The Rush To Monetize The Internet…AKA Watching Turtles Screw
I still remember back in the good ‘ol days of Web 2.0 (like back in June or July) when having tons of users meant you were rich. Your company could have virtually no income and that was ok. You were valued by the number of users you had. Some would say $20 a head, others would say $50 or more. So, hey, if you had a million users, you were valued between 20 and 50 million dollars. “How are they going to make money?” some would ask. “We will figure it out later!” would be the response. “It’s about market share.” So is it still about market share? I guess not since the mad rush to become profitable has started.
Only on the internet does this occur. Only on the internet is this accepted. Whereas it is common practice for a company entering a new market to have a “war chest” to spend to gain (or buy) market share, they do have a time-line and plan for profitability. They don’t always achieve it (in fact, most don’t), but at least they have a plan.
For years, the venture capitalists threw millions at every harebrained scheme that came out of the valley. Then the economy goes south. They all issue statements”Get real or go home.” But they are still handing out money. Just look here, here, here, here and here (I could go on, but you get the point). The total they are handing out is declining. But companies are still getting millions. But why do some of these companies need so much start-up money? I see start-ups that have received 10’s of millions of dollars. And I see start-ups that have recieved none. Quite often, I can see little difference between the two by visiting their site.
So where is the money going to come from? Well, YouTube is putting ads on everything it can find. It is even selling search results. FaceBook has taken over birthday notifications to provide them with yet another way to serve up ads. But is there enough advertising money to go around? Probably not. Why? Because the sites that need it the most are the ones that have the most overhead. Many sites would be tremendouly profitable if they had a tiny percentage of FaceBook’s advertising revenue. But when your electric bill is 1 million a month, you need all the ad revenue you can get.
Is there anywhere else the money can come from? What about premium subscription models? Yes, there are many people who would leave a service if they had to pay for it. But profit is the point. And a subscription model would work in most cases for established websites. Why? There are several factors to consider. The first is that, yes, you will lose some users but that will drive down some of your costs also. Next, the users that do pay are probably the heaviest users and they are the ones that provide the most page views and therefore the most ads served. Finally, if the cost is small enough, and you make it very easy to pay, you can salvage a large percentage of the user base. Personally, I would prefer a subscription model for several online services. Even 1 dollar a month is enough to keep out the spammers, trolls etc. The user experience would therefore be better. The trick is that these services might have to actually create a (gasp!) budget model that is based on real information, not arbitrary, fictional valuations based on user numbers. If they had done that in the first place, they wouldn’t be in the situation they are now. There will be people who disagree with me and say that user number valuations are not arbitrary or fictional. To them I say, “ok, show me the money!”. If you can’t take it to the bank or buy Whopper with it, it’s not money. If I am wrong great. I have just under 2k followers on Twitter. At $20 a head, that almost 40k dollars. I wonder what they would say at the Toyota dealership if I went to buy a Camry and told them I was paying with Twitter followers?
What does the future hold? Well, the Dead Pool will get larger, the layoffs will continue and the search for revenue streams will reach new heights. We will see ridiculous business models and profitability plans that would make William of Ockham roll over in his grave. It will be like watching turtles screw. In the end, it works, but it just looks really silly.
