I was going to discuss some thoughts on Web 2.0 profitability, and I think some readers on this blog will be familiar with my disdain for “get the eyeballs, revenues will come” mindset (have been hurt once on that!). Am beginning to hear more and more of that again… Some entrepreneurs point to Adsense as the default business model, but thats probably not enough — do the math, the numbers are too small.
So what could be the model? One that I am beginning to develop some conviction for is towards experiences so far in monetizing high affinity communities. In an offline model, we already have experience in monetizing a Harley Davidson club, or Rotary, and so on. Some thoughts basis that:
1) The key to these communities is not the size (the key to “enabling technologies”, such as tagging, will be size), but sharpness.
2) Once you have sharpely focussed communities, what you sell on top of them has to be much higher value than adwords. Amazon’s expected “Productsense” model could be one, as also the ability to “click-to-talk” enabled by VoIP providers. Affinity driven products and services would be the key, and relevance will need to move far beyond adsense.
3) Think of this — if you had a community of Harley fans online, what would you sell to them? and how can you now take that example, and generalize the technology? I think seeds of those enabling technologies are beginning to emerge today.
4) Due to high concentration of value, the enabling businesses will not all be automated — especially, the part where “relevance” gets captured (the hosting part may be automated, as a contrast). Tagging is an example.
5) I still think there will be a mix of “interest-centric” and “user-centric” communities, and hence the ability to “follow a user” across interests could be another possibility — this is same as trying to derive user profile from content being browsed. The current intent-based-paradigm will get far sharper, and/or evolve into user-based-paradigm.
6) High affinity should imply lower customer acquisition costs, though that by itself might not be an exit driver.
So the problem to be solved is
a) What creates high affinity communities on the web (I do not think the early experiments in Web 2.0, such as myspace, are the answer)
b) How does one maximize value per member with sharpely focussed communities
I dont know whether I am catching up here, or crystal gazing 🙂 so any comments are welcome!
Alok
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I still think that eye-ball may be the right metric but it is only useful in calculating the bounds but not the actual generated value. In the dotcom days people did use that metric which I don’t have a problem with but it was the assumptions that they made to arrive at a number of eye-balls which were grossly misestimated.
Here is a post if mine on you might find good read on eyeballs and metcalfe in response to an earlier venturewoods post.
http://rajan.wordpress.com/2005/11/21/can-metcalfe%e2%80%99s-law-help-indian-entrepreneurs-create-elephants/
Alok you hit the nerve when you said that key to web 2.0 is the community. As you pointed out that any website ( makemytrip, travelguru etc etc) that comes up in recent times in not a web 2.0 play.community is a key component.
A community gets formed more due to a purpose ( these can be categorized to preferences, interests, action ) and the action based ones create the maximum amount of value.
While it is true that value(immense) gets created in communities but it is the value capture that is the biggest problem and so far no one has been really able to solve the value capture equation very well.
The issue here I think is very fundamental because the phrase “monetizing communities” itself is an oxymoron.
Building community for the purpose of monetizing it directly will rob the essence of building a community, what I would think of is to build a community and have a complimentary offering to community which can be then monetized.
Pravs
Are you sure the 4 investments and 2 prospects on travel that you are mentioning are web 2.0? If you are talking about India, then most of these are expedia-like plays, and have nothing to do with web 2.0… if there is something i am missing, would love to get updated.
Alok
I am an enterprenuer from Goa. I am pleased to read about you guys in Business Today. How can we contact you for new ventures
Amit
Now that the topic is on for Web 2.0, Investments have been positive for new ventures. I have been wondering how successful would web 2.0 particularly in the travel portal domain? Everyone saying that market is HUGE and so is the opportunity. I already know about 4 recent investments, 2 existing oldies and as Vivek rightly said that technology is a low cost factor now, I have another friend who plans to start off his travel portal. Plus, we have existing offline travel biggies, airlines too having similar offering in store.
Just thinking – what would be the key to success, if its not to going to be ‘Get the Eyeballs & Revenues will Come’?
web in the 1990s was immature and static. Now the web has evolved into a rich platform and the future I believe is dynamically generated content. Information flow should take place between user to user and the mechanism (your company) you develop should act like a middle-man and facilitate information synchronization.
Two things:
1. Don’t do business, do innovation.
2. Don’t do marketing, do evangelism.