Archive for June, 2008
Making money in the Web 2.0 space!
When it comes to the Internet, things seem to always go a bit faster than in other industries. We have seen the first Internet bubble come and go, leaving for every viable business many more in the dust that didn’t make it. Now, we are in the midst of the next big thing: Web2.0. It is interesting to see all the opinions out there, since we all have our Facebook, Myspace and/or Linkedin accounts by now. As in the time of Web 1.0 companies need to find reliable ways to make a living. The question remains, how does this all work, when will Web 2.0 businesses make money, or are we onto the next bubble that will implode because the projections of business prophets are outstripping the reality of current and future balance sheets of Web2.0 companies?
The fact is, it is incredibly hard to make money as a Web 2.0 business aiming at consumers. Lots of the applications are for free. While there is little doubt in my mind that the Facebooks and Linkedins of the world will eventually make money, either because they are able to collect enough advertising dollars or add-on service fees, the question remains who else is there to participate in this market. There seem to be hundreds of these companies with different approaches to blogs, social networks, ratings, user generated content etc. It’s hard to get people to pay attention to a new tool when the value of the tool depends a lot on the user interest. Like in the old days of communication the value of those applications depends on the network effect . Just imagine: You are the only person with a fax machine on this planet. You might be able to declare ownership over a fine piece of engineering, but that’s about it. For the fax to be valuable you need a community of other users (with their own faxes). The same is true for any Web 2.0 app. Their value is in the community using the application. Then, once a Web 2.0 company does take off, there’s that other minor issue to deal with – monetizing the success. Google generated huge traffic first, then was able to monetize based on a well-oiled advertising mechanism. Facebook hasn’t yet found the keys to the castle, and the latest try with Beacon was sub par. Twitter has no business model yet. Ning has hundreds of thousands of visitors, but still runs Google AdSense ads. So, on the consumer side there is a lot of work that remains to be done.
In this context it is worth looking at some interesting Web 2.0 businesses catering to the business community:
Understanding the customer: Communispace now has now more than 300 hundred private communities that its client companies are using to learn about their customers. It succeeds because it’s unlocked the key to running and moderating these communities effectively, and grows despite charging a six digit service fee annually per community.
Exchanging information about products: Ratings and reviews are the easiest way to energize customers to sell to other customers, and the companies that provide rating and review capabilities are taking off: e.g. Bazaarvoice, PowerReviews, ExpoTV follow this model successfully.
Customer support. Support forums add value by reducing support costs while building a community centered around a product. Lithium has an impressive reference list working with companies such as Dell, AT&T, Comcast, and Sprint.
Stimulating innovation: This is another way to listen to your customers. Startups that enable clients to source ideas from their customers have a future, because they help to build better products. Salesforce.com bought Crispy News and turned it into Salesforce Ideas, which powers idea sites for Dell and Starbucks.
In the end it comes down to the one question: What is the real value to either a consumer or a business using a Web 2.0 service? If there is a clear answer to this question, then there will be a way to monetize this value either in terms of service charges, license fees or ad-dollars. The laws of business gravity remain unchanged regardless of the subject we are talking about: Web 1.0, Web 2.0 or the real world 
