alanwilliamson bubble2.0

Let us be honest, for a while there it got all a bit silly. Huge evaluations for online companies with absolutely no revenue model except for selling advertising.

Steven Hodson has an interesting roundup where he reports on this very fact; there isn't enough advertising money floating around to support every Web2.0 company. There isn't even enough to support the big 3 (Google, Yahoo and Microsoft) let alone all the wannabies that have been hyped to high heaven that have no way of ever really making a real honest to goodness turnover (Facebook, Twitter, YouTube et al).

As Hodson writes, he sums it up beautifully with the following

Everything we use on the web these days has been built with only the vaguest of business models; or none at all, but they all come back to the idea that everything should be free to the user and supported by advertising. WinExtra

With all the nonsense going on at Wall Street and the worlds financial markets, we all knew in our hearts the fairground ride had to eventually slow down and let people off. Better that than crashing and come tumbling down altogether.

No more adverts on the Tube?

But if advertising wasn't their business model, then it was the next pie-in-the-sky business idea, to get bought out by Google or some other big brother.

The problem with that plan, apart from the extremely one of being horrendously dangerous, is that even Google has a limit on what it will buy. It is still wrestling with the biggest lemon (YouTube) and how to deal with it. A quote from the Independent notes

Almost two years after it paid $1.65bn (£848m) for the YouTube video-sharing site, Google still has not worked out how to make money from the business, its chairman and chief executive conceded, even though hundreds of millions of people visit it every day. The Independent

In our hearts we knew this model wasn't going to scale to every company. At the end of the day, we all have to eat, put clothes on our back and find someone to rest our heads at night. And sadly for that, we need cold hard cash. We need to go back to basics. You use a service, you pay for it. You see that model is simple. It works. It has worked for centuries. It is the foundation to which our economy is built on.

bread & milk

Tesco's do not give me bread and milk for free, and instead sell the advertising space on my 25 odd slices of bread. When I spread my morning butter and jam on the toast, I am spreading it across some corporate message. While a great novelty, we know Tesco would be subsidizing this service at some level, and making money from us on other products.

While that sounds ludicrous this is precisely what is going on at the moment in the web world. How much money have you ever given Twitter? How much money have you given Facebook? Or even YouTube? You use their service with no direct money coming from your pocket to fund that service. Therefore, these guys have to seek some other avenue to make up that short fall. They hope that your continued pressence on their service is actually worth something.

So again, it is like your local butcher or bakery, giving away its products in a hope it can monetise your very existence in its store. Of course, we have economies of scale, the butcher shop would need to be pushing through millions of patrons before it could do anywhere near that. But fundamentally, its the same principal.

"I'd love to help if you have some money on you"

Take away the advertising model and the potential of buyout, would you actually pay for any of these services? I would suspect Facebook has a better chance of extracting maybe $1 a year from you than say Twitter. But who knows.

So should we expect to start paying for the online services we use? I think so. The Wall Street Journal believes so and has recently launched an exclusive subscribers-only area of its popular site.

Murdoch said he decided to ditch his original scheme for a free, open site after seeing the projections for the site's revenue which "changed his mind totally". The Wall Street Journal site is the world's largest subscription website, going against the trend for open access and a reliance on advertising.. The Guardian

One of the great disruptive technologies recently is the world of blogs. Many blogging hosts charge an honest value to use their service (TypePad, WordPress, and even us at Blog-City). At least you know we are going to be around tomorrow as we have a model that actually makes us money while providing you with a cost effective publishing solution. So the notion of paying for online services isn't at all new. It just went out of fashion there for a while.

A company that is built on real revenues for real services has a much stronger chance of surviving the long run. Customers can see how you make your money and not left worrying if you are still going to be there for them tomorrow. When customers question "how do you stay in business?" then already you have made them nervous. Transparancy, openness and good fashioned customer relationships.

Besides all that, aren't you getting bored of adverts? I sure as hell am.

naturally, if you like any of the Google Adwords you see below and beside this entry then feel free to click them. it will be our little secret ;)


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