I get a little hot under the collar at web startups that have no real idea where their monetization will come from. Almost as bad (or maybe worse) are those who believe the holy grail of the dollar will be sustainably found via advertising revenue. Over on Zdnet, Phil posted a powerful treatise claiming that Web 2.0 signals the beginning of the end of advertising. As Phil says;

Instead of competing to grab attention, the way to sell on the Web is to align your selling proposition with buying intention.

The key here is about connection. The web has the ability to disintermediate many layers of middlmen, and put the individual wanting to obtain a service, directly in contact with the individual who is best able to deliver that service.

Facebook CEO Mark Zuckerberg (who after all sells advertising and has a vested interest in the continuation of the models of old), made a telling admission when he said that;

You can serve ads…or if you don’t want to advertise, you can just sell something

It’s an area that I’m personally very passionate about. Sure in the medium term the novelty factor of Facebook, Bebo et al will provide some sort of stickiness in terms of eyeballs, but once the novelty of the concept wears off they need to be able to provide a needed service.

The key here is monetization – needing to find an avenue that people will pay for rather than expect for free. Long term it’s a challenge for Google (and a threat to their straospheric current share price) to move to a model that derives revenue from something other than advertising.

So what do you think?

[poll id=”9″]

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

6 Comments
  • Another one bites the dust… http://www.stuff.co.nz/4553514a28.html (Will teach them for not having a good revenue model) – Shame… Some people never learn. It’s a lot cheaper to do solid homework upfront, rather than dive in and cock it up publicly.

    – On another note though, we’ve found at ProActive Software (www.ProWorkflow.com) that our advertising budget is steadily dropping and sales are still climbing. We’re using more word of mouth, referrer approaches as they convert better. But even when we do advertise, we expect a lower conversion rate than a year ago.

    I think the days of advertising as a primary method were over 2 years ago. Now, we consider advertising a supplementary action instead.

    Want to find out more about why advertising is dying? Go and read Seth Godin’s “The Purple Cow” http://www.sethgodin.com/purple/ it’s absolutely on the money!

  • I voted yes, but I go a step further than Phil Wainewright. What’s necessary is to put buyer conveniently at hand with relevant sellers, at the moment are ready to buy. Advertising, if it can provide useful connection, is a service of value in itself. Ultimately, if the advertising was good enough, people would pay to be advertised to!

    Still, in our business, we are taking Zuckerberg’s suggestion and attempting to actually sell something.

    But Ben, why are you so annoyed at the lack of monetization plans. If you have users, it doesn’t matter whether you sell ads, goods or services, or none of the above, because you can sell the business. Is that not a valid business objective?

  • Well Dan – it annoys me because in a constrained economy (constrained in terms of labour, capital whatever), all these startups with no real viability rob precious resources. There is a skills shortage here in NZ – how many of those who spent time working on iyomu could have been better deployed working on something with some real legs?

  • Dan, re: “If you have users, it doesn’t matter whether you sell ads, goods or services, or none of the above, because you can sell the business. Is that not a valid business objective?”

    Technically, if you can find a sucker to buy this type of business, then you may make money, but until then it’s actually a liability. There’s expense (servers, marketing, staff, time, development costs etc) and no income. Pretty basic model. So the person who buys it is either:

    1. Another sucker who’ll spend even more money flogging the dead horse

    or…

    2. A real businessman who’s thought of a way to monetize it (usually advertising).

    Note: People usually don’t spend money advertising a user based business unless they have a plan to get a return on their money – otherwise they’re twits.

    In any case, personally I don’t consider a non-monetized user based business a real business. “Show me the money honey”

    Another way to think of it is that a real business should put you in a better financial position than being on the dole.

  • I have “I don’t get it” moments all the time about these companies. The one the most annoying to me personally at the moment is Twitter. I apologize to anyone who loves Twitter, and I’m not bagging on what it does, but I do not understand how they will ever make money. I know lots of people who swear by it, but I don’t know one who would pay for it. Furthermore, I understand that most people Tweet through SMS and email anyway so they don’t even see the ads (I don’t use it so I may be wrong about this). I gather that some VCs and very smart people disagree with me and continue to put money into the company, but I am definitely not as smart as they are because I don’t get it.

  • Jason – you sound like that little boy standing out watching the emperor saying “but he ain’t got no clothes on”!

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