Saturday, October 4, 2008

Web 2.0 New Business Models

In the first wave of the Web - called Web 1.0, this was all about publishing pages. Documents were the metaphor. And the first business model was the media model. posted the first banner ad in 1994. Targeting became the way to improve CPMs and response rates -- first by keyword in 1996 then by behavior in 1997. The CPM models of Excite, Lycos, Infoseek, AltaVista and Yahoo of Web 1.0 was replaced by the CPC model by Google and (later acquired by Yahoo). But the value driver remained the same -- human interaction with the web site, shifting from viewing to clicking.

Lots of new trends are part of this composite called Web 2.0 -- RSS, tagging, AJAX, blogging, wikis, podcasting, social mediated networking -- to name a few. The familiar names are: Facebook, MySpace, Linked In, You Tube, etc... However, most companies need to understand the implications on innovation capabilities as a result of Web 2.0 and the risks for not getting on board to learn early and take advantage of new reach practices - now being dubbed crowd sourcing.

I think most smart executives understand that the atomization of web content and the growing ability to query by machine rather than by humans will continue to increase in intelligence. Web services has been the 'next big thing' in IT for about five years now. The complexity of legacy applications, legacy systems, and legacy vendors has pushed Web Services into an alphabet soup of standards.

Meanwhile leaders (Google, Yahoo, MSN) in the consumer Internet have begun publishing simple procedural descriptions of how their web site can be invoked by a machine, rather than a human. And some interesting mashups have resulted. The initial mashups are mostly visualizations of one site's data on another site's maps. Examples are joins of Craigslist and Chicagocrime on Google maps.

New Models for Web 2.0

As a prior Venture Capitalist and now a Business Innovation strategist, one thing I have learned (the hard way) is that the current model often morphs into the new model. Rarely does a new model replace the old model in a wholesale manner.Some of the models to watch unfold on the innovation front are:

1. Micropayments

The dominant feature of the Web 1.0 'media' model is that it is free to the end user. If this could change, it would all be simple. Every site could publish the value (price) of a query by a machine and the application could collect this from the user.

Rocket J. Squirrel, "That trick never works."
Bullwinkle T. Moose, "This time for sure...Presto!...I gotta get another hat."

Micropayments have been around the corner for ten years - Digicash, Cybercash, etc. But user-pay systems only work for high-value and/or exclusive goods. So, user-pay models will be out there, but they will probably be a small minority of the transactional mashups in B2C markets. However, in Canada, our first micro-lending business model launched is Community Lend, founded by Michael Garrity. Michael will be speaking on Nov 4th in Toronto on "new social media models for old economy businesses," with other canadian innovation leaders, Smart Hippo, and Points International at a Web 2.0 Canadian Luncheon Series, that I am chairing with Research Capital. For information on this, just email me at

2. Shared Value

A variation on the advertiser-pay model would be to allocate revenue from a Cost-per-X (click, action, call, etc.) event across the mashup production chain. But this still has a serious problem. The problem is one of allocation across multiple players. If a mashup has 3 websites and results in a $1.00 action, how should the $1.00 be allocated? In absolute amounts or pro rata? The absolute sum may exceed $1. The pro rata model is subject to gaming by sites setting artificially high prices.

3. New Revenue Networks

My personal bet is that the YHOO, GOOG, and now ASKJ ad networks will solve this problem by bundling (1) contracts to police gaming and (2) payment settlement systems to enable the shared value model. If so, they will initially 'host' the mashups and extract the lion's share of the value for aggregating the users and enabling the settlement. They will eventually syndicate this model to mashups all over the web, using the same settlement network model.


There are many new business models unfolding to support Web 2.0, we will regularly comment on these innovation approaches to help fuel know-how for our innovation leadership community.

1 comment:

Anonymous said...

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