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Where are the profits? (Part 5)
By: Kevin Xu
So lets say hypothetically that we do create some type of stereotypical web 2.0 user-generated website service type of thing, but where do the profits come from? All the great websites like Digg, Facebook, and Google are all free and that is the only way to get a lot of visitors. But they are also creating a million dollars in profit so how does that make sense?
Advertisements- I was quite surprised by how much revenue just ads could make. They range from hundreds of dollars to thousands of dollars for an annual salary. Currently we use Google AdSense and that provides some nice funds on the side (in the cents range). But there are some really popular sites and blogs that make a thousand dollars a week! But advertisements go so much more in depth.
The real use of advertisements is actually getting payment from people that want to advertise their own special something. This would come in the form of monthly payments or even as a type of sponsorship. Everyone wants to advertise on Google thus they pay good money for it. Facebook is starting a new form of advertisement where people can pay to advertise whatever they want to advertise but it will be specifically directed at the intended audience (mainly mindless teens). So how does one get these people to advertise? I bet few to no one will pay us to put their ad on our website because we are still fairly unknown. So the first step is really to generate a large community and traffic so we do get known. Can The World Hear Me right?
Actual fees- This is seldom used but if we create an actual downloadable program or a really expensive type of service then this might be used. But the idea of actually paying to use something online is a big turn-off for many. One of the newest companies 23andme (founder is the wife of one of Google founders) charges users $999 to use their service. But it is for good reason because they will analyze your whole DNA structure and find out your genetic history, makeup, and potential risks of diseases. It’s a fascinating approach to a good idea and I believe the fee will provide them with good revenue. And through this process, they have no need for advertisements either.
Donations- Now you’re probably laughing believing that a large company hoping to profit can’t ever rely on donations. But I present to you the awesome power that is Wikipedia! For however long they have been in business, they have never resorted to advertisements or fees but only donations. And if you think about how much data they have stored, thats a whole lot of hard drive and bandwidth storage needed (terabytes really). Maybe the online generation is nicer these days and are willing to donate to a great cause.
Now what will we do? Unless we sell something, the fees will turn-off many and I’m not sure people want to donate to two teenagers. AdSense is just a little blurb on the side to see the effects of advertising but is anyone willing to pay us for advertising? Other blogs like Jessica Mah’s gets nice promotional offers from companies hoping for a review by her (good or bad) but that’s because a lot of people read her site. In the meantime we’ll be dealing with different type of offers and see what the world has to offer us.
Stay tuned for the last part 6- Turning a website/blog into a service.
Previously:
Why form a startup? (Part 1)
Why use web 2.0? (Part 2)
What problems can we solve? (Part 3)
What are the Solutions to these Problems? (Part 4)
~Kevin X
November 23rd, 2007 at 2:37 pm
Hey guys, got here from Leo’s blog…
You must have content…content is king, if you get enough eyeballs / interest / attention, then you can monetize using any of these methods.
Facebook is starting a new form of advertisement where people can pay to advertise whatever they want to advertise but it will be specifically directed at the intended audience
You can already start doing this. If you develop a Facebook app that people use, then you can be paid to publish people’s ads, see these guys:
http://www.cubics.com/
They pay out thousands of dollars / day to people who make Facebook and Social Networking applications (look for MySpace and Bebo and Orkut and others to come on-line).
Also, the top blogs don’t just run Adwords (if they run them at all), they actually sell page real estate for a monthly fee.
This is seldom used but if we create an actual downloadable program or a really expensive type of service then this might be used.
Most apps don’t need to be downloadable programs, nor do they need to expensive. The new movement is towards the web, most applications can be reasonably provided via the web via either an ad-based model or a subscription-based service.
But that’s OK, people are coming to realize that software is a service and they’re warming up to the subscription model. This is good b/c software on a subscription allows you to generate income and evolve the software.
The truth is, unless you have some very niche knowledge and a very limited audience, you can’t write thousand dollar software. Instead, just write software for the web that everybody can use and charge it out at a small fee.
But the idea of actually paying to use something online is a big turn-off for many.
This statement is entirely based on your audience. Successful business people are well aware that they “get what they pay for”. If you build an app targeted at business, having a fee can actually make you a contender. If you build an app targetting “regular people”, then have a free version and “paid-for version” unless your ad revenue is big enough.
November 23rd, 2007 at 3:13 pm
Thanks for the very informative comment there Gates. The brainstorming process is a long and tedious one because I’m just gathering so much information and now I got to put it in order. Your information helps me even more so thank you for that and I hope you stay tuned for more!