Thursday, February 12, 2009

Failure To Monetize

What makes the difference between Web 1.0 and Web 2.0 (and indeed, TV 1.0 and TV 2.0 since we’re on the cliché bandwagon) ? Well, the technology has clearly moved on, but it’s largely down to scale, ambition and – gulp – commercial nous.

But the border between 1 & 2 isn’t clear. There are some companies from the 1.0 world that have crossed into the 2.0 world. By and large they are businesses that attract huge numbers of users, but singularly have no business model with which to monetize them.

Top of the list, inevitably, is YouTube, but Facebook and Twitter come close behind. Some of the biggest names in Web 2.0 are actually – gulp again – Web 1.0 companies, IMHO.

The reasons these companies continue in huge loss making mode is that the common-or-garden wisdom was that users=value. So, because YouTube has 100 million users and BSkyB has 10 million users, and the market values TV users at £400 per subscriber, YouTube is therefore worth £40 billion. The fact that BSkyB is a mature company that knows how to get money from its customer whilst YouTube is a headless chicken that still has no real way of making money from its users.

What recessions tend to do is to focus value. Value is no longer the ‘jam tomorrow’ of how much viewers might be worth, but the ‘jam today’ of how the audience is being monetized.

I suspect the next couple of years will see a profound change in the views of investors, VCs and entrepreneurs in this respect. Initially there are many who believe that they can ‘see through’ a recession and actually regard it as a launch pad for speculative businesses, but increasingly, I suspect, proof of business model will be more important than proof of concept.

Making money from paying customers will become more important than making money from investors.

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