Stop asking “But how will they make money?” | Andrew Chen (@andrewchen)


Business models are important, but today they’re commoditized
Let me first state: Business models are important. Of course businesses have to make money, that’s a given. But that’s not my point – my point is:

Business models are a commodity now, so “how will they make money?” isn’t an interesting question. The answers are all obvious.

So when you see the next consumer mobile/internet product with millions of engaged users, let’s stop asking about their business model expecting a clever answer – they’ll have dozens of off-the-shelf solutions to choose from – and instead, let’s start asking about the parts of their business that aren’t commoditized yet. (More on this later)

Outsource your monetization
Between the original dotcom bubble versus now, a lot has changed for consumer internet companies. Thankfully, monetization is now a boring problem to solve because there’s a ton of different options to collect revenue that didn’t exist before:

  • There’s 200+ ad networks to plug into
  • Payment providers like Paypal, Amazon, Stripe
  • “Offer walls” like Trialpay
  • Mobile payment solutions like Boku
  • … and new services coming out all the time (Kickstarter)

Not only that, consumers know and expect to pay for services, something that was novel back in the late 90s. If you offer some sort of marketplace like Airbnb, they’ll expect a listing fee. If you are making a social game on Facebook, they’ll expect to be able to buy more virtual stuff. They’ll expect to pay $0.99 for an iPhone app.

Contrast this with the dotcom bubble, in which you were creating brand new user behavior as well as building these monetization services in-house. In eBay’s case, people just mailed each other (and eBay) money for their listings. Small websites had to build up ad sales teams in order to get advertising revenue, instead of plugging into ad networks. Building apps for phones involved months of negotiation with carriers to get “on deck.” At my last startup, an ad targeting technology company, we encountered companies like ESPN which had written their own ad servers because they didn’t have off-the-shelf solutions when they first started their website back in the late 1990s.

Let me repeat that: They wrote their own ad server as part of building their news site. And that means they had engineers writing lots of code to support their business model rather than making their product better.

Sent from iPhone 

Posted via email from Pete's posterous

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