I am a technojunkie raised off the kool aid of Silicon Valley, it’s what makes me so good at what I do (the later part of that statement made more as a half truth to be evidence to my silicon valley statement). But as an entrepreneurship student who has done countless case studies, business plans (maybe not countless), and been involved with a number of entrepreneurial projects- enough is enough.
The more I educate myself, learn, and enjoy this new wave of social sharing, the more I realize free isn’t a primary revenue model. Neither is showing advertising -with a very small number of exceptions of which social networks are not a part of. All in all, the only revenue model either of those lend themselves to are lazy. Just a kool aid catchall that gives people an excuse to try to put a “brilliant” idea into action with hopes of execution that is good enough to merit a return (and in most cases, the execution sucks and a halfway decent revenue model would at least prolong their death).
I’ll contend that free works for some, Google being an obvious case. And maybe I am just growing more cynical (another ingrained trait added to my education compliments of business school) but every time I hear about another social application or network popping up whose means of monetization is “oh, we’re just going to advertise until we get acquired” makes me want to punch someone in the teeth. There seems to be this underlying, growing assumption that if you charge for something you put your time into, you’re evil. Unless you really think the market value of your service or product is zero, why not take a little time to apply your creative juices to making some money in a unique way?
I am not referring to those cases where a medium is evolving (like music for example) or where the content is already free. But really, and maybe it’s just me here, if you are going to start a company on this whole awesome “web 2.0″ thing (and it is awesome) wouldn’t you rather aim at having it become akin to the success of Jeff Bezos’ Amazon (despite their recent eBook reader, not sure where that’s going to end up) as opposed to a Facebook that still can’t figure out how to monetize itself (they’re making efforts, I’ll give them that). It may not be as sexy, but at least to me there is something rewarding knowing that the value of a product or service I am providing is creating a tangible revenue rather than a disconnected revenue from people who just want to reach my community. The whole world can’t run a magazine.
I’m not saying advertising is wrong or doesn’t work as a primary monetization method, it’s a $50b industry, with that kind of money advertising as a method obviously works… sometimes. Rather, I am simply stating that advertising seems to have become the the lazy default in revenue models (being creative with advertising makes it a little better). At least sprinkle advertising revenue in with some alternative sources of revenue (revenue stream diversification).
Update
Recently came across an article that furthers my point. According to a study by Reuters, the top 50 websites account for more than 90% of online ad revenue. The top 10 account for 70%. Sure, you might be one of the 50, but you might better your chances for success by applying your creative juices to a different revenue model or at the very least, diversify your revenue streams. That may be the wisest of all approaches. Here’s an interesting look at other methods via Read/WriteWeb (read their stuff a lot, love it).
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