Business Model Please!

These days predicting a downward business trend is about as clairvoyant as predicting that the North Pole will be cold! However, there is one trend that appears to surfacing that will likely have an significant impact on the Webosphere. The firms that provide the lifeblood for many web 2.0 companies are beginning to succumb to the pressures of a weak economy. The financial vehicles such as IPO's and Mergers & Acquisitions often used to "prop up" social networking companies that typically have no business models, have been significantly hampered by the declining equity markets. Two companies that come to mind are Facebook and Twitter. Both of these companies are immensely popular and growing exponentially but are lacking one thing; a business model. This fact was very well verbalized by the co-founder and CEO of Twitter, Evan Williams, during his interview with Charlie Rose last week. Below is a clip of the interview:



In 2007, Microsoft invested $240 million into Facebook which at the time was estimated by Microsoft to be a 1.6% stake. This valuation infamously placed Facebook worth $15 billion. In July 2008, Facebook valued itself at $3.75 billion. That means that Microsoft's $240 million investment is worth less than $60 million today. Twitter was valued at $250 million in January 2009. It was also reported that Facebook wanted to acquire Twitter in November 2008, for $500 million. Fortunately, for Evan Williams, he was able to profit before the meltdown by creating the blog application that this blog belongs to, blogger.com.

Despite advertising revenues that Facebook introduced in 2007, it was leaked on the Internet that Facebook had 2007 revenues of $150 million and was $150 million cash flow negative. Twitter on the other hand has absolutely no revenue model. At some point, investors are going to push for a return on their investment which will pressure both companies to move toward an acquisition. With social networking ad revenues expecting to decline in 2009, the prospects do not look good for ad revenues to be the salvation for these companies. The other obvious possibility is to charge a fee for membership. It is unclear what effect a fee would have on the number of users. The outraged over the Facebook policy-change blunder proved that Facebook members can be very fickle.

Both Facebook and Twitter could have been acquired for tons of money before the economy tanked, but if they are unable to create sustainable business models, they might be wishing they had agreed to be acquired when the bidding was high.

2009 Outlook

2008 is finally over! Time for new ideas, hopes and beginnings. I don't think there has been such a potentially pivotal time period on this planet since World War 2! So many things are happening at one time that reading the news is a dizzying experience daily. Where do we start? First there is Obama, then the global capitalistic meltdown, potential collapse of OPEC, more conflict and tension in the Middle East and the almost weekly reports of wealthy individuals who decide that suicide is better than being broke! What does all of this mean for Internet Marketing in 2009? I'm not clairvoyant but here is my take on what to expect in the coming months:

• Yahoo! will Fade Away - The stage is already being set for Microsoft to finally take over Yahoo! However, the economy is so bad that it may not be economical for Microsoft to make such a sizable investment unless Yahoo! becomes a total "fire sale." If Microsoft does not purchase Yahoo! it does not appear that it can survive the fight against Google. It isn't clear is if a Yahoo! acquisition by Microsoft is enough to eat away significant market share from Google. The outlook for both companies is not positive. Additionally, the landscape of search is changing so quickly that Yahoo!'s fate might already be sealed. At the present time more searches are conducted on YouTube than Yahoo! I'm certain that Facebook searches are rapidly approaching search engine levels.
• Online Video will Monetize and Standardize - Over 80% of internet users are viewing video's online. Online video as an advertising medium is significantly more effective than other forms of interactive media. The CTR for online video can be as hight is 35%. History has proven that where there are masses of people then dollars will follow. Emarketer is forecasting that online video ad spending will increase to $4.6 billion in 2013, up from $587 million in 2008. In order for that to happen Online Video must standardize its advertising formats. At the present time, no two online video promotions are alike. In the past 2 years there have been a lot of video syndication companies appearing on the web which have helped to standardize the promotional format. I expect this trend to continue this year.
• Government will Embrace Technology -For the first time in US history we have a President who is addicted to his Blackberry. Another first is witnessing Internet Marketing propel an individual into the White House. If anyone still questions the power of the Internet as a promotional medium then I have a bridge to sell them. I expect the Obama administration to continue to embrace the Internet as they settle into leading the free world. For the first time the US executive branch will have a Chief Technology Officer. There will be both positive and negative implications for having a tech savyy government. The positive: The internet will continue to stay "free." Additionally, barriers will be lowered for conducting business on the internet. The Obama team has already announced that they will inject billions of US dollars into communications related technology. The negative: State governments and Federal governments will likely work more closely together and the "big brother" phenomenon will slowly become more of a reality.
  
• Touch Screen Trend will Phase Out Again - We can thank Apple introducing the iPhone and the iPod Touch for creating this Touch Screen craze. We've been down this road before with the Z80 Computer (1984) with its flat keyboard; the Palm Pilot (1997) with is touch screen UI; the Tablet PC (2001). When will people learn that a touch screen is a poor substitute for a keyboard that exists in 3 dimensions. I will admit that there are some applications where a touch screen is perfectly acceptable, but not where significant typing is required.
• BtoC E-Commerce will Flourish - Everyday it is becoming increasingly clear for retail establishments that unless they add signicant value to the products and services they sell, it is very difficult to turn a profit with a bricks and mortar storfront. At the present time e-commerce is only 3.4% of total commerce but this number has more than doubled in the last 5 years. Since information is readily available on the web, all products have become essentially commodities. The only reason to go to a "store" are: 1. If you have an immediate need for a product (ie. grocery store, drug store). 2. To obtain a physical social experience (ie. movie theater, restaurant, coffee shop). 3. To save money (ie. walmart). Otherwise, it usually make sense to purchase online.
• Social Networking Ad Revenue will be Flat - It is really facinating to me that the most popular forms of media seem to consistantly have relatively low advertising revenue. This is certainly true for Mobile Phones with over 2 billion users worldwide and only $2.7 billion (USD) in ad revenue. Facebook alone has over 150 million members but social network advertising was $1.2 billion (USD) in 2008. When you compare that to Television which has ad revenues on the order of $45 billion (USD) it is clear that the newer forms of media a miniscule in comparison. The big question is why. It is my opinion the passive nature of TV contributes to its effectiveness as an advertising medium. Interactivity doesn't always translate to effective advertising unless the product itself can become the promotion.

Regardless of what actually happens, 2009 will most certainly not be overlooked by history. Lets make it a great year!!

Internet Marketing in Hard Economic Times

As the news of global meltdowns, bankruptcies, foreclosures, layoffs and bailouts continues to mount, it is increasingly clear that we must tweak our promotional strategies to adjust for the harsh realities of the economic times. Whether we are in B-to-B or B-to-C, all of our customers are likely to spend less and our advertising budgets are likely to be trimmed accordingly.

That is why it appears to me that there is no better time to invest more in interactive internet promotional activities. Here is why:

Measurability - Internet advertising is more measurable than other forms of media. Don't believe me? Try to measure conversion rate for a billboard ad on a random street corner.
Scalability - With "guaranteed" banner ads which on only displayed when a relevant user is visiting the sight, the user gets a significantly more targeted form of media. "Guaranteed" banners are more expensive than "non-guaranteed" banners but the absolute cost is cheaper than non-internet forms of display ads.
Audience - The internet audience continues to grow. With over 300 million broadband subscribers globally it is very likely that your target market can be reached via internet marketing. If we compare this with the estimated 1.4 billion televisions on our planet we can get a perspective on the upside potential.

The key is to examine your customers buying cycle and determine where internet advertising can be most effective. If pre-sales and where that opportunity exists than attempt to educate you customer through your advertising to hopefully drive sales.