Most of us use many Internet services without paying much attention to the underlying business models – or lack thereof. The following observation by the Economist a couple of weeks back has a more profound impact than people are so far willing to admit:
Perhaps most dangerously, Web 2.0 still had only one business model, advertising, and the Valley was refusing to admit that only one company (Google) with only one of its products (search advertising) had proved that the model really worked. The older internet firms, Yahoo! and AOL, were doing their best to grab a piece of the action. But the “next big things” were selling negligible advertising, often on one another’s sites. Not one of them has become an advertising success in its own right.
Pretty much the only proven business model remains search advertising; what’s more, only one company has managed to really pull that one off. Think of all the Internet services you use, most of which are free for you to use. But since there are no free lunches, someone is paying for them. Chances are that most of the services you use are losing money and are thus unsustainable in their current form. Take Facebook for one – a loss-making business. Youtube? Estimated to be losing money at a whopping $500 million per year.
Clearly a service that only loses money cannot last forever. So, there are basically two options: come up with a way to financially support the service or eventually kill it. Advertising cannot feasibly support everything on the Internet and we can hardly rely on benevolent venture capitalists to keep pumping money forever, so in the end it’s you – the end user – that will have to pay for what you do. “Freemium” models work well for some services (e.g. Flickr), but it’s unlikely to work for all.
The billion-dollar question then becomes: what would / will you pay for?
While I already pay for several services, there are interestingly also services for which I’d like to pay but that do not offer a possibility to do so – in particular, I’m dying to pay for GMail; I would love to have a premium version of @gmail.com GMail with guaranteed up time and other nice things.
