Thursday, August 13, 2009

Week 4: Business Models & the New Era of Competition, pt. 1

Very interesting materials this week (not that the other weeks' haven't been; on the contrary) , though I'm having a little bit of trouble getting the supernova videos to play without too big a lag - I'm using wifi; maybe I'll try a wired connection this weekend. Still, I was able to get through all of the other materials - lots of food for thought there.

Entrepreneurs are still vexed by the challenge of turning a great web idea into a reliable source of income (other than by ipo, that is). More than a few people have developed some pretty amazing -revolutionary, really- websites and applications that captivate millions, but getting paid for it somehow remains elusive. I'm pretty sure the first time I ever heard the word "monetize" was during the first internet boom in the late 90's, when I had friends at start-ups. To me, that says it all - businesses were always pretty good at figuring out how they were going to make money (execution being the area that separated them), but somehow each incredible advancement in the web is accompanied by an equally incredible challenge in turning it into a revenue stream.

How many web firms don't end up turning to selling ads as the backbone of their business model? Personally - and I'll be the first to admit I am no expert on this - I'm skeptical of the real value "traditional" internet advertising delivers to its sponsors. I'm pretty sure I've never forked over any dough after clicking on a banner ad or a sponsored search result, so, to the extent that my example is typical, then whatever it is these ads are doing, they aren't directly delivering sales results (in all fairness, the same could be said of billboards and other mainstays of traditional advertising). We'll see what happens when these ads get smarter and better targeted, but I'm not holding my breath.

Neither is Christopher Vollmer, apparently, who advocates for more sophisticated relationship marketing. He points out how both media buyers like Johnson & Johnson and sellers like Meredith Corporation are succeeding by taking a fresh look at their assets to find ways to pivot away from the old approach to a new level of customer engagement.

Chris Anderson, meanwhile, has some ideas of his own about how web firms can build effective business models, ones paradoxically built on a foundation of giving stuff away. We'll see. To me, it feels like we're still an innovation or two away from crafting a viable business model for web firms. The web has not been short on innovation, of course, but the difference here is that where web pioneers are typically innovating along more technical lines, this next creation, the viable virtual business model, is likely going to require a different sort of ingenuity. The one thing we can be sure of, in my opinion, is that there's enough money on the table to entice some genius to eventually come up with something that finally works. Certainly enough to inspire an X501 student to give it more thought than they otherwise might've...

1 comment:

  1. You are right that it takes more than simply posting banner ads to be effective in marketing on the web. We are really in the midst of a lot of experimentation with different methods. It took many years of experimentation as well as a lot of creativity and "gut feel" to make advertising in magazines, newspapers, and television to work. One thing that is different today is that the experiments can be conducted very quickly and the results measured more precisely. For example, to test differnt magazine advertisements, arrangements had to be made to create and distribute versions of the magazine. This was both expensive and cumbersome. Plus, the results took a lot of time and effort to measure. With the web, different versions of an advertisement can be created and tested within days and the results can often be assessed very precisely and quickly as well. This will likely lead to more evidence-based rules and learning about what works. The same is true for pricing. The only advertising medium which came close to this scientific approach previsouly was direct mail. Many of the same experimental techniques used to hone the effectiveness of direct mail pieces have been adopted by advertisers seeking to improve web advertising. The web is far more flexible and precise, however.