9rules memberEveryone’s Web 2.0 Revenue Model
May 28th, 2007 | Categories: acquisitions, financing, launch, marketing, off topic, social media, strategy, trendsThe buzz and hype of the new web landscape has subsided considerably. Yet, to my surprise, more and more ‘web 2.0′ start-ups continue to operate with the cheesiest, most over-used strategies.
- “We’re currently in stealth mode.”
- “Our AJAX widget will VOIP the RSS while podcasting to bloggers in a wiki-like fashion.”
- Our target market is anyone who uses the Internet.”
These crack me up. Like… give us all a break. My favourite though… is one that is not as apparent, or even stated anywhere. It pertains to the revenue models of these ventures. Contrary to what many may think (especially the companies themselves), a revenue model was never part of the initial strategy.
To some, this may come as surprising. To others, it’s common knowledge. Many of these start-ups launch a FREE product with the intention of exploding onto the market, harnessing viral growth, and eventually selling to a larger, more established player. WOW, there is it. The revenue model is actually an exit strategy. I think that is a web 2.0 trend in itself.
Web 2.0 revenue model = Exit strategy
This makes sense for naive Internet entrepreneurs because:
- It eliminates that monetary barrier to entry for users (as mentioned above)
- They have no idea how to monetize a product in the first place AND/OR they find comfort in the the phrase, “We’ll build traffic, then figure out how to monetize later”.
- The company realizes that if they do eventually implement a revenue model (advertising, subscription, etc…), they will piss off users and many will defect from the site or service.
So, as you can see, companies resort to the FREE model with the intention of ’slapping on’ a revenue model somewhere down the road. There never was a revenue model to begin with.
Now, don’t get me wrong… I love free products and don’t want to pay for anything if I don’t have to. But from a business perspective, that is not a sustainable or savvy model.
July 28th, 2007 at 12:20 am
[…] The downfall of charging for a service from the start is purchasing dissonance on behalf of the user. This creates a barrier to entry for service adoption. Subsequently, there is likely a longer path to critical mass. Having said that, revenues are being generated from Day 1. Furthermore, the perceived quality of the service will likely exceed that of a free offering. This strategy seems quite rare in the web 2.0 world, as start-ups are afraid to introduce initial barriers. Instead they try to build a user base as quick as possible, ignore monetization, then try to sell to a bigger company (AKA the web 2.0 revenue model). Failing that, they slap on Google AdWords and pray that they can generate enough page views to cover costs until the next round of financing - definitely not a sustainable model for about 98% of start-ups. […]
August 2nd, 2007 at 12:25 pm
With so many Long Tail revenue models, and with respect to the ReadWriteWeb article you linked from, it may imply that if the 10 companies that are making the acquisitions are not interested in your idea that you will never have an exit strategy. Does this mean that at some point Web 2.0 sites will just start Shutting Down?
In the Bill Gates history of Microsoft Book (like pre Windows 98 stuff - Harddrive or something), it clearly states that Microsoft looks at an idea for how technically challenging it is to copy. If the challenge is great and hence the cost to build is prohibitive then they acquire. BUT with respect to how cheap a solution is to build from scratch now-a-days these decisions become … how cheap is it to get this many new users VS. how cheap it is to purchase the users … I think everyone knows the answer to that one …
I don’t know if I make any sense …. I don’t know.
August 2nd, 2007 at 1:00 pm
Great post. I totally agree. I have similar ones at:
Venture Capital as Charity?
http://livinginfirstlife.wordpress.com/2007/07/27/venture-capital-as-a-charity/
Web 2.0 Entrepreneurs are Leading a Cliched Life
http://livinginfirstlife.wordpress.com/2007/07/08/web-20-entrepreneurs-are-living-a-cliched-life/
August 2nd, 2007 at 2:45 pm
Great post. I totally agree with your analysis.
November 26th, 2007 at 11:33 pm
[…] As we all know though, many of these companies never intended on monetizing via advertising like they say. Their sole intention was to build traffic and sell off to a major player (Google, Yahoo, Microsoft). This is the typical web 2.0 revenue model. This “hope for the best” strategy is risky, but has paid dividends for a small minority. I wouldn’t recommend it though. […]
February 7th, 2008 at 1:34 am
[…] Up until recently, it seemed like everyone and their dog was launching a widget-based start-up or a web 2.0 company that served up widgets. The hope was that these widgets would spur viral distribution, creating widespread exposure. In many cases, this did occur. But now what? Where is the monetization? How can revenue be generated via these eyeballs? Most held on to the hope that eyeball would attract potential acquisitors. In other words, their revenue model was an exit strategy in disguise - the infamous “web 2.0 revenue model”. […]
May 16th, 2008 at 9:04 am
[…] Here’s the challenge in the web 2.0 world. A lot of services are offered for free, and as Mapping the Web points out, this could well mean that all those entrepreneurs out there advocating a totally free […]