Thursday, March 22, 2007

Making money with Web 2.0

Loyal readers of my blog will remember that in the past I have written about the possibilities to make money with Web 2.0. Via a Dutch site I ran into a presentation by an Italian consultant who names himself BizMogeek (Business Model geek, real name Luca Grivet).

As I have not found his ideas on some other blogs on Web 2.0, I will give a very short summary of his findings here. Grivet identifies 5 business models for Web 2.0:
  1. Free: the best known and near-classic model, in which revenue is generated by advertising
  2. Free to use, pay for related service: the base product can be used free of charge, for example open source software (MoveableType). However, for additional services you have to pay (TypePad)
  3. Freemium: the base product is free of charge (like with business model 2) to a certain extent. If you exceed a specific usage limit (Flickr), want additional service (LinkedIn) or want to buy extra items (SecondLife), it becomes a charged service
  4. Freedom to pay: it is up to the users to decide whether or not they are willing to pay to use the service, or you can make a donation (Wikipedia)
  5. Nothing free: the service will be charged anyway (iTunes), however you can get a share of the revenue that is generated (eBay, Google AdSense)
This is quite a good effort to describe the possibile Web 2.0 business models in my opinion. Grivet has even created a framework to help position service providers in the Web 2.0 market, as he has added the specific target market (or business area as he calls it) as well in this model: content, application / service or products / software. I find it somewhat questionnable whether or not you should draw a distinction between application / service and products / software, especially as SaaS is blurring the boundaries between those.
Nevertheless, I appreciate Grivet's work, and it is one of the best attempts I have seen so far to describe the different possibilities.
I have one key objection against his list and framework, and that is that there are quite some Web 2.0 startups that appear to have no other business model than attracting the big Web 2.0 players to get acquired by those players. These startups cannot be placed in any category mentioned by Grivet, as their key objective is to get noticed by Yahoo!, Google, MSN and [you name it], hoping that these big guys are willing to buy them out. I would call this business model the Big bucks buy-out (triple B?) model.
Basically, I think Grivet's model should be extended with this business model, but not at the same level as the 5 models he mentions. The framework could be extended with an extra layer, which could be called "Business intention". Here are 2 choices:
  • being self-supportive through either one of the 5 models mentioned by Grivet, or
  • going for the Big player buy-out / Triple B model
VC's should assess which type they are dealing with, before committing their capital to Web 2.0 startups.

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