New Revenue Model for Internet businesses

In past 2 decades, Internet has changed the way companies have traditionally generated revenue. New businesses were spawned, new business models were formed and new industries were born.

Initially, corporations started selling goods online, bypassing the middlemen and reaching out to the consumers directly. Example: Amazon. This was the early wave of Internet based e-commerce.

In next phase, web advertising became the mantra for web portals. Example: Hotmail, AOL, and Yahoo. In past 15 years, Internet expanded at a very fast pace and therefore Search became the centerpiece of Advertising. And therefore Targeted Advertising became the norm. Example: Google.

In the past 7 years, Internet evolved into a more social platform. It became permeated into the daily fabric of our lives. Facebook and Twitter are experimenting into the recommendations based revenue models.

Internet became omnipresent and therefore, people started using it for entertainment. This led to the growth of Virtual Goods model. Example: Zynga. During the last decade, developing and maintaining internet products/services became more efficient and therefore Freemium and SAAS models evolved. Example: Salesforce

Since 2008, Daily Deals models evolved that connected the Social Graph with Local Commerce. Example: Groupon & LivingSocial.

Moving forward, few new revenue models are coming up. In the absence of a defined name, I would call them online-offline revenue models.

Online-Offline model:

As the name explains, this is the association of Online platforms with Offline (Local commerce) businesses. Online platforms are very scalable and therefore have lower marginal acquisition costs compared to their Offline counterparts. On the other hand, high fixed cost for Offline businesses makes them look out for alternate options to acquire new customers. This is like a marriage made-in-heaven.

In this process, the internet company generates revenue from Local businesses by acquiring customers for them. Groupon could fall into the same category but that model has its own caveats. Same could be said for Foursquare. Some companies are doing it quite effectively: Example: Redfin. Since this revenue model depends on the Offline businesses, we can expect to see specialized verticals. Example: Redfin is in the Real Estate business. Kiip is in the retail business.

There is a scope for creating more online-offline revenue models in other verticals. For example: Healthcare, or Retail. The premise of the model remains the same: Internet company acquires customers (with low acquisition cost) and generates revenue by driving them to Local commerce (offline).

Simply acquiring customers on Internet and driving them to Local businesses is not enough because switching cost for consumers is low and the barriers to entry (for new entrants) is also low (Groupon problem).  The challenge would be to create a model that can increase the switching cost as well as increase the barriers to entry for potential competitors.

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Yahoo and its comeback

Yahoo is good at generating Content. In 90s it was a very good core competence to have but after the onset of social media (esp. blogs), generating content has become a commodity. Anyone can generate content…and thanks to Google and Twitter, this content can be searched/distributed by anyone across the globe. People do not have to go to big brands (like Yahoo) to find good content.

In this context, Yahoo’s core competence became irrelevant. It tried Search..then it tried Digg style ranking, and now a days it is trying to be social (with yahoo connect). My thoughts: For a company that is as big as Yahoo..these strategies will not be helpful. Remember…you can not beat them at their own games. What Yahoo needs to do is…play its own game and let people compete with it on its own turf. In business language: Develop a new core competence.

There is a general notion that “social/connection” is important. No doubt it is…but it is only as important as the content that is shared between the connections. So, in a view, “content” is more important than the “social”. Yahoo has a lot of content (its strength). What it needs to do is to find out a way so that the content can “connect” with the user. A lot of pattern learning, profile learning, and behavior analysis will be required for this. . To cite an example: Let us imagine a scenario where you go to the Yahoo site..and find stories breaking out (just like Twitter) that are very relevant to you. Will you not go to Yahoo again and again to see that? I will. And the best thing is that Yahoo has the resources to do that (another strength)

Yahoo, are you listening? I will love you for ever, if you are able to do that.

ciao~

 

Core Competency and the buzz

Every successful company has a “core competency” that gives it the assets to be unique, strong, and ahead of the curve to beat the competition. Top managers know that “Core competencies can not be copied”. But still, sometimes the buzz around CEOs creates such a big pressure that they overlook the basic rules.

Social Media is the buzzword for the past several years. With Facebook taking the Silicon Valley by storm, a lot of people have started believing that every company should either have “Social” in their products or they are out of touch.

Facebook

Core Competency: “Ability to connect users with each other in an informal way”

Twitter

Core Competency: “Ability to distribute/broadcast content/information”

Google

Core Competency: “Ability to find the meaning (context) of content/information”

Yahoo

Core Competency: “Ability to generate content/information”

All core competencies are good…but the business cycle makes importance of competencies go up and down with time. No matter what the business cycle is, the fundamental rule still holds: “Core competency can NOT be copied”. In layman’s terms: “You can not beat him in his own game”.

Let us see what these companies are doing now a days:

Facebook is pretty happy because the current buzz is “social”. They have to be careful because, with business cycle, the importance of their competency will change. Twitter also feels good, but somehow is being pulled into being “social”. Google is holding Search to its heart but is a bit disturbed by the “social” . I hope its not trying to copy Facebook’s core competency, else it will fail. Yahoo tried the “search”..and is now trying “social”..with no success.

So, what should the companies do?

Simple answer: Adhere to these 2 principles of Core Competencies:

1. Do not make a mistake and loose your own core competency. Remember, others can not beat you..but you can still loose (if you mess up).

2. Develop other (new) core competencies that are currently non-existent in the industry. Simply said: “Think beyond social”

Ciao~

After Facebook

Why do I want 400 friends in Facebook and hundreds of followers on Twitter?

Facebook wall is “cluttered” with messages that make less sense every passing day. My friends’ list contains 90% acquaintances and maybe 10% friends. The probability of me reading the content on my wall is dependent on the “quality” of the content…not the person. So, its fair to say that the quality of content is more important that the person himself/herself.

Now the question is: If content-quality is more important…then why can’t I see feed from others who are not in my “friends list” but who are still posting good quality material on Facebook. I dont care where that content comes from as long as it “connects” with me. So… what I want is the “intelligent” content that “knows” what I like.

Next question: How do we do that?

Facebook does not do that and will not do that because it goes against its core principle. Maybe I should be able to “follow” a content..or be friends with the content..rather than the person. Maybe a new company/product is required that can understand my profile and stream relevant content to me. I should have the ability to block each piece of content (or rate it). My feedback will make the system smarter. It is a circular loop.

And yes…this product should not start collecting friends. Leave that task to Facebook.

Google…are you listening?

ciao~

New frontiers

Few days ago I was thinking about how the technology has evolved in the past several years. Maybe we are witnessing the fastest growth in innovation since the invention of wheel OR the discovery of gravity.

Focusing primarily on the technology sector, let us revisit the path that the industry (and its main players) have taken. History teaches a lot of lessons. So, the history of personal computing (technology) can throw some light about the current trends (and possibly future trends).

Lets start with the grand-daddy: IBM.

Several years ago (before I was born), there was a company named International Business Machine (IBM). They made big machines (mainframes) which were very succesful. The company kept on focusing on making bigger and more powerful machines. They closed themselves from the changing market dynamics and lost to the “new trends” (at that time): The PC revolution.

Enter Microsoft. The big 800 pound gorilla of the PC age was hugely succesful (and it still is, and so is IBM) in the 90s. It beat IBM hands on but (because History repeats itself) it made the same mistake as IBM did. It kept its focus on the PC (remember those attempts to make PC as the hub in peoples’ living rooms) and missed the Internet revolution. Yes, I know that they have Hotmail, MSN (and what not), but hey..they are not Google.

Enter Google. This one of the fastest growing company is the 800 pound gorilla of the Internet age. It weathered the DOT com burst, and has almost single handedly captured the most lucrative marketing/advertising business on Internet. But as we speak, history is repeating itself. Google is the master in searching information on the Internet and has pushed the envelope few times(remember indexing all books in the world), but it is missing the key changes that are happening outside of its domain. It is a very smart company (and so were IBM & Microsoft) but it is bound to make its own mistakes and has to give way to the new company that will ride the new trend.

So, what is the new trend that Google is missing and that will lead to some other company getting the crown?

Enter “Real time web”. Internet is changing very fast (exponentially). There is so much information out there that even big-monster companies like Google and Yahoo can not index all information every day/hour. And if you look closely, then this is the most important information (most of the times) for a lot of people. Does it matter what happened 10 years ago in my town? Ofcourse it does. But does it matter more what happened today in my town? Absolutely. Does it matter what “my friend” said to me 10 years ago? No (maybe yes sometimes). But does it matter what “my friend” said to me “today”. Absolutely. (Maybe no sometimes 🙂 But you got what I am trying to communicate. Its the realtime web that is gaining more and more traction (and importance), and Google (and Yahoo as well) are missing it. It is by virtue of their strength (Ability to search & index the whole internet) that they are missing out on the new trends.

Real time web is drawing new frontiers in the technology sector. Sooner or later, new companies (or solutions) are bound to come forward and take the lead. Only future will tell us the dimensions of that leader, but some core features could be: blogging, communities, communication, and openness. Some key players to watch might be: Twitter, Facebook, and Widget companies. It will be interesting to watch their revolution.