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Category Mobile - Web - Media
Date Thursday, Aug 03, 2006 9:20:15 AM
Free, The Business Model of the Web
I was reading Tara Hunt's blog this morning and selected to reply to one of her posts. Here's the link to her blog posting:

She was mainly talking about Web business models, and how being "Free" and "AdSense" are not business models...here she states:
"I don't think totally free is good for anyone. It devalues technology. It creates an insane pile of entrepreneurial corpses. It becomes the sole value proposition for too many companies (but, we're free!). It doesn't actually help the customer in the long run."
Some people may state that MySpace is doing just fine on ads, but this isn't the case. Tara continues:
"You'd have to grow hella big traffic to support yourself and the space is hella crowded. Even MySpace, with it's mega-traffic can't pull in the advertising $$."
Tara is correct in saying that MySpace isn't pulling in much at all from ad revenue. So what could sites/services like MySpace do to create a solid revenue stream? Can it be done?

Recently, in Business 2.0 magazine, there was an article on MySpace and CyWorld which points out some interesting numbers the two sites have. Link Below:

Here's a quote:
"The bulk of Cyworld revenue comes from the sale of virtual items worth nearly $300,000 a day, or more than $7 per user per year. By comparison, ad-heavy MySpace makes an estimated $2.17 per user per year."

As we can see here, Cyworld has found a successful revenue stream - but unfortunately, even they state that their South Korean site's methods or even layout wouldn't work in the US. The people behind Cyworld stated,

"... expects to make more money in the United States from advertising than from acorns."

You'll need to read the whole article to understand what acorns are in their context.

What is the new business model for startups when the playing field is filling up with competitors with free services? Will the big advertisers/corporations of the world leave TV and move their dollars to the Web? Just think... a single car commercial could run a startup for months... maybe corporate sponsorship/partnering could become a new form of funding? It would similar to a corporation sponsoring a car and driver in a race. They would just need to learn how to leverage the opportunities. When you consider a commercial campaign on national TV is going to cost at least $100,000 - we're looking at enough money to get a startup rolling.

Now if the corporations that could do this relize that they can both promote their products/services while also securing an investment - I think we may have something that could work.

In a way, it's still advertising/PR - except there's a greater opportunity due to a longer campaign and the potential for greater levels of integration for the sponsoring corporation. For example, Social Networks would be a perfect environment for such a relationship.

Now, depending on the corporation, and what their product/service is, their sponsorship also gives THEM opportunities that didn't exist.

* They can run their own ad campaigns
* run contsts where the site users create ads for them
* they can add their slogan/name to the RSS feeds the site serves
* they can add on intro clips to videos
* they can get press about the site they are sponsoring
* and on and on...

Why spend all that money on a TV commercial - when that same money could support a community online for a year - where the ad is a destination of living, blogging, sharing, and creative people?



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Gideon Marken
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