Will the world eventually turn on the new age internet user-generated social networking giants that have proven to be minnows when it comes to making money? I hope so. You know the companies I mean. They all exhibit the following characteristics.
- Their names are all created by welding two or more very common words together. This means they can trademark their name and people will find it easy to remember the URL.
- Lots of people visit their websites when they have nothing better to do. That means they are most popular with young affluent people who are a bit lonely.
- One aspect of the business model is to be an empty vessel, filled up by other people’s content. This works because people who create content – both good and bad – just want an opportunity to reach as big an audience as possible. Some of the content donators want to make money. Some want to be famous. Others have nothing better to do.
- Another aspect of the business model is that the people who created the site intend to make a lot of money by selling it.
- The final aspect of the business model is that lots of money can be made by exploiting all those young affluent lonely people that hit the site on a regular basis. The only problem with the final aspect of the business model is that nobody has worked out how to actually do that part yet.
My bet is that the only people who can expect to make money from the user-generated internet craze are the people who create the websites and then sell out when the market high. The market will not always be high, of course. At some point expect a few thousand Harvard drop-outs to run back home to their rich parents crying like babies because their internet start-ups went bust and never found a buyer.
Is sentiment already turning on the Weld-Words of the Web? Recent changes to Facebook designed to increase revenues were largely derided by both public and press, with the sole exclusion of a strange quarter of the business press that seems to think its job is to uncritically hype any business model that gets hyped plenty already. Now YouTube is getting strong criticism. Take a look at this article in the Financial Times. Here is an excerpt:
“The lack of monetisation on YouTube today is astounding,” said Dennis Miller of venture capital firm Spark Capital.
There is only one thing wrong with Mr. Miller’s comment. He should have said “The lack of monetisation on YouTube today is utterly predictable. Let us quickly go over the business model again. Content people give away for free? Check. Lots of hits from people that are just killing time for free? Check. Obvious ways to make money? erm, no, not really. Because if people have to pay for something that is essentially being given away for free, or have to suffer being directed towards making lots of payments (i.e. advertising) to get to it, then what will they do? They will stop hitting the site completely, or go to another which is free and has less intrusive advertising. The upside of WeldWordWeb companies – that they can quickly build interest at minimal financial outlay – is also their downside. Twenty-something millionaires are created by markets that lack barriers to entry. The absence of barriers to entry means anybody can set up a rival website and fragment the market. The interest of thousands of people can be switched off – or switched to an alternate site – as easily as it is switched on. Content is not a source of competitive differentiation. Because content is gifted for free, it can be just as easily gifted to rival sites too. So the only advantage of the sites with first-mover advantage is that, well, they moved first. They are hoping that users will form and keep the habit of using their site, quite like the way Google won the battle of the internet search engines. But habit is not a very strong bond between website and reader. It will not carry the extra load of taking much money from readers. The bond between website and reader is about as strong as the bond used to join two words together.