Tuesday, October 20. 2009
I've been reading some fascinating stuff on business models this afternoon, here are a few for your enjoyment:
One - Microsoft (aka The Borg) struggling to use its market , from Fake Steve:
Look, the Borg has never been out ahead on anything. The difference is, they used to be able to catch up. They've always been copiers. That's been their business model from the start. Let others go out and create a market, then copy what they've done, sell it for less, and crush them. They got into the OS business by stealing DOS from someone else. They created Windows by stealing Apple's ideas. They got into desktop apps by copying Lotus and WordPerfect and then having the bright idea to bundle all the stuff into one cheapo suite. They pulled the trick off again with Internet Explorer versus Netscape, in the late 90s -- that was the last time they were able to let someone get out ahead of them and then pivot and copy and give it away free and take them over. By the end of the 90s they had broken through 50% market share in browsers, and that was it for Netscape.
But what happened after that? This is what we were wondering. Larry says two things happened. One, the Borg got slower. They got big and fat and bureaucratic. Two, everyone else got faster. Look at Google. They got so big so quickly that there was no way for the Borg to claw them back. Same for all these other Web businesses. Amazon, Ebay, Skype, Facebook, Twitter. They came out of nowhere, and what they were doing was free, so the Borg couldn't just do a crappy knockoff and sell it for less. They were up against free -- the Web companies were using their own strategy against them.
Two - Building a Video Empire - Demand Video, churning out hundreds of low quality "how to" videos each week as reported on Wired..:
is a factory stamping out moneymaking content. “I call them the Henry Ford of online video,” says Jordan Hoffner, director of content partnerships at YouTube. Media companies like The Atlanta Journal-Constitution, AOL, and USA Today have either hired Demand or studied its innovations. This year, the privately held Demand is expected to bring in about $200 million in revenue; its most recent round of financing by blue-chip investors valued the company at $1 billion.
......
By next summer, according to founder and CEO Richard Rosenblatt, Demand will be publishing 1 million items a month, the equivalent of four English-language Wikipedias a year. Demand is already one of the largest suppliers of content to YouTube, where its 170,000 videos make up more than twice the content of CBS, the Associated Press, Al Jazeera English, Universal Music Group, CollegeHumor, and Soulja Boy combined. Demand also posts its material to its network of 45 B-list sites — ranging from eHow and Livestrong.com to the little-known doggy-photo site TheDailyPuppy.com — that manage to pull in more traffic than ESPN, NBC Universal, and Time Warner’s online properties (excluding AOL) put together. To appreciate the impact Demand is poised to have on the Web, imagine a classroom where one kid raises his hand after every question and screams out the answer. He may not be smart or even right, but he makes it difficult to hear anybody else.
Did you get that - "He may not be smart or even right, but he makes it difficult to hear anybody else." There are some business models you really hope will fail, but somehow I think this one will work as it arbitrages nearly all the new' nets inconsistencies. The NYT does a nice precis of the issues
The start of rational behaviour in online music ( Guardian)
Dizzee Rascal, Travis, Speech Debelle and a host of other artists are set to enjoy windfalls after a landmark deal between independent record labels and YouTube.
The PIAS Entertainment Group, which represents 200 independent labels, has signed a global licensing and marketing deal with the online video giant that will mean artists and their record companies get a share of revenues from adverts shown alongside their works.
The deal covers both official audio and video releases as well as user-generated content.
PIAS says it will also work with YouTube to try to drive up traffic to artist pages and develop partnerships with brands, such as channel sponsorship.
"Some of the world's most iconic artists will now be able to engage with their existing fans and win new ones," said YouTube video partnership director Patrick Walker.
The last one, some good advice on the issues with PPC from SEO guru Dharmesh Shah:
PPC (Pay-Per-Click) can be effective, but will not protect you. One of the popular forms of marketing today is pay-per-click advertising through programs like Google AdWords. I’ve seen entrepreneurs get really, really good at figuring out just the right bidding strategy and figuring out precisely how much they can afford to spend on a given word based on their conversion rate and lifetime value of the customer. This is all fine and good, except for one thing. PPC programs like AdWords run as a real-time auction. She who pays gets the clicks. It’s easier to describe why this is a problem with an example: Let’s say that you’re building a web-based app for home theatre installers (random example that I just made up). Let’s also say that over time, and with some maniacal focus and PPC bidding ninja skills, you figure out that you can afford to pay up to about $2.76 a click based on the traffic that these clicks generate, how many clicks lead to purchases, and the value of each purchase. Life is good. For every $1 you put in to the PPC machine, something > $1 comes out. This goes on for weeks/months. Then, all of a sudden, you wake up one morning, check your analytics and discover that for some reason, the price for your most important keyword went up. Way up. Enough that your morning coffee comes shooting out your nose. After some poking around on the Interwebs, you find out that some lame startup on the other coast just raised $5 million from some lame VC. They just emerged from the shower freshly sprinkled with a new round of funding, hired a VP of Marketing who then went out and started buying AdWords. Your AdWords. The real tragedy with this story is that this competitor is not all that bright. They don’t know that they can’t really afford to pay that much for a click and make profits (they’re not thinking about profits — they just raised a bunch of money). Your problem is not that they’re super-smart, it’s that they’re super-ignorant. And that’s the thing with PPC. You’re basically at the mercy of the stupidest market entrant. Call me simple-minded, but that doesn’t sound like a particularly effective barrier to entry when someone can just come along and drive your cost of customer acquisition (COCA) up. And, it doesn’t happen overnight — it happens immediately.
(I loved the bit in bold)
Stop Press - I added Ning flogging virtual goods (hat tip Nic Brisbourne) - TechCrunch:
Today Ning, the platform that lets users build their own social networks, is launching a new feature called Ning Virtual Gifts, bringing a built-in virtual goods store to the site’s 1.6 million networks. Virtual gifts have become increasingly popular over the last few years, largely thanks to their popularity on Facebook, and I’m sure plenty of Ning’s Network Creators are eager to cash in on the trend.
Ning is letting Network Creators choose from a library of pre-made virtual gifts, but they’re also free to create their own. This means that the site’s Brooklyn Art Project network can offer gifts that are miniature versions of handdrawn artwork. It also means that the New Kids On The Block network can sell gifts of… the bandmembers’ faces (I do realize that I’m not the target demographic with those, and Britney Spears has seen quite a bit of success selling her face as a gift on Facebook).
Ning will be taking a hefty chunk of the revenue from each gift: after PayPal’s processing fees, half will go to Ning, and the other half will go to the network creator who sold the gift. To help spur interest in the new feature, Ning is giving everyone on a Ning network 100 credits, which is enough to buy one gift (each gift normally costs 75 credits which translates to $1.50).
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