Yes, "Show me the Money!" summarizes this week's reading very well...
How do you make money on the Web? I love how Jun Loayza begins in 5 Business Models for Social Media Start-up: "During the first internet boom, the most common business model was probably, 'get a ton of traffic, then figure out how to make money.'" It appears not that much has changed with Web2.0, though Social Media behemoths are launching IPOs left and right, and raising huge capital... I will use professor Rappa's framework as a starting point, expand on it by adding new examples, and finally wrap up with monetizing Tweeter.
1. Brokerage model - Websites that serve as middlemen, connecting sellers and customers. I look at these websites as Divergent/Convergent search engines. They first give you a large range of choices, and then you may cascade through other websites to narrow down the search. My experience with these broad search vehicles is that they come back with dozens of links. When you click on any of these links, you end up on seemingly independent merchants. However, under closer scrutiny, it often looks like you are dealing with the same vendor, using separate storefronts. The prices are the same, the descriptions are the same verbatim, even the pictures are exactly the same. I'm not a big fan of the brokerage model, as this is another example where more is not more. Charlie Kim, founder of NextJump, B2B Analytics company agrees: Offering 6 million products for customers to choose from is not smart. The same idea is developed by Richard Thaler in his best-selling book "Nudge." Websites that follow this model are Amazon.com, YahooShopping.com, PriceGrabber.com, Nextag.com. I think this is where branding, and brand loyalty come in. I develop brand loyalty, and go directly to the brand's website, bypassing "brokers." Not a big fan of this model... Interesting how American chose to remove its fare from Expedia, but was forced back in... AA still highly promotes its own website for booking, offering a very extensive "lowest price guarantee."
2. Advertising Model - To some extent, all websites dabble in advertising. It may be more or less targeted, but they all do it. This seems to be the obvious financing mechanism for many websites. Yahoo, Google and Facebook all collect customer data that they then use to assign their members to customer segment and target advertising. You come to expect banners on all free websites. Sometimes they're pretty subtle, sometimes, they are part of the interface. On Grooveshark, the advertiser fills out practically the entire screen, quite a turn-off.
3. Infomediary Model - Reid Hoffman, venture capitalist and founder of LinkedIn writes: "People think, "Oh no! This company has data about me!" To that I say: OK, so a website or mobile application knows that you're a man or a woman, and it's giving you ads based on that. That's a benefit, not a bug." I tend to agree. If you volunteer information, why wouldn't companies use that data to serve you better? Going back to Nudge, Thaler advocates freedom of choice, but making it easy for people (in this case customers) to choose the best solution to their need. Customer data can do that! Furthermore, Charlie Kim's best point was that companies should not use data "to guess." If they guess wrong, you end up with spam, which no one likes... But if you collect too much data, customers might feel violated by the perceived privacy breech and lose trust. Businesses will find themselves somewhere along this continuum... NextJump is a great example of helping businesses take the guess work out of targeted advertising. As long as these companies are transparent about what data is collected, and how it is used, I have no issues with this; I believe it can help them serve us better, but maybe I am too naive...
4. Merchant Model - Wholesaler. Most of the websites I visit in this category are "Click and Mortar" (I love that play on brick and mortar!) These models are able to build on the brand loyalty developed over years of patronizing the physical store. They are especially handy if you have to relocate and your favorite clothing store does not have a retail store where you live now. These companies probably have higher overheads, but are able to build brand loyalty, thereby increasing the percentage of repeat customers to their stores/website. Merchant models take the traditional shopping model, and move it to a new media. At this point, the only "Bit vendor" (another great terminology) I use is iTunes. I have not bought an actual CD in years, and don't think I ever will again. It's been interesting to see the music section in stores like Walmart or Target simply shrink and atrophy over the last few years. It used to be a must stop area in the store growing up... Jen Beckman's pitch for 20/200 was passionate. She has a very clear mission: "turning customers into connoisseurs of art." She is sharing the art she is so passionate about and making it accessible to the masses. Rebecca Thorman made a great pitch for Alice.com. I've registered and plan to try it out. It looks like the site offers adequate choice of my favorite brands and products. I am likely to convert if Alice.com is able to come through on its promise of better pricing than brick and mortar grocers.
5. Manufacturer (Direct) Model - Rappa gives the example of Dell. Other examples are Apple, Adidas, Banana Republic, Fossil (wink!) I find it interesting that some companies (TagHeuer for instance) refer you to licensed and authorized retailers, but do not sell their products on their website. I'm not sure there would be a downside to doing so...
6. Affiliate Model - B2B business model, likely used in conjunction with another business model...
7. Community/Subscription/Utility Models - Parra writes that these models are based on "user loyalty." This is where the Jun Loayza comes in. Typical revenue is generated through premium service subscription (Freemium model, like LinkedIn, Pandora...); sales of ancillary products and services (Affiliate Model); Content services (Subscription Model like Netflix), voluntary contributions (Virtual Goods Model), and contextual advertising (Advertising Model). I wonder if the utility model will become more prevalent, with limits on bandwidth, or if the infrastructure is able to keep up with increased usage, if this model will go the way of the dodo...
So, with all these business models out there, how does Twitter plan to make money? Currently, 97% of spending at Tweeter is going to the product and the technology. Evan Williams' purpose, he says, is to provide the best, freshest information available. Tweeter is not a social network, he continues, it is an information network. Who owns news? Is tweeter the new CNN? A timely Opinion piece by Gordon Crovitz in the Wall Street Journal address the legal side of who owns the news. I will not quote the entire "Technology Trumps Law" article, which can be found here and is worth the read:
http://online.wsj.com/article/SB10001424052702304569504576405672792064908.html , but here is a key extract: "But just because the law can't control how news spreads does not make technology a pure good. Google and Twitter filed a brief in Theflyonthewall, warning: "Hot news becomes cold in a nanosecond in the modern world." They don't want restriction on their business practices." When John Battelle insists, and rephrases his question, Evan still does not really answer. From his body language, I could not tell if he really did not know, or was unto something so revolutionary that he did not want to give it away... My money is on the latter...
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