Yesterday, I attended MassTLC's The Future of Software & the Internet unConference, which was a terrific forum. Enough so that it snapped me back from my 1-year hiatus from blogging.
The first forum I attend was titled "If not advertising, then what?", where we discussed the pitfalls of advertising as a revenue model for the web and dug into other forms.
Why do ads fail on the web?
Well, because ads rely on context for value. Ads work best when you have a captive audience in the right frame of mind for the material that you deliver them. In most cases on the web, your audience is anything but captive, and simply relying on semantic modeling to increase relevancy will not help that. The relevancy needs to go beyond the basic to the sublime, and the only way to do that is to have deep context of the viewer. This is why niche web sites can maintain reasonable CPMs, while everyone else is seeing theirs decline. But then, that CPM does not scale. Increased traffic usually dilutes the the CPM and kills the ROI. This problem plagues the newspaper industry as well. As newspapers grow in distribution, the costs of adspace increases for the paper and the ROI for localized and regional businesses drop. For large, traditional newspapers to succeed without drastically reformulating their business model, like the WSJ did, they need to look into how they can localize themselves to regions, towns or even individuals to increase relevancy.
What are the other revenue models?
Micropayments or microtransaction is a new trend for a number of recent startups in the social space. In Japan, virtual goods is a multi-billion dollar market that is largly supported by micropayments. Micropayments allow for a large number of small transactions to be grouped together into a single financial transaction to reduce the per-transaction costs. This is like going to an arcade and trading $20 for 125 tokens, or how iTunes groups your purchases together and only charges your card once a day. In the U.S. the virtual goods market is only $500M, with about $40M of that coming from Facebook. One limitation of this model is facilization. With it being such a young market, there are only a few early stage services in the market, most of which is focused on online gaming.
Freemium is like shareware rebranded for the hipsters. Everyone gets limited access to your product for free, and then have to pay for the rest. It makes for painless acquisition and gives you a longer window to make activation occur. The pitfalls are knowing where to draw the lines such that they are after a rewarding experience, but no later.
What else? Sell 'things'. Physical things. Make something people can hold in their hands. Quality prints, 3D prints, appearal, stationary, etc. Sell 'services'. Give out your tools and content for free, then sell professional services around them. For example Drupal is a free framework for building social community web sites, and Acquia makes money by supporting it commercially. Sell 'experiences'. Play to people's passions and the human factor by making something that satisfies an unquantifiable need. The "I paid $1000 for this red button" iphone app, or an online community for millionaires are one type of example. Games and movies of course can fit in this category.
The important take-away here is that "traffic is no longer a revenue defining co-efficient".
One point that I saw people missing in a number of discussions is that there is something to be said for getting an investment out of your users. Do it soon, do it early. Don't wait to ask for money, email address, phone number, first born, whatever. Give your value proposition, ask for a commitment. The emphasis people give to being "painless" or "frictionless" is misguided. You should remove all hurdles, pains, and frictions, except the ones that make you money, or the ones that allow you to further drive the commitment from the individual. By giving something for free, you have immediately killed the retention value of that product.
I love what Tim Rowe is doing for Kendall Sq. area. His latest endevors with CambridgeCoworking and "The Venture Cafe". I cannot wait.
Now there were dozens of people who wanted to talk about clowds and there were a number of talks about clowd computing. Appearantly there was little agreement or common understanding amonst a number of the attendees. I tried to avoid these talks like the plague, but I could not avoid the one posted to for the end of the day. "Boston Clowd". In this talk was Michael Werner of Microsoft Azure, John Treadway of ClowdBzz.com and ClowdCamp, and a number of great folks. We were not just talking about clowds, but about the brain drain of New England and the need for us not to fall behind, especially in clowd computing. We talked about how best to develop a collaborative/consortium/catalyst/combinator/collective clowd committee to write the wrong. With some luck there will be a CloudCamp Boston in the late half of July that might include an exciting challenge to the entrepreneurs and developers in the area. We will see.
What was missing from this event?
Mobile discussions. Very few people discussed mobile technoloy, netbooks, sms, etc. There was little discussion of Twitter, Facebook, App Store, Android, or consumer products and services as a whole. All-in-all, it was well worth attending, and I look forward to next year.