Coming Soon…
Web 3.0: “How the fuck do we pay for this?”
This comment stems from a conversation that Ricky and I had a couple of weeks ago, or whenever the Superbowl was, and something that has been on my mind for the last couple of months as I’m working on this and that, the idea as to how exactly the internet is meant to make money.
(If you don’t want to read my wordy thoughts on the internet and doing business on it, feel free to skip and peruse the varying internet memes or other Jay-Z related content also available here)
Right now there’s a huge imbalance of power in the relationship between the supplier and the consumer. Almost every single service and item of content on the internet exists with little-to-no cost to the consumer, so when it comes to monetization, there’s not that many ways to make money. The idea of charging for services seems like something that seems like it would work in theory, and while Flickr’s pro account is often the example for people who support this theory, IMO that notion was applied to a much a smaller and more distinct sample size so that, when applied to the greater population, isn’t one that doesn’t seem to really pan out.
Even the New York Times or WSJ, both publications who have audiences with much higher than normal HHI who are— and this is a complete assumption on my part that may or may not be true— older and used to paying for content (like buying newspapers), couldn’t make the subscription based services work. There’s an expectation of free on the internet that, makes it difficult to charge a user for when there’s another, cheaper, option just a keystroke away.
A lot of people like to throw out the idea that if Facebook just started charging $1-2/month (or whatever) for users to upload and share pictures (or any other function), that they could make all of the money they were supposed to be making through Beacon, or whatever other initiatives that they have launched in the last two years, to support their pretty siginifcantly high operating costs. Clearly if a huge site like Facebook, with a very loyal and addicted userbase were to initiate a subscription based service that could potentially change the game. But it seems unlikely that this would happen at any point in the near future because of: 1) the economy and the fact that this might not be the best time to ask people to pay for something that used to be offered free, and 2) the scalability and/or viability of paying for services as a valid revenue stream. Facebook became the internet’s largest photo sharing site fairly quickly, stealing the mantle from Photobucket for a lot of reasons, but who’s to say that if they started charging that people wouldn’t leave just as quickly as they came. It seems like a bigger risk than necessary as they can still use their perceived valuation for probably, at least, the next 3-5 years.
The fact of the matter is, the internet itself exists on the idea of everything being free, and a good number of power users (people who may not be the highest number of eyeballs, but occupy a lot of the usership of the internet) live by the notion of: “If we don’t get this free here, we’ll figure out how to get free somewhere else” (see: the music industry). I just don’t see how charging for services would ever be a real revenue channel for any site that has a service worth charging/paying for— it doesn’t seem to be enough money, or built for scale.
In the last 6-8 years, or at least for the last 4-5 years (as long as I’ve been in it and/or actively paying attention), there’s been a race for sites to build up as much audience as they can with little concern towards how those users would be monetized (with as many gradients and oversized helvetica as possible, see: web 2.0). It was the ultimate time to be a free spirited entrepeneur, see every unlikable dot com owner stereotype ever, in which a cool dude would build the best application ever and it was all free to the user because the exit strategies of most of these startups, the ones that were successful enough to last long enough to actually build an audience, was to just find someone older and dumber, “The Man”, to pay an egregiously high overvaluation for something with not much forseeable return— an egregiously high amount of money for the small companies and its owners, not necessarily for the larger companies. This philosophy on which money was made wasn’t applicable to just people creating services or content sites, but also for a lot of early online advertising— albeit to a much lesser degree.
At first it was all about inflating the value of what was being sold to convince the bigger brands, that the buy was worth that cost of something they really had no way to conceptualize or valuate. In hindsight, it seems ridiculous that a majority of the money made on the internet was to sell a model of CPM based banners as a really cost effective way for a brand to use its money most efficiently, especially considering most of these purchases were made on high traffic/high-inventory sites in which there was, more often than not, a reason that their pageview counts were so high, and thus a lack of real value to the ads. Bigger brands hesitancy to really move more of their ad budgets online, still an issue, was probably one of the better things to happen to keep the web 1 and 2 bubbles from both getting obnoxiously larger.
To me, the next few years of the internet are all about figuring out what new standard, or overarching philosophy, will be what changes how money is made on the internet. There have always been a few next big things that have gotten buzzy and then fizzled: contextual advertising applied to banners, pre-rolls, Beacon (again), etc. But as there’s less money out there to be spent, by companies and consumers, and more players entering the space as a result (the overhead of traditional institutions not really being cost effective with the internet being cheaper), it seems like there will be a shift from the paradigm of judging the success of a company based solely on its audience, but also on its operating profit.
(This was wordy, disjointed, and probably full of typos, but I’m tired and unwilling to look it over to check it at this juncture, might do it later, but I’ve had that Ricky post ‘marked as unread’ on my Reader for a while and I want that folder to be marked as completely read, so I’m getting this out now)
