A colleague (friend met) is asking if there’s any money to be made inside Web 2.o. I’m quick to give my opinion, so I say “absolutely.” But, add some thought and a little context, and maybe I’m not so sure.
A little context
Our protagonist runs a small video / animation studio and has an idea. Since he’d be developing much of the service himself, this particular idea would take a significant amount of focus off his current business, a business that seems to be doing pretty well.
The idea would rely heavily on user-generated content and targets a non-enterprise audience.
His business is located in a midwestern metro with fewer than 1M residents. That’s probably more context than anyone needs. I’ll rephrase: he doesn’t live in the Silicon Valley.
Some thought
This one strikes close to home – service models don’t always leave a lot of attention for “product” ideas. And chasing an idea that you think could really work means diverting attention away from something that already does.
Assuming you expect to make up the opportunity loss that chasing your idea will bring, you need a business model. And this is where I think Web 2.o typically falls short.
The standard course for getting noticed by the Web 2.o crowd is simple:
- Get your site up [in beta.]
- Generate traffic and [hopefully] adoption.
- Start thinking about how to monetize your service.
Common sense tells you that if you build a valuable service, consumers will be willing to pay for it. The Web 2.o phenomena is tearing that reasoning apart.
In this case, our friend wants to build a community around user generated content. So he needs users. That knocks out the paid account option.
And even if it didn’t, revenue models that rely on upgrade paths to paid accounts (often called the freemium model) are tough. We saw a small percentage of our registered users upgrading to pro accounts on Feed Rinse – from what I understand this is common (1-5%.) So, unless your app is driving huge amounts of traffic, a few percent probably looks a lot like beer money.
Back to our specific case, charging your community for community generated content won’t work. The best route is to drop user fees and pursue other revenue streams. Considering the audience isn’t enterprise, the remaining Web 2.o revenue model (slight sarcasm) is simple: contextual advertising.
Sounds easy enough right?
Here’s the rub with AdSense and the like. Optimizing your site to drive revenue [through a pay per click model,] means optimizing your site to drive site visitors away.
Don’t get me wrong, I’m not saying AdSense doesn’t work. It does. But if your content isn’t driving ads from certain industries (high-risk credit or teeth whitening for instance,) you’ve got some work to do. You’d be a lot better off with a focused sales force. It costs money to make it.
So, what about location?
As much as I hate to admit it, location matters (not for the reason that some argue.) If your idea needs significant funding to get off the ground, Boulder isn’t the place to find it. The NYTimes ran an article yesterday on this very topic. I’ll ignore the premise that location trumps capability (actually, I’ll more than ignore it – that is just plain stupid,) but the VC angle is hard to dispute.
None of this is meant to give the impression that I’m down on Web 2.o. This is a specific case.
And if you’re comfortable with the idea of subsidizing an idea with other efforts, I say give chase. If not, don’t worry. There are a hundred other ways to make money online.
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[...] I wrote that location matters. It was a small point in a long post and was directed at [VC] financing. It was [...]