Monetizing the Net: Creating Profits Through Anything But Advertising
- by Eric K Clemons
For more than a quarter of a century I have been writing about information-based strategies and teaching about the impact of information on the behavior of consumers and the strategies of firms.
I ran a research group at Wharton on Information, Strategy and Economics for over 20 years, helping companies adapt their strategies. I started worrying about business process outsourcing in 1991, began pushing online travel in 1996 and, around the same time, started warning about the foolishness of belief in rapid changes in online grocery sales, at least in the United States. For the past several years I have been studying ways to monetize the Internet without relying solely on advertising, and I have become increasingly concerned about the abuse of online search.
On Tuesday, I led a webinar for the Wharton alumni community, Monetizing the Net: Creating Profits Through Anything but Advertising. I welcome all of you to post questions about the seminar in the comments section of this blog post. Over the next two weeks, I will respond to as many of your questions as possible. Here, I’ll answer some that have already been sent.
1. What are the top three “Blockbuster” revenue generation models?
I’m not sure there are three at the moment! I see about one-and-a-half. The first one is the third-party payer business model used by hotels.com or Google, in which one party provides something that a second party needs to reach a third. The third party pays protection money to the second to avoid being invisible to the first. It’s not pretty, but it works very well! The second is a combination of social networks and games, and it counts as about a half. “World of Warcraft” and, surprisingly, “Farmville” have created gaming social networks. These rely in some sense on network externalities; only on Facebook do you have access to all your Facebook friends, and you can only join your “World of Warcraft” guild on the game site itself. But monetizing social networks has been very difficult.
2. What are the top three mistakes people make when using social media to produce revenue?
Probably the greatest mistake right now is trying to monetize social networks directly. Very few of us have found any way of doing that without destroying trust. You don’t sell during a best man speech at a wedding, and you don’t contact your real-world friends regularly to get them to shop at your store. Spam is spam, and abuse of personal trust is abusive, no matter whether it is online or off.
3. How does one get a website high up on the first page of Google search results for specific search terms?
There are entire firms that do nothing but this. Probably the most honest way to do this is to generate a great deal of spidering. That is, by having content that a large number of legitimate, high-profile websites will link to, you can get a very high position in organic Google searches. Of course, if you make Google angry, most of your search results will disappear anyway.
4. How can we change consumers’ expectations from “free” to “pay?” Does the iTunes model work? Can a micropayments strategy work?
Remember how long it took to move most of us from basic cable to premium cable, and then to pay-per-view? When we decided we really needed HBO for movies, most of us got premium cable. A few of us watch first-run movies on cable, or pay-per-view wrestling, but those audiences are somewhat smaller. The transition will take time. It also helps that cable and iTunes have content that consumers want, have easy payment mechanisms and have protected content. As long as consumers can find the same content at other websites, it will be difficult for serious investigative journalism to survive. I have made this point elsewhere, but it gets very little popular support.
5. Can you suggest some additional ways to stay up-to-date on web-based marketing technology? Can you speak to both the marketing communications tools as well as the marketing research and metrics tools that are now available?
Although there are few standards for behavior, and blogger comments can be absurd at best and abusive at worst, there are a few tech blogs that provide fast-breaking news and insights. I recommend starting with three different ones: Tech Crunch, Silicon Alley Business Insider and All Things Digital. You may have very different preferences; start with several, see what they are focusing on and see what you find interesting. For metrics you might want to follow a university project that focuses on that; while that’s not what I do, the Wharton Interactive Media Initiative might be a good place to start.
6. Could you detail some strategic recommendations for a new small business or for prospective entrepreneurs?
I’m not sure if this is a surprise or not, but the web does seem to favor large companies. There are a few blockbuster websites in everything from sales to gaming and content, but it does appear to be a winner-take-all-world. Probably one of the few areas I have seen where small is beautiful includes resonance marketing retailing, like The Beer Yard, which we discussed in the webinar. A few content providers with unique stuff (like Tech Crunch) have become quite valuable. China’s Ali Baba started off rather small, but most intermediaries, like Orbitz or Hotels.com, launched with significant funding behind them.
The following is a short list of resources that you might find useful if you are looking to monetize the Internet and for innovative business models.