Entertainment For Lively Minds
Who pays for all this stuff?
The previous article re Twitter got me thinking.
Talk to anyone and soon enough they'll be giving you a link for their facebook page, Twitter account, linkdin address.
I regularly post images to my blogsite. It's a great way to keep clients up to date with my work. If I want to find anything, I google it. Want music? Spotify it.
We take them for granted. They don't cost us a thought. I fact they don't cost us a cent.
So who's paying for it? What exactly is the business model? I just can't understand it. Anytime I bring it up, the knee-jerk reply is advertising, but that's a load of baloney. Advertising still hasn't found a way to effectively and sustainably penetrate the web, never mind making money out of facebook entries.
Is it as I suspect, speculative investment in the hope that a profit making model will emerge and the investors will be in the vanguard ready to collect the spoils?
Somehow I fear that when reality sets in, when the Emperor is seen to be naked, that many if the sites and privileges we take for granted are going to disappear from whence they came. Give it five years. Where will we be then...
Over to you...
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I've asked myself the same thing..
The business model is always the same.
1) Come up with idea.
2) Let it run for free, building up a big clientbase.
3) Flog it for squillions to idiots who don't understand the medium and think it will make money.
4) Run away laughing whilst it dies on its arse and the new owners gnash their teeth.
Classic example: Friends Reunited.
Soon to follow: Twitter.
I suspect we're about to see a slightly different re-run of the 1999-2000 tech-bubble. The irony is that many of the dotcoms which failed so spectacularly then would succeed now. The difference being that we're now in a broadband world now as against the dialup one which existed then.
1999/2000
I almost think it's the other way around. At the turn of the decade, the lack of bandwidth actually protected many of the services that would - in theory - have benefited from it. The ultimate broadband success (in terms of broadband enabling the product) must surely be YouTube, but the service is estimated to be losing Google more than $700,000,000 annually.
Broadband makes things tougher financially, simply because it's much easier for millions of users access rich media content and rack up a company's hosting and bandwidth costs. And while server prices have dropped drastically in the last decade, hosting and bandwidth costs don't generally benefit from Moore's Law in the same way. Certainly, the mp3 download site I was working at during the bubble would have expired much quicker if we had been faced with the kind of traffic and data transfer possible today.
And if you want to be paranoid about it
All of these things; Google, Facebook, etc etc, have more information about us than anybody has ever held in one place before. I'm sure that's worth a huge amount of money to people. For instance Facebook knows me, who my wife and son are, who my sister and father are, where I work and have worked, what music and films I like and what sweets I was eating at 4pm today. Google knows all sorts of things about me through my search patterns, enough to make it easy to market direct to me for instance.
And if you think you're anonymous online then think again. Unless you're being clever with how you connect, even your physical location is viewable.
Do we really know where all of that information goes to and for what price? We get this stuff for free, but I certainly wouldn't be surprised if somebody somewhere is paying for it.
I'm also a bit sceptical about advertising
as the answer to all the questions but, having said that, I think Google does make a large chunk of revenue out of it - enough that a lot of other people can do OK-ish on just a slice of Google Ads revenue.
Its hard to say for sure because Google Ads are a bit like Fight Club. Look at the T&Cs and you see the first rule of Google Ads is you don't talk about how much you make.
I don't know how much they make out of it, but Google and possibly other companies also licence the technology that they give away free online so that companies can run their own copy internally on their own side of their firewall. So a company could run Google Docs on their own servers, getting all the benefits but without corporate data being stored in the outside world. In a way the 'free' stuff promotes the brand and reputation of the company so they can sell (and offer support for) enterprise versions.
The interesting thing about that is that it looks like Microsoft are going to use a similar model for licencing of the next version of Office, with free online apps but a cost to companies to host their own copies.
Licensing
Licensing technology accounts for much less than 1% of Google's income. You're right about the advertising - that's where 99% of the company's annual billions come from.
And you're right about others doing well out Adsense - for low maintenance, low-staff websites with serious traffic, it can provide substantial income. Take plentyoffish.com, one of the world's biggest dating sites - until a couple of years ago it was a one-man operation. They still only have four or five staff, but it pulls in five million dollars a year in advertising revenue. Or perezhilton.com, the celebrity gossip blog site - it's thought to make over $100,000 per month in ad sales. Of course these are only two examples out of the millions of sites out there, but sites can turn a profit based on advertising if their overheads are low.
One interesting clue
as to where they think they can make money is in Facebook's acquisition of Friendfeed, see bottom of this thread:
http://www.wordmagazine.co.uk/content/the-free-web-privacy-and-facebooks...
and in the similar direction Yahoo is taking to make its own mail interface more like a pre-existing social networking database-haven't yet seen this in action.
But generally, I fear you are right, somebody will wake up with the bill when the musical chairs have stopped (or something like that ;-)).
Only the strong survive
I think what will happen is that one or maybe two big players in each category will survive if they sustain a market over a decent period. Google is the example in the search market, I believe they do now make a decent wedge out of advertising. Up to now (and it's a very young concept) social networking has been a very trend led thing, one year it's Friends Reunited, the next it's MySpace, then over to Facebook and Twitter if it goes on like that, nobody will climb out of the money pit and actually go into profit.
What I think is also quite likely to happen is that big companies that offer services or goods that you do have to pay for will buy the best of the other "service" sites and use them to drive business to their existing businesses and make the existing businesses seem more user friendly and community minded. I'm thinking of companies such as Amazon and Microsoft who would both love loyal customers who feel they like the company instead of buying from them begrudgingly. Obviously if things go that way, the services would effectively be funded out of the larger company's advertising budget and wouldn't actually need to make any cash in it's own right.
At the moment the people most likely to be picking up the tab for the failure of most of these companies are banks and faceless speculators and wouldn't back a loser would they??!