News for Web 2.0: Companies Need to Make Money
by
on April 04, 2008,
At the risk of making enemies, I'm one of the only people I've seen so far today not jumping up and down with excitement at Seesmic's purchase of Twhirl. I like the idea of Seesmic, even if I'm a videophobe myself. And I love Twhirl, and use it every second that I'm online.
Here's my issue with all these exciting mergers and buyouts and why I can't hop up and down: you have a start-up that doesn't sell anything buying another that doesn't sell anything. There are days like today when I feel like Julia Roberts' character in Pretty Woman pointing out that no one is buying anything anywhere, although Richard Gere still made pots of money.
Seesmic has apparently partnered with Lookery, so one can assume that Seesmic is making at least some money, although I'm not sure what Lookery is paying considering that they have signed up what looks like every Facebook application under the sun. But as talk of recession and bubbles and possible Google hiring freezes (link completely NSFW) gains momentum, at some point, we need to realize that people need to make money or we all go hungry.
Hank Williams says this all much more succinctly than I can over at Silicon Alley Insider; the prevailing method of montetization seems to be venture capital, and that's creating a false economy. Aside from the purchases, start-ups aren't going public. The rate of IPOs is decreasing. And the VCs are encouraging this mentality with the “figure out monetization later” pep talks. At some point, people need to make money, as the developers behind the popular Blog Friends Facebook app discovered. Not only is Blog Friends no more, but their other project, Buzzspotr.com is on hiatus as well.
In the meantime, every time a company makes a decision to improve or maintain a revenue stream, the “free is the new way” zealots go on a witch hunt. Everyone has been up in arms all week about Amazon telling print-on-demand users that in order to continue to use Amazon's shipping, they need to use Amazon's preferred POD publisher. How audacious of them to want to maximize efficiency and profit! As an Amazon Prime devotee, to me it makes perfect sense. If I'm buying something, I want it to show up quickly. That's why I pay the fee to have the free 2-day shipping. If I were to buy a POD book, I don't want to wait for it to show up at Amazon's warehouse to ship with the rest of my order. Either drop ship it directly from the POD you are using or use the one that gets it to me quickly. I shouldn't have to wait. Amazon has always been about customer service. Sorry, but I far prefer they make me happy. I'm the one buying the products. And they need me to stay in business, not VC dollars.
Williams is right; free is killing us. Slowly for some, quickly for others. And it's the companies who are smart and realize that profit is the goal who are going to survive.
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Marybeth Maynard
Murray Rich
Oliver
Lynn Burnett
Opensource 
Michael Fidler 
Yes, yes, yes….great ideas aren’t necessarily great businesses and the lack of a business model for a company or an industry will eventually end any joyride.
“Amazon has always been about customer service” : their customers not only include readers, but publishers and authors too. Amazon is shielding their actions under a cloak of the “it’s better for you” mentality. But, the real point is that their million dollar purchase of booksurge didn’t quite go as planned: they are not dominating the market as they have done with their bookselling services. So, instead, they are forcing the company on their customers. I read somewhere (and I forget now as I have read so many articles) a really good analogy: If you wanted to sell a toy in your favorite store and they said yes you can sell it through us, but we have to manufacture it for you at a higher cost than you will normally pay, make you sell it to us cheaper, and by the way we are known for below par quality…what would you say? You really have to put yourself in other people’s shoes and understand where they are coming from. It’s just about making their booksurge purchase worth while at other peoples’ expense, but hey, as long as the “I want it now” mentality prevails I am sure you won’t sacrificing good quality when your books start falling apart. I am neither a publisher, or an author, I just believe that a huge company should set an example and not use its market position to bully others. I look forward to seeing how this whole thing plays out…
@rebel So many of these apps are things that would be great features in another product, but the ludicrous amounts that companies are wanting for buyouts means most of them will end up folding.
@Anonymous Of course they want to make the Booksurge purchase worth it. Again, BUSINESS. They also want to reduce the number of PODs and move to an electronic distribution for Kindle. Again, BUSINESS. What POD authors and publishers need to realize is that Amazon is THE place people are buying books. Everyone is all het up and promising to take their toys and run to B&N, but it’s not like B&N is doing all that well either.
No one is saying you can’t use whatever POD publisher you want for your books, but why should Amazon eat the shipping on those purchases as well and annoy customers in the process? They are still saying use whatever, but you do it the way all the other non-Amazon sellers do it. “This item not available through Amazon Prime. It ships directly from XYZ Vendor.” This knee-jerk reaction from the blogosphere didn’t read through the whole thing.
I definitely agree, websites DO need to make money. There is an expectation among internet users that things on the web should be free. Is this because it is not convenient to pay for great content, or is it because users really believe it should be free? I’m inclined to believe the former, that users expectation of ‘free’ is caused by the lack of convenient mechanisms to pay for content. This in turn, caused the resultant focus towards advertising as a primary way of compensation. But ads are imperfect, they either annoy, if they are bad, or pull your users to another site, if they are good.
I am hoping to provide a mechanism to help websites make money which is super easy to use (you don’t even need an account to get started). If you’re interested, you can check it out at: http://www.poorfrog.com
This kind of thinking is so old fashioned. Don’t you know this is a new economy, with new economic models!?
Sure, we’re losing money with every visitor, but we’ll make it up in VOLUME!
Besides, we have to get the RSS and Atom feeds implemented and re-architect our whole system to support semantic web! You’ve got to have your priorities straight, you know. You wouldn’t understand because you’re not a Silicon Valley entrepreneur.
New economy with new models? Soon enough, any enterprise has to show it can make money - and visitors numbers and clicks are not currency. Little doubt, there are a stack of Web 2.0 services that are neat ideas, but not businesses. We’ll see them die soon and perhaps some Economics 101 lessons may come flashing back when people lose money with them…
And I don’t believe for a second that people think stuff on the web should be free. I can name at least one website where everyone who visits it is happy to pay $100+ a month to be there: Salesforce.com. Perhaps Web 2.0 companies could make money if they provided the sort of value users can measure, as SFDC does? That’s what we are aiming for with our social networking site for business. Whereas ad income counts for some of our revenues, we expect to make the bulk of it from business people thinking it is worth spending some money each month to get new leads. It’s a harder sell of course if you are doing nothing more than finding out what your friends are listening to or thinking of doing…
Ian Hendry
http://www.wecando.biz
Ian, if someone offered the same services that Salesforce.com does for free, their customers would be off like a prom dress. Check out any post on any blog that wonders what Twitter will do to monetize or Facebook and the minute anyone mentions a subscription or freemium model, you get a revolt with comments like “I like Twitter, but I’m not about to pay for it.” or “Why pay for Facebook when MySpace is free.”
The companies that are able to charge are those that don’t have a competitor with an equivalent version of the same service that’s free.
Cyndy, perhaps you are right. But SugarCRM has the best established CRM application broadly similar to Salesforce.com for free and has nowhere near the same installed base. And there is no evidence it is getting conquest sales over SFDC either.
I agree what you say about it being hard to see that “consumer” led services like MySpace or Facebook could ever charge for core offerings. But consider this. Facebook has a capitalisation of, say, $15bn with 20m users. SFDC (ticker CRM) has a market cap of $7.7bn with 400,000 users. Further, it will have revenues of over $1bn this year compared to, what, $100m for Facebook? What would SFDC be worth with 20m users? Of course, it would never reach that figure. But it could easily reach $15bn in two years with around 1m users - and it will have $2bn in sales by then to help back the business up.
Not only do I think it is only a matter of time before social networking values neutralise because people start to question how the money’s coming back (and perhaps AOL placing a value of $850m on Bebo’s 40m users is a sign this is already happening), but how much longer is it need it be before everyone incolved in such businesses realises that by providing some real value for customers you’ll win a regular income from sales so you aren’t at the whim of the VC community? It is interesting to see that some SN companies are already starting to collapse even though SN visitor growth rates remain high - expressed in customer interest, this is a market on a high. But if you don’t have an income beyond a few key individuals, how sustainable is it?
The enthusiasm in the market is great to see, but history and common sense suggests there is a lot of fools gold out there at the moment.
Ian Hendry
http://www.wecando.biz