So how do you make any money from this Web 2.0 business? Ajit Jaokar has written an interesting post on Web 2.0 revenue models. He argues that charging premium fees to a select group of users disqualifies sites from being Web 2.0, since the project depends upon monetising the “long tail”. Similarly, a charged-for service does not count according to this definition since it isn’t utilising all of our collective intelligence. The remaining list of options for making money is quite short, as you might expect:
I have used information from some excellent work done by Dion Hinchcliffe and specifically one of his blogs ‘Creating real business value with Web 2.0’
a) The resurgent adverting model driven by rich media and broadband. Once dismissed, the ad
sponsored model is back with a bang! The software industry is about a $40 billion a year industry.
Advertising is worth about ten times as much and its all moving online(hence witness newspapers in
financial quagmire).b) To re-emphasise, the monetization of the long tail is critical in a web 2.0 business model
c) Gaining control of a hard to create data source and then being able to successfully monetise it(for example: www.craigslist.com)
d) Web services including mashups: amazon.com is the best example. Currently estimated to be earning Amazon $211 million a year. The Amazon web services model ‘decentralises’ the store by converting the store itself into an open, easy to use platform.
(NB: This is only a small portion of Ajit’s post, for reasons of space. I recommend that you read the whole thing – it’s interesting and succinct).
However, I think he’s wrong.
The ad-sponsored model may be back with a vengeance, but the only people making money out of it are Google and Yahoo! investors. The ‘long tail’ with their 1000 visitors will not be able to give up the day job soon on their $5 a week. The vast majority of bloggers are making a lot less than this from advertising. The only reason blogs carry Google ads is because they don’t really have a lot of other options. Given that maintaining their blog is driven by other ambitions: personal satisfaction, communication with family and friends, personal branding, etc, then this lack of ad revenue is acceptable. But could 99% of blog writers fund themselves from blogs on their sites? I don’t think so.
Similarly, while I am sure that Amazon makes a lot of extra money from mash-ups, but how much are the creators of those applications making? I really have no idea, but I suspect they make a lot less than Amazon.
Like a lot of arguments, this is all about semantics. Ajit believes that a successful Web 2.0 business must “monetise the long tail”. Hmm. That seems to restrict Web 2.0 to companies that can generate millions of eyeballs at a very low cost. Even then, it is problematic. I’m inclined to believe that some of the highest profile, ad-funded Web 2.0 properties (MySpace, YouTube, any other social networking/bookmarking site you can mention) is struggling to make their ad sales higher than the cost of maintaining their respective networks. I can see that Google, Yahoo! and Amazon are making money from the long tail. But are these Web 2.0 ventures? Or are they traditional businesses who have adapted very cleverly to the new trends in web traffic? (That was rhetorical ;))
So, the money. Where is it? Well, I don’t really think that bloggers will get anything significant unless they become part of larger networks like Gawker and Weblogs, with sufficient funding to employ a sales department and pitch for display advertising. Sorry about that, rest of the blogosphere, but really, who is going to advertise on a site with 1000 views a day except on a CPC basis? Consumer web applications like bloglines have an even harder job than bloggers getting display advertising, except through virtue of their large user numbers, which means they’ll be receiving the lowest rates imaginable from advertisers. I’ve spoken to a number of people running such services and a lot of them think that paid-for models will (a) give them a sensible revenue stream; (b) make their users value the service more and (c) create a more attractive model for advertisers. And social networks and user-generated media sites will need to tame the anarchic vibe and stamp down on child safety if they’re to see solid investment from corporate advertisers. Otherwise, they could charge a membership for those who don’t want their crazzzy network pulled into line by the Man.
Does this cross the line into traditional business rather than Web 2.0 business? Maybe. But if I owned one of these companies, that really wouldn’t keep me up at night. Being a Web 2.0 business doesn’t give you a license to run at a loss, I’m afraid to say, so get over it. In any case, as Anthony Mayfield has recently pointed out, many of these ‘wisdom of crowds’ services obey a 1% rule. That is to say, one percent of us make a video, vote for the news, create a blog, while the remainder either comment on it, or digest it as they always did. As Marc Fawzi recently argued against a naive post I made, even Google operates a hierarchy, since only the producers and taste-makers actually produce any links to anything – again, it’s the 1% that are creating PageRanks, not the 99%. When clever web applications harness the intelligence of their users, they’ll only be effective when the intelligence they’re harnessing is up to the job. Everyone has a right to musical taste, so last.fm will work by including everyone. On the other hand, digg voters are, by-and-large, technology enthusiasts, so they’ll produce a front page appealing to tech fans. Fewer people, but the right interests and enthusiasms to work for large numbers of bystanders.
To cut to the quick, the Long Tail is source of revenue, not an earner of revenue.
