Why should I download a new community based product before the community has really developed? Why should I let companies "invade" my privacy, learn about my habits and then provide me with customized advertisements and other information? Why should I pay for content available over the Internet?
The answers to the above questions could determine the success or failure of companies who utilize the business models discussed in today's Enable. More importantly, they are questions that you should ask yourself as you develop your own Internet based business model for your company.
Chicken and Egg Business Models
If your product must be adopted by a large number of users before it can be effective, then you have a chicken and egg business model. In order for it to succeed, a large number of people must use the product, but until a large number do so, the product is not really worthwhile.
ICQ is probably the best example of a highly successful company that had a chicken and egg business model. Following in ICQ's footsteps is a new company called Hypernix which also has a chicken and the egg business model, and appears to be on its way to even greater success than that of ICQ.
Hypernix's product is called Gooey. Gooey enables people simultaneously browsing the same Web site to communicate with each other. With Gooey chat is not restricted to specific areas or sites but turns into an integral, natural part of your browsing. Using Gooey, you can chat on virtually any site on the Web - provided that the other visitors have also downloaded Gooey and become visitors.
Gooey must overcome the situation where, at the outset, users go to a site, want to chat, and realize that there are only a few other Gooey users at that site. Until there is widespread adoption, Gooey will not be providing its full value, and people may simply stop using the product. However, it appears that this will not be the case. Hypernix recently raised $2.64 million from CNET on the basis of a company valuation of $60 million. This strategic investment should enable its widespread adoption in a variety of mediums.
However, if Gooey intends to make money via targeted advertisements (see below) then only time will tell if users will be turned off by this and move on to the next innovation, or continue to use Gooey in spite of the advertising.
Client/Server Models - the Next Logical Extension
Under the client/server model, users download a client and then the company's server sends and receives information to and from the client. This information could include user habits, profiles, and other personal information specific to the user. Here, the value proposition for the user must be even higher than in the above examples, because now the user is giving up personal information that will be used by the company for commercial purposes.
Real Networks was one of the first companies to use this concept. You download their player and then they send you information about updates and new products, and also learn about your viewing habits. Real Networks also sends advertisements to each client.
Extensions of this model will be used by companies to track you and learn as much about you as they can. The advantages for you are that the company can send you customized information that could be beneficial - instead of generic advertisements. The downside is that you lose some of your privacy.
Gooey could be an excellent source for this type of model. It is constantly in the users' face and users want to download it. If you have such a model, you must make sure that, like Gooey, the value proposition to the user is extremely high - otherwise the users will not download the client, and this will kill your business model.
New Internet Business Models - Transaction Based Fees
Since the inception of the Internet, most if not all Internet based business models have been built around the concept that users will not pay anything for content. Revenues from advertising were supposed to more than compensate for giving away content.
However, users have stopped clicking on banner ads, and have learned to block out the ads - either figuratively or literally with software that actually blocks out advertisements from view.
A new business model for the Internet is to charge fees for transactions. The concept of having an advertising supported mass market may be coming to an end.
Sony is now charging subscriptions for many of its online games. The Interactive Wall Street Journal has been charging a subscription fee for a long time and claims to have over 300,000 subscribers.
The problem with a subscription based business model is that, ironically, you may find it hard to convince investors of its merits. Currently, companies who are giving away content and products for free are all the rage and are raising bundles of money. Buy.com is in its quiet period before a potential IPO, and other companies with similar models continue to raise money now and worry about revenues later.
A bold prediction: the new Internet visionaries will be the ones who invent a service that is valuable enough to charge for. Look for more and more companies to begin charging for content - playing on the old adage of you get what you pay for.
Published by Israel's Business Arena on 27 July, 1999