Category — revenue models

A lot of people wonder how Twitter is going to make money. They certainly have alot of options considering the mass of loyal users they have, but choosing the right one will be key to them transistioning from a cool tool, to a useful and sustainable product. I believe that Twitter will have to charge its users to use it, at least business users (companies) and that Twitter will grow into more of a utility than an application. Just like telephone lines.

Roughly 134 years ago, Bell and Watson struck a chord across some wires and invented the first practical use of the telephone. It would revolutionize the way people communicate, making the world smaller, in an instant you could speak to someone on the other side of the earth. (of course they still had to build that network..) But here we have twitter, and it provides the same type of utility that phone lines do, or email. It is revolutionizing the way people are communicating with each other, only this time - the network (the internet) is already built.

In creating their new Twitter 101 guide to using twitter for businesses (http://business.twitter.com/), twitter is taking its first step in the direction of charging businesses to send specials and deals out to their followers/customers. And that makes sense, particularly if they begin to implement freemium upgrades, additional features, and perhaps guidance and service upgrades for small companies.

The freemium model has worked online for years now, and many of the most successful companies use it to lower their customer acquisition cost to near zero. Its an interesting idea for Twitter, I’m looking forward to seeing how they execute. I know for a fact that, and I’ve seen it first hand across several dozen small businesses - Twitter offers a great service to gain and bring back your customers quick and easy. And thats something worth paying for.

I just read a very interesting post by Fred Wilson on the extreme loss of jobs this economy has seen recently. Then I came across this post by Greg Sterling (smart guy, loves local). But the response to one of his questions really pissed me off. Its somethings thats been hurting the micro-world of start-ups more and more. Its contributing to the erosion of creative capital.

Is there a revenue model?

Revenue models will exist, but they’re a low priority at the moment.

Now I realize there are alot of companies that have been founded and been successful with the idea that first we need to make a great product that everyone will love, then we’ll make money. I don’t mean to pick on the particular company being mentioned, the tone just bothered me. But I get frustrated that many (I would guess 85% of the start-ups on TechCrunch) start-ups that are highlighted in media and receiving great press all over the blogosphere, don’t even have a plan for a revenue model. Not even a plan.

Everything in life can’t be free. Its just not possible. Users expect everything to be free these days, but its the same problem that built so many consumers into such scary debt. “Let someone else pay for it/ I’ll worry about it later.”

Fred’s post was about job creation, not just through starting new companies, but through creative thought in existing companies (maybe specifically how to look for a job in those companies). But down in the comments it gets fleshed out that people need to create viable businesses that enable commerce or build sustainable businesses with customers in order to create jobs.

What bothers me about the whole situation here is that stupid blogs out there are so lazy that they just report whatever it is that comes into their inbox. Stupid companies that add a fancy little widget to shorten my Twitter posts are great. Thanks, but how many jobs is that going to create? Twitter is awesome, its like the invention of the key-pad phone over the rotary, its a platform for communication and it serves a great purpose. I have no doubt they will figure out a way to make money (or someone will whose doing the same thing). But can people please stop fussing about random little companies that admittedly don’t have a plan to make money, don’t do anything special or different, and generally don’t do anything?

Point here is there are alot of companies that are hiring. They are growing, they are adding value to their communities and they are creating jobs! They maybe only 3 jobs, maybe they are 8 jobs. But there are hundreds of companies out there hiring, and all we get to hear about is impending doom and the latest free iPhone app that shows girls in bikinis dancing.

I wonder what these guys think about? Consultants and professional bloggers… probably going to hire one soon tho

Peter Schwartz things Web 2.0 is dead. I left this comment on his article in the Huffington Post today -
Facebook’s Face Plant: The Poverty of Social Networks and the Death of Web 2.0:

You did not do very good research when writing this article:

http://www.techcrunch.com/2007/07/06/facebook-users-up-89-over-last-year-demographic-shift/
http://www.quantcast.com/facebook.com

A) The largest demographic chunk of users is 24-35,
B) Facebook reportedly operates on about $80 million/yr , meaning that $300 million in Revenue WOULD make them profitable.
C) Could you do with out your Outlook contact list? If so fine, if not then look at whats coming and see that Facebook is an excellent way to keep in touch with people you can’t see very often.

Web 2.0 isn’t dead, people who report on its death are simply on a melting iceberg looking for some more ships to sink before they go under themselves. Why do you think you guys just got $25 Million? Irony is shining here…

This guy wrote an article for a website that has comments and all types of “web 2.0″ content about the death of “web 2.0″

Get a clue. I like the Huffington Post, but its a bit early to be predicting the doom of a set of tools hundreds of millions of people use every day.

I totally agree that user generated content is not a sustainable business model for many (not all) businesses. But there are many businesses out there that are enjoying heaping rewards for allowing their users, visitors and customers to share their stories and comments online. UGC is not the end all be all of the web, but it has made the world a better place if you ask me, and its not going anywhere.

I’ve been extremely busy for the past 5 weeks. There has been so much going on in my life from polar ends of good and bad. Both of my parents were diagnosed with cancer this year, my Mother’s is very serious and out of left field. Just another thing to conquer in this game of life, which has become much more serious to me. Not to harp on the negative, but this economy isn’t exactly brightening my mood. At the same time, some of the best things have happened in the last 5 weeks. Our company is expanding quietly and well positioned to handle whatever new curveballs this economy is going to throw at us (im sure there will be some more between now and the end of the year).

I haven’t posted anything at all in some time, I feel rather guilty about that because it helps me get my thoughts out and I love to hear what other people are thinking about (especially in regard to my thoughts). My thoughts on the economy I feel are pretty clear, and its nice to see other people around the blogosphere agree and to see some people with like-minded thoughts on this ridiculous message being sent to many businesses. (I’m paraphrasing here) “If your business model isn’t good enough, there is always someone else to throw some money at the problem.” With the exception of Lehman, and hopefully the freaking auto industry, we need to stop bailing out companies - big and small.  And I think that attitude is over for now, at least for the time being.

Anyway, I’ll try to stop the politically motivated ranting in the future, and get back to my thoughts on local, sweet, sweet local. A place where everyone and there mother suddenly has to be. Well, keep throwing money at it and then tell everyone about how much money you threw at it.

One company I’m a huge fan of CitySquares, although my direct competition, they just got an investment from Marc Cuban (well 2 weeks ago). TechCrunch didn’t have a mention that I could find. That is sick. Mark Cuban invests in your company and no party, no flashy press release to every news org ever. Although I’m sure there was a veritable party going on at their office… Congrats to CitySquares and to the whole industry of Local Search. Cause that is a huge name in a very small space. Either the space has to get bigger or the  name has to get smaller. I’m putting my money on the space getting bigger.

Warren Buffet is the man.

Its October and unfortunately the leaves aren’t the only things falling. As the days get shorter and the weather a bit colder its an interesting time to be thinking about business. I have so much fun running a business, marketing, strategy, different things every day - its great. But there are some times when business is not easy, hiring/not hiring, letting people go, dealing with soured relationships, etc - and of course its never fun to see the sky falling all around you.

This time around (referring to the recurring October market crashes), I have a stake in whats happening. I didn’t know what the stock market was in ‘87 and I was too busy crushing life in 2000-2001 to really see the affects of that downturn. But now I’m here and I’ve got everything I have in the stake of the economy. I read recently (today) that ad supported businesses are in danger, and hear major VCs telling their portfolio companies to “tighten their belts.” This is laughable, what kind of business model - not website, tech company, ad network - but business model encourages or allows operating with no constraints? Of course companies are going to have to tighten their belts, a third of them are going to close! Look at JP Morgan. Look at your regional banks that only lend money to the best qualified.

Look at whats happening these days, this part isn’t laughable. Lehman, Merrill, and others… people are losing their jobs. Big white collar jobs. And you know what alot of these startups that are competing in the same arena as 12 other startups funded by 12 other $2 Million dollar rounds, how are they all going to survive this economy? Well maybe the economy will be just fine. Maybe the $12 Million dollars we raised last year will get us through 2009? Maybe. (we didn’t raise $12mm, its rhetorical)

My point here is that when people buy houses they can’t afford, when people sell loans they know can’t be repaid, when consumers rack up tens of thousands of dollars of debt buying iPhones, new laptops, expensive jackets and all this - some people think thats the American way. Well thats a shame if it really is, I mean REALLY is. I don’t think thats the American way. Entrepreneurship, new business investments, commerce, advertising (invented/pioneered by Ben Franklin) these are the American way. But even we can go astray -even advertising can! ;).

We make so much of the people who took out loans they couldn’t afford, but Citibank was telling people it was ok - “Live Richly” What about the lenders who backed these loans, and sold them. What about the Bear Sterns Executives who sold their stock at $92 a share in December in January, but told the world (and their employees) all was fine. What about the SEC and the Fed who stood by idly and watched de-regulation and absurd speculation create a pile of fake wealth sitting on top of a very delicate bubble. People were angry at “Wall Street” for creating this mess - what about our government oversight - WHOSE JOB IT IS TO PREVENT OVERREACHING SPECULATION IN THE MARKETS!? What about the administration that deregulated the banking industry in the same way we did 5 years before the Savings and Loan Crisis 20 years ago.

I’m sorry I got off track, but I’ll leave that rant for now… I can’t believe what I’m seeing these days. I can’t believe that a start up, no matter how well funded, needs to be told they should tighten their belts. You’re a start up, starting a new business. This economy is going to be bad. People lost their jobs, they’re losing their homes, and I am losing my mind looking at all these experts who didn’t see this coming. Those who neglect history are destined to repeat it.

I don’t even know how to finish this off because I started out much more benign, but its true, this country has forgotten how it works. We got lazy, we built another bubble, we got greedy, we got rich and then we destroyed everyone else. America is about creation. Creation of jobs, of wealth, of art, of relationships, of lasting businesses. America needs to look in the mirror, because we are awesome, but we need a little check here and unfortunately its going to come too late (if at all).

We need to get back to the real us, the real US. Taking or making an idea better; inventing new products. Not just multiplying some jumbo loans together, and calling it money.

Customer: But why do they put a guarantee on the box?
Tommy: Because they know all they sold ya was a guaranteed piece of shit. That’s all it is, isn’t it? Hey, if you want me to take a dump in a box and mark it guaranteed, I will. I got spare time. But for now, for your customer’s sake, for your daughter’s sake, ya might wanna think about buying a quality product from me.

AIG - didn’t you gaurantee loans?

I have tons of fake internet money. And I’m planning to get a bunch more, my question is what is everyone going to do with all their fake internet money. Alot of businesses out there are converting thier giant audiences into real money, but what are the large sites doing to monetize their views and return their investors money. Rounds C and D are exciting and there were alot big numbers thrown around last year and earlier this year, but when is that all going to come around. I’ve got a hunch that it isn’t.

Youtube became so succesful because it was free to its users, no money and no interuption cost of advertising. Facebook continues to be successful with its users because it limits the interuption cost as much as possible, but I would consider Facebook to be the field-leader in monetization. There are alot of competitors in an increasingly crowded space launching new platforms after their second and third rounds of funding all going after the same ad dollars (Zvents, outside.in, and many more). I’m not the only one who warns of seeking the same ad dollars with similar audiences.

I’m just curious who will be funding these companies in 6-8 months, will the economy pick up, or will ad networks save the day. There is some data showing a slowing online advertising atmosphere, however there is much more optimism towards online ad growth. I can’t see all of these local search competitors succeeding down the road, but the ones that do will own large shares of local markets and have a palpable relationship with these local markets. I cringe when I see “People Love Us on Yelp!” stickers - for a reason, they’re there and they are good.

A few posts ago I wrote about the online economy and how, in my opinion, it is helping to keep our struggling economy afloat. This morning on Squawk Box, two of the economists were analyzing the durable goods reports from April and they kept referring to ex-autos, ex-transportation, ex-this and that. While I fully understand what they are referring to, I’d love it if they could report, ex-e-commerce or ex-iTunes. And while I realize that the durable goods report probably shouldn’t include virtual hugs sent through facebook, it made me realize how (with the exception of Google) the online success seems to be an afterthought or an also-ran.

Its been two years since ecommerce accounted for more that $100bb in revenue, and in Q1 ‘08 Retail Spending online topped $32.5bb according to comScore. I think its time that the financial world started talking about the online economy the other 10 months of the year (they won’t shut up about it in November and December). I also think there is alot of learning to be done by the major financial institutions regarding the value and potential value of online retail, in a more serious manner. Sure, Amazon stock is up over 200% since May 06 “but thats just another hyper inflated internet stock” (I’ll trade you one Amazon share from June 06 for 10,000 shares of Bear Sterns…)

Just a little rant about the complete lack of focus the financial industry has to whats actually happening. CDOs, LBOs, Off Balance Sheet, Mortgage Backed Securities… How bout we go back to what made this country great, making stuff, selling stuff and buying stuff (as opposed to buying stuff that other people sold and eliminating the process of actually making anything). What was it Gordon Gecko said? - “It’s a zero sum game.” All that fake money is useless with out something to actual back it, wait a minute, isn’t that why they say Amazon isn’t worth anything…

Today’s Fast Company Big Idea is:

“Anyone who says early adopters don’t matter needs to go back to business school. Facebook and Twitter are beginning to impact business just as much as advertising ”

I follow these daily thought provokers from Fast Company because they are usually fairly interesting. I think this one is excellent. I don’t consider myself to be an innovator, but a late moving early adopter, I am becoming more early in the adoption cycle, but still I’m typically a little behind (particularly in the larger technology space, which I am still new to).

But the importance of early adopters has never left my thoughts. The early adopters are the business owners we seek out first when entering a new market, and they are precisely not the end users that we seek to reach on our website. They are the people who determine whether new technologies fail or succeed and build momentum for those that do. So I wait for the early adopters to try things out see if they fail. Early adopters are the front line in end user technology, and they need to be taken seriously.

A few days ago, I mentioned Lewis Black (ok, I’ve been a little harsh on Lewis, but I’m actually a huge fan) and his mocking of internet addicts - essentially early adopters. Again, a prime example of the lack of understanding most people have of how new technologies can help us do things better and faster, or sometimes just have more fun doing them. MySpace, turned into Facebook, then Twitter became the next hot thing.

Many of my clients are now “working” on a Facebook page, and already have a MySpace page. Do these pages help them at all? Not measurably, but the point is that even these late adopters and slow moving businesses now see that they “really should” be on Facebook. Do a quick google of “Facebook Marketing” (an auto suggestion in firefox!) and you can see that people are making entire businesses out of advertising consulting for Facebook.

But now, the innovators are moving elsewhere, which means the early adopters will be soon to follow. Where will they go, and what will be that next cool technology that will be affecting the way people to business? I would say mobile, but the iPhone already happened and the flurry of 3G phones coming out this summer will blow that away. Its not a new social network, because I believe people are getting fatigued. Semantic Web 3 dot 0, fancy buzz words? I think we are a year or two away from anything drastic coming across the radar.

Any thoughts…

IAC reported its first quarter earnings today, with revenue up 22% and income up 15%, you could say that they had a very good quarter considering the gloomy shadow over the economy in that period. Most of this is due to their Media & Advertising division which saw a 192% increase in income. The Media & Advertising division consists of ask.com, CitySearch and Evite along with their other online properties (exluding Match.com). This substantial growth can be contributed to a few things, but most notably I would point out this shows that the online advertising space is positioned to grow very nicely, particularly in the current economic climate.

The fiasco resulting from comScore’s under reporting of Google’s clicks was a good representation of how the internet is still new to many big players. ComScore, regarded as the primo player in online measurement published a report that tanked Google stock, sent online agencies and publishers into a panic and threw a shroud of false gloom over the entire industry.

While our company has seen a cutback in spending from some of our advertisers, and hesitancy from new clients to invest their marketing in a new space, for the most part we have seen healthy earnings growth, an expanding customer base and a large increase in traffic. A good friend of mine running a leading e-tailer of health products and services saw revenues up 38% yr/yr in Q1 of ‘08. Our company doubled revenues over first quarter 2007. Online is up and its good.

Today the US economy reported a modest .6% growth. “NOT TECHNICALLY A RECESSION”, “THE US ECONOMY SLUMPS THROUGH 1ST QUARTER”, “INVESTORS SEE RECESSION, WALL STREET DEPRESSION” - those were the various headlines across the internet. I did a quick search and found that every major news outlet had some sort of dreary publishing of this not so bad news. The Dow is up .9%, the NASDAQ is up .4% but everyone is running around declaring the bad news.

People are smarter than this (some people anyway) but its hard to ignore the warnings. I see people making smart decisions with their marketing money, which is basically me saying “I see people spending their marketing money online.” The yellow pages are dead, and even the YPs are building their online presence. Google’s huge numbers are back in peoples mind and small businesses want to be a part of that success. Money is being spent, and thus money is being made - online. Thats where the people are going and thats where the budgets are beginning to gravitate.

I saw a segment from Lewis Black last night where he was mocking the younger generations for spending hours online each day. I like Lewis Black, but he went on a rant that just was not funny to me. He sounded like someone from the Prohibition era talking about how young people spend all their time in bars, drinking. Well Lewis, its not just young people, and we aren’t just making fake friends on MySpace. We (meaning people who use the internet) are finding information, researching purchasing decisions, exploring entertainment (music, video, even TV) and building our network of contacts. I find it ironic that you can watch Lewis Black on YouTube, talking about how people waste their time on YouTube. Hey Lewis, how would you feel if I told you that 30% of the people who watch you speak, are watching you online??

Lewis Black has nothing to do with what I’m talking about, but everything. The online economy is heating up, profits are up, more people are online and more transactions are being made and researched online then ever before. The majority of these companies are seeing great profits and surging business opportunities. The old market is not what it used to be - The World is Flat and we can’t just keep measuring things they way we used to, otherwise everything will look all messed up.

Kind of like when the economy shows a better than expected growth rate, and thats a bad thing… what if we excluded all these online and new media companies from that number - how bad would it be then?

Do you have log in addiction? I’m pretty sure that everyone I know has log in addiction, and the growing influence of social media online is only compounding our problems. Do you find yourself refreshing gmail to see if you have any new emails? Logging into facebook to check the updates? Refreshing your homepage to check for any updates on your RSS? I do, and so do you.

Seemingly every day I come across something new to sign up for, log in to, and then gage my response from. Do any of these applications actually add value to my life? - That is the question on many people’s mind these days, but does it really matter? As all of these new sharing programs emerge and millions of people are logging in every day, what is the world coming to?

My question is how will all of this ever be monetized? There is no way to charge for it, because users will immediately reject that and move to a similar and equally useful/less service that is free. Do we fill the application with advertising? If so, how do we measure the value and effectiveness of these ads? Will marketers really want to pay to reach these tiny niche markets that have suddenly become giant flat, almost muddy, fields?

As I sit here writing this I have 5 other tabs open on my screen, all of them require a log in, a sign up, an email, a profile, something to connect me to all of the anonymous users out there pleasantly sucked in by their ceaseless need to log in. But what is the value of this to me? To you? Facebook has billions of pageviews a month, yet they are losing money. Sure the potential value of those views is huge, but how will they make it happen. What will be done to address these revenue models?

Five websites I’m on. Simultaneously. Two of them have advertising on them. Three of them do not. Why do these websites exist, and how are they going to make money.

If you build it they will come… well if they come, how will you get them to stay long enough to make money? The answer is simple - login addiction. We love connecting ourselves so much, in this increasingly disconnected world, that we will try anything that is fresh, cool and can keep us in touch with the people we care about.

Facebook, Gmail, MySpace, Blogs, Forums, Chat Rooms, Twitter, YouTube, on and on and on, until we stop liking each other. Oh, by the way, don’t forget to subscribe to my RSS feed…