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RSSI am at the Web 2.0 Expo in San Francisco this week in a never-ending, and seemingly futile, attempt to keep pace with change. Regardless of the futility of keeping up with all the news, there is inherent value to at least attempting to take it all in and drink from the fire hose. The human mind is an amazing piece of machinery, and you know what you'll get when you give it the right fuel. I do my best to maintain a regular helping of RSS feeds, media news clipping services, conferences and conversations. Most important by far are the conversations with other individuals passionate and knowledgeable about a given space, where one's mind can most easily draw complex insights and create "knowledge mash-ups" between the areas of expertise and focus.
I am always surprised at the parallels you can draw between two very different businesses' approaches to Web 2.0. -- specifically, how understanding the technical issues of building online communities can help create improved business and monetization models. To this end, I was shocked by how few advertisers at OMMA had a significant presence at Web 2.0 -- and how few of the great technology companies at Web 2.0 I saw at OMMA.
It's as if every business here has declared that advertising will someday be its main revenue stream, but it's not a central component of what they are doing today. Don't get me wrong; by all means develop product functionality solely to create value for the user -- but if advertising will have to be part of that value to be accepted in a Web 2.0 world, why is that something you put off worrying about till later?
Pretty much everyone will agree that we are not selling eyeballs anymore. Even the page view seems to be on its last legs. Yet 2.0 businesses and valuations continue to be built with a "If you build it, they will come" mentality. "It" being traffic and/or user base, and "they" being advertisers and their checkbooks. But solving the issue of advertising in Web 2.0, or any social media, has to be more than an afterthought, because like the Web 2.0 products and services themselves, advertising solutions are going to require education, experimentation and iteration to deploy. This means, if you have created just the right balance and eco-system you are looking for in your Web 2.0 community without any advertising, and only later attempt to introduce any sort of significant revenue-generating advertising, you've greatly increased your risk. Also, making changes to accommodate an advertising revenue stream that would have been easy early on is cumbersome and costly at later stages (indecently, this is the time when the greatest pressure will be applied to begin revenue generation due to increased expenses).
I think the biggest issues come with the following statement: "We don't want to force advertising on our users yet because we are at a very sensitive time in our growth." A couple of points. First, you will never be able to force advertising on your users to a degree that will generate any significant revenue going forward. Second, if you haven't yet begun to think of how introducing advertising can enhance the experience of your user base at this "sensitive" point in growing your community, than you have the wrong mindset for what advertising needs to be, and you are not building for a complete solution. For VCs, this should be an especially salient point. On the advertiser side, if you are waiting for Web 2.0 companies to reach critical mass in volume and reach before you can be bothered, than you are missing all of the same opportunities -- and most advertisers have more at stake than a $1 million dollar seed round. It's only going to get harder, and the integration and creation of valuable, experience-enhancing advertising opportunities will be missed entirely and end up being presented as more of the same old ineffective banner ad inventory. The only way to avoid this is to collaborate.
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I think there are quite a few Web 2.0 sites out there with the right mindset, and not all of them are ad driven models. Often, 2.0 functionalities are just the hook, not the meat. Flickr, Photobucket, Box.net, Omnidrive, Feedburner, and others, all use their widgets and API's to move people into the pay-service zone.
What will be the interesting turning point will be when we see the lines in the sand drawn with the sites that are following the model discussed in this article, the ad model. How many sites out there let you cut and paste their code into another site? A ton of them. What happens when funding runs low a social network says, "you can't piggy back off our audience anymore". Right now, there's this mentality that -1 and -1 equals 2. Then all of a sudden MySpace says, PhotoBucket can't host videos with us anymore, (happened last week I believe) or "we don't need your fun photo slide, Slide". Now you have companies that have built their whole model on leveraging other people's audience for their own benefit. Where do they fit in?
I think this trend is already starting. What will it be like in a year?
An example...Contextual advertising through sponsorship of objective, third party content is an excellent means of creating influence while providing value to the online community. While it does require an up-front investment, it offers a level of exclusivity that the typical display and contextual advertising do not. Most importantly, it creates a thought leadership position for the sponsoring company, captures qualified leads, and influences buying decisions.
For example, why hasn't SONY (or some other camcorder manufacturer) sponsored a publication regarding "Secrets to Creating Professional Video" on YouTube.com? I'll bet if they did there would be a good chance that those who downloaded the publication would be compelled to buy a SONY product.
Drop me a line at jjeffreydoerr@hotmail.com if you want.
None of this is innovative in and of itself. Just banners, white papers, case studies, text ads etc. The power is in the integration of advertising as a resource at a very granular level. This is no small thing to accomplish. Even the lowly and "ineffectual" banner ad can be a welcome part of the mix.
I don't have any connection to this site but as someone who has worked to monetize web 1.0 and web 2.0 sites and vertical networks, I really admire what they have done. I am sure they have significant resources dedicated to advertiser integration. Most publishers want to simply "plug in" ads. It is significantly more difficult to work advertisers to create this level of user value in the presentation of their marketing materials and message.
BTW another master of ad integration is GlobalSpec.com but most of what they offer is behind "the wall" with their three million + registered users!
I'm a big proponent of revenue sharing for most sites relying on user contribution to the framework -- it results in a more welcome attitude toward advertising. For sites that don't depend on user contribution, considering advertising and what they can do to optimize the experience for both the advertiser and the user is key.
If advertising is the business model, people need to realize that the customer is going to be the advertiser. The user is the product. The web application? The baiting and delivery mechanism. It's a grim look at things, but from a business perspective, this is precisely how things are structured.
On the other side of things though, I am sure there are some startups that would be open to a quality partnership with advertising, but can only find advertising that is a far cry from adding to the user experience. Both sides need to accommodate each other.
Maybe the marketing folks manning the trade show booths aren't talking about monetization yet, but I'm sure we'd get a different response from the CEOs and the startups' backers.
From the article: "First, you will never be able to force advertising on your users to a degree that will generate any significant revenue going forward."
Maybe not...
A lot of people allow themselves to become too steep in the "Web 2.0 Mayhem" that they forget a critical item, users. While it may seem like the vast majority of recent efforts are "user-centric", most only give lip-service to the idea.
A content community must be loyal to its users for its users to be loyal to the community. This means paying attention to a broad range of issues from community management strategies to proactive delivery of interesting features. The goal is to evolve into a model where traffic from "guests" far outweighs that from members. Why? Because a community with significantly more lurkers than contributors has evolved to a collaborative ideal that embraces a content model of interest beyond the boundaries of the community members. This is when the magic happens and we begin to see a self-feeding engine of increasing community pride with ever higher standards of conduct and quality. And then at this stage, your users will embrace many forms of advertising as a needed source of municipal revenue that drives continued pride, quality content, and steady growth.