I meant to write this post sooner but I've been preoccupied this long weekend with the release of an updated Podcast Spot, catching a very good Alfred Hitchcock film and trying to make the most of the remaining summer days. Yesterday was also a failed attempt to upgrade my blog to Community Server 2.0.
There's been some debate over Paul Graham's interview where he stated :
What I tell founders is not to sweat the business model too much at first. The most important task at first is to build something people want. If you don’t do that, it won’t matter how clever your business model is.
At a time when there are a prolific number of web 2.0 companies that seem to have no real business plan, it's not surprising that his statements have not been too well received as expressed by Dead 2.0 and Mack. I don't completely agree with Paul but there are some truth in his words.
We're entering the Web 2.0 era where internet-based services are introducing a whole new generation of products allowing different ways to share, communicate and colloborate. There are whole companies built around wikis, tagging, online calendars etc. or a combination of those elements trying to come up with an innovative uses of the technologies that will change the way we live. It's a very exciting, optimistic yet uncertain future. When you're treading new grounds, it's difficult for your audience to see the value of your product making it equally difficult to come up with a viable business model.
Imagine if I was the owner of del.icio.us and I came to you in early of 2003 and told you my idea of an online social bookmarking site. Would you be jumping with joy or would you give a modest thumbs up acknowledging the usefulness of such a service? My bet is the latter. (I remember a few years back when Mack and I were participating in the Imagine Cup World Finals in Spain and there was a team that had a similar online social bookmarking project. It was a new idea and it was something that stood out from the rest of the projects that typically target the health sector but like the judges, we were unsure of its value and the entry wasn't given too much credit or spotlight.) If you're more business minded, you would ask how I plan to make money and if I shrugged my shoulders claiming Ad Sense, you'd probably roll your eyes and look skywards. But if del.icio.us charged based on the number of bookmark posts, would you have paid in 2003? What about now? We all recognize the value today but when an idea is so new that no one truly understands what they are paying for, charging for a service could significantly stunt growth and detrimentally affect the long term outcome (I'm not too certain del.icio.us would have been bought out yet if they were a premium service).
What about companies that adopt the advertising model? Do they really think they could become the next Google? Assuming the people behind the companies are not dumb (I like to give mankind the benefit of the doubt), they would acknowledge with a strong certainty that it's unlikely they would make a killing off advertising. Weblogs Inc. probably has revenues close to $2 million US a year (assuming their other advertisement revenue stream generates similar numbers as Ad Sense), which for a company is not a whole heck of a lot considering all the expenses that will be incurred. So if Weblogs Inc. really doesn't make that much in profit, then are the companies that adopt the advertising model really trying to strike it rich? Granted, there are companies that do but I think for the most part, they just want to cover some of the costs until they get bought out (they won't tell you that because your eyeballs would probably roll and fall out).
So the million dollar question: Is there a problem with companies with no real business model?
My answer is yes...and no. I think the real problem is companies believing too much in their own product. There's just too many "me too" products with pie in the sky dreams. Are you just another tagging, podcasting or photo service? Or are you offering something innovatively new that potentially has an enormous reach? If you're the former, you better have a solid and viable business model. If you're the latter and it is truly something people want, then maybe having a business model right off the bat isn't too important. After all, if you have deep enough pockets to keep the company afloat, the resulting pay off years down the road can be well worth it.
web 2.0 business business models advertising