Web 2.0: Where's The Business Model?
I 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.