During the dot-bomb era, not so many years ago, there was one refuge for any online business that was not profitable: a new business model. Everyone was sure they’d find one, and that it would be their salvation. After all, these exciting new businesses had delivered so much innovation to attract a following that surely a new, innovative business model would be child’s play in comparison.
You might disagree with my harsh assessment in this article’s title. Perhaps there is a good example of a new successful business model spawned by the Web, but most Web innovations are aimed at the service itself, or at a tweak to an existing business model, rather than a breathtakingly new model.
If we examine the big successes of the Web, we see updated old business models. Amazon.com Inc. (Nasdaq: AMZN) is a retailer that marks up items and sells them. eBay Inc. (Nasdaq: EBAY) is a simple auctioneer that charges a service fee to sellers. Google (Nasdaq: GOOG) sells ads.
Now, none of this is to disparage the accomplishments of any of these companies. Each is a remarkable story. And to be fair, Google did provide an innovation in using a hybrid auction that considers bid and click rate to price advertising. But it’s hard to call it a new business model. It’s still advertising.
The reason I bring this up is that the “new business model” buzz is in the air again. Perhaps every economic downturn sparks such discussion, but I am starting to hear people talk about how giving away something to charge for something more is a new business model.
Tell that to Gillette, which was giving away the razors to sell the blades 100 years ago. (Drug dealers seem to “get” this model, too.)
Others tell me that social media is a new business model, because it gets people to provide free content that businesses make money from.
Again, I am not saying there’s no innovation in any of these businesses, but even free labor isn't new. It's been around since Tom Sawyer got his fence painted -- smart people can get other people to do things for them. Writers contribute articles to trade magazines for free. Speakers pay their way to appear at industry conferences. The publisher and the conference organizer both make money, but they don’t pay for the content. Are Flickr or YouTube Inc. so different?
It’s important that we think clearly about how we are trying to make money on the Internet, rather than place our hopes in new, yet-to-be discovered business models. Plenty of innovation goes into keeping costs low and attracting users in any Web business. But we need to know what the business model will be, too, rather than telling ourselves that we’ll think of that later.
I am personally using many Web 2.0 services with no certain business model, including Facebook and Twitter. I hope they aren’t going away in a new dot-bomb era, all because they made users happy but had no way to make money.
— Mike Moran, author of Do It Wrong Quickly, is a speaker and consultant on Internet marketing
I think that, as with the initial commercialization and business adoption of the internet, the social networks will emerge into a business model. That will happen either through acquisition and adoption into a business model or possibly someone who best figures out new ways to produce business and consumer value from the social networks.
The network in and of itself does not produce business value, rather as the social network supports consumer value and/or business relationships, value can be created.
The dot.com's initially grew based on innovation but became profitable when anchored to solid business models. These occured either through extended ecommerce services to the existing consumer (i.e., banks), or through development of new models that had to be grown (i.e., Amazon). But either way, they proved profitable when attached to concrete business goals. They either directly contributed to lower cost of service, extended consumer relationships, or development of new services and products.
Finally, let's not forget the fact that I don't think we have begun to tap into new web uses. I think the social network is one, but I can imagine the future will create numerous models we have not yet considered.
Re: "Or maybe we just go back to square one on this thread to weigh whether
there was ever a viable business model model at Twitter to begin with."
Twitter has to be in a much worse position than any of the social networks with regard to finding a business model. At least Facebook has loads of user data to capitalize on (providing it doesn't mess it all up by invading their privacy again). I'm betting Twitter will be acquired at some point and get sucked into a social networking site and exist as a feature.
I don't know if it's a for sale sign, but I'm sure that he'd be open to an offer. :-)
I've always thought that microblogging felt more like a feature of a social network than as a separate business, but who knows what the bsiness model of social networks is anyway...
That story reads like a thinly disguised "For Sale" sign to me, Mike. I think Evan Williams is looking for another payout here while traffic on the site is still building and while the positive buzz about Twitter outweighs the negative.
Hard to tell if he lacks the heart or the pocketbook to grow revenues and turn a profit. Or maybe we just go back to square one on this thread to weigh whether there was ever a viable business model model at Twitter to begin with.
Thank you. I also agree with you about the "vaporware business models" that are supposed to turn nothing into something. That goes along with the mentality that "if we print stock, we have to be worth something" that the dot bomb era flushed out.
I guess we (the internet consumers and mavens) just need to be business smart and not sold on some "glitzy technology" that looks cool on paper or in stream.
I agree with you that Chris Anderson is a smart guy and that free is an idea that the Internet makes more powerful than ever. But even Chris doesn't claim that it's new, because he started his article with the example of Gillette, which dates to the 1890s. Perhaps it's just semantics as to whether something is new or not, but I guess I am just tired of hearing how some new business model is going to rescue businesses that aren't making any money.
I get the feeling that this view (No New Business Models) represents a view through half-closed eyes. If you stand far enough back, then everything looks the same. Clearly there is nothing that is new.
On the other hand, if you look more closely there can be differentiation. I think Chris Anderson has the right concept with his next book, Free. Once someone has paid their dues (by spending time with some application) then they don't want to lose their investment. Helping them leverage that investment is the new business model. I'll leave others to fill in the details. :)
How many different ways can you spin a business model. You are either providing a service (for which you are reimbursed) or you are providing some goods (for which you are reimbursed). Simple right?
Wrong.
If I am not a manufacturer and I run a store am I providing goods [the product] or services [the store]? Or what about if I just make a server available on the internet to people who pay me to use that server... is that goods or services?
I hope you can see where I am going. If you are looking at someone's business model, it better be a good or a service otherwise it's vapor. If the business model produces goods, the goods better be something that people want or a danged good value... otherwise the business will fail. If the business produces a service... the same rule needs to apply. It either needs to be the next great service or danged cheap.
So, regardless of the business plan, if it doesn't pass these two, simple bright-line tests then we need to run away from it. Why did the dot bomb go off? I have to agree with the posts that reference the underpants gnomes... if step 2 is missing then the plan is probably in the cloud.
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