.take 37signals.One of them is free but others with a perceived higher value are subscription based.

Talking of revenues,I think targeted advertising is a good stream ie using your network and user database to target ads,no not popups but more like google adwords.

While I do buy the 'charging for value added ' service I disagree with the idea that removing ads is any value add.you basically introduced an annoyance and are charging for removing it.Even Opera now gives the ad free browser free of cost.

Removing annoyances is really not adding value.There really must be some additional value add.take 37signals.One of them is free but others with a perceived higher value are subscription based.

Talking of revenues,I think targeted advertising is a good stream ie using your network and user database to target ads,no not popups but more like google adwords.

I'm no expert, but haven't you forgotten another revenue model? What about the "tip jar"?

For a service like del.icio.us, I expect there are a lot of people who would donate *something*, because the service has already proved it's value to them, if given the opportunity.

Don't *require* a contribution, just give them the opportunity and then *reward* the donation.

Set it up something like the public television pledge model, where they can either make a one time donation, or a smaller amount over 12 months. Offer some sort of free prize for different donation amounts. Logoed merchandise perhaps. Tshirts, bags, that kind of thing -- and if you make it a limited edition, that isn't available to the public otherwise, that would increase the value of the prize even more.

But don't hold "pledge breaks" like public tv, just promote the hell out of it, and then put an unobtrusive link to the contribution form in the corner of every page, as a constant reminder to the user that this is available to them.

Well I am no expert either, but my two cents are here anyway:

What if some services just are made to be free? There just is no way I would pay for the del.icio.us service, nevermind how convenient it is. So, if I all users were like me, the revenue should come from the advetisers.

If all users were like me, they would just ignore the ads on 19 ocasions out of 20. If all users were like Dion, they would stop using the service because of the ads.

So if me and Dion differ as users this much, there is a slight chance that someone will still use a service with ads, and actually click on one every now and then?

And this just concerns the browser-based services, which are not the whole essence of web*.*. There is ie. a whole new way of combining mobile terminals with existing services, from which the users are willing to pay subscription fees.

My opinion in short is that monetizing web2.0 is not in the new revenue models, but in the innovative services, that from wich the users pay enough to keep the free ones afloat.

Cheers -Miika

web 2.0 content is like the air we breeth, or the light that illuminates our day. "monetizing" that will not be easy, but it sure is a big enough challenge worth of trying. I would start to solve this puzzle this way: Look around you, what do you see? .. A house, a room with walls. Yes. And the window - to let the sun shine ... and the ventilation, to bring the air in. Sure it is possible and even easy to find revenue models for letting the information flow! Just look at the IT-system-walls people and companies are now surrounding and separating themselves with!

I'm weighing in way after the fact on this monetizing discussion, but wanted to second Paul Montgomery's idea of the potential of "productizing" the data that users create. I've been thinking a lot about this in terms of online patient communities, where people, especially those living with chronic conditions, post incredibly valuable information on their experience with treatments, side effects, best practices in dealing with the healthcare bureaucracy, etc. I think this is data with commercial value, and could also help empower patients to "speak truth to power," whether power is represented by pharma companies, insurers, etc.

I agree with productization. Also, about ads, I click them because i know they help support the site I like and go on everyday or w/e that I want to keep running. And it doesn't cost me a dime.

Hi,

There is so many web 2.0 that let people submit information for public, but i don't think that all the information is so reliable because anyone can submit anything.

But what if someone submit with his friends, and friends of his friends a la friendster. this is what Pytagor.com is doing

it allows people to manage their information and access it in one place, to share it only with people they known and trust (community), and to search it with a new search technology that learn from their network of friend’s friend

http://www.Pytagor.com

> Do you know any new ways to make Web 2.0 services generate revenue?

How about a whole new influx of those MillionDollarHomePage.com/SendMeADollar.com types?? *sigh*

I've written an article why web 2.0 applications WILL work - but it could take some 10 years. Let me know what you think. On myuninstalledlife.com I'm trying to uninstall everything from my desktop and replace it with web applications - and I mean EVERYTHING, I just don't want to replace the apps but also keep 100s of gigs of data online. The address is www.myuninstalledlife.com

I am working for an ISP and I can tell that it is very hard to find a good web2.0 like products that I can distribute (ie charge per month to my customers on a subscription basis)... The media model is very classical but it is very strange to me that other companies do not try to use the distribution power we have to build on their business (and help mine by increasing my customer arpu).

There are no other models.

Ricky let's try with a Fonzie like thought:

>IF mashups can figure out a way to make money, their data sources could charge them for API accesses. It's an old model in the Web 2.0 context.

yes this probably will be but if the mash up drives a lot of traffic to the data sources owner, this guy will have to be careful in charging it or probably will help it to develope better functionalities or improve user experience to feed the community growth. Don't you think it? Mash ups will be the cool clubs of the feauture where you can touch celebrities and celebrities advertise products or something similar.

I am no expert either in Web 2.0 monetization, but can claim some experience in other software products. I agree with some others that the value that customers/consumers perceive is what will drive the model. del.icio.us, as someone already noted, will never succeed if customers have to subscribe to use the service. On the other hand, as a paying user of Backpack from 37Signals, it is easy for me to justify the few $ I spend on it every month, since it helps my productivity and I have become dependent on it. While I am equally dependent on del.icio.us, if I had to pay for it I would seek another solution. I am sure there is room for more business models down the line, but in the current climate, depending on the perceived value of your service/product, all three models listed above would fit most cases. I do think that advertising is underrated, even though I almost never click on ads.

The biggest challenge to current business models might be sharing content revenues. Will consumers want a slice of the pie at some point? I am not sure how that fits in with various business models.

www.USuggest.com allow the bloggers to make some extra money through recommended products directly from within their blogs, and hopefully directing their readers to the some online retailers. As such, the respective blogger would receive a commission from any sales generated through referrals!

I hope web2.0 can earn money.

The Online Advertising Playbook references three new models of advertising that will exemplify the future of Web 2.0 monetization - they are as follows:

1. Permission-based models centered on engagement, NOT exposure 2. Consumer empowerment (collaborative filtering) 3. Advertising as a service

These 3 core elements are present in PredictAd - an Interactive Search platform that offers Ajax-based technology as a service.

Let's take Wikia's new search concept - If Wikia really wants to make this a community-generated search engine than the demo attached will do just that - http://tinyurl.com/yvah8w

PredictAd Search Assist has a collaborative filtering feature that learns community search patterns. If you start typing in the demo attached you will start getting autocomplete results (with contextual advertisements) - these results will optimize based on the popularity of certain search terms/phrases.

If Jimmy Wales or anyone else interested in monetizing Web 2.0 is reading - take a close look…PredictAd is FREE and its contextual advertising platform gives the publisher something that Adwords simply doesn’t! Moreover, it’s the first Ajax service offered on the web, and it’s a cool one at that…

Great post! I agree that if Web 2.0 companies can't figure out how to monetize their application then they might just be a marketing medium for larger companies. We at http://www.bizak.com are not coming up with ideas on how to monetize Web 2.0 but we are coming up with a platform where startups can compare their profitability and valuation to others.