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.

Second Life on the hype cycle

What if you had to place Second Life on a Gartner Hype Cycle? In which Hype Cycle would you place it? Hype Cycle for Virtual Worlds? Hype Cycle for 3D Web UIs? And at which position in that particular hype cycle would you place it? Technology trigger? Peak of inflated expectations?

I would definately say at the peak of inflated expectations, as not a single printed or online chronicle has not written about it yet. If even Dutch grocery stores are opening a complete mall in Second Life, there is no room anymore for denial: Second Life IS a hype.
However, there are already some first signs that the hype may be beyond its peak. Although the State of the Virtual World on the official Second Life blog still show quite some impressive growth figures, there are also some things that indicate that SL hype is nearly beyond its peak:

• All media have already written or reported about it, a second wave of attention from the media appears unlikely (people will pretty soon show signs of Second Life fatigue)
• Only a fraction of users actually stay. Many people try, only few keep coming to Second Life
• Some companies have already announced to close their virtual offices in Second Life after the first forms of child porn were found in Second Life.
• And, as my colleague Ray Valdes mentioned: "Do you want to have a virtual press conference in a world where your public event can be disrupted by flying animated body parts?"
• Some people claim that Second Life is mainly driven (or should I say: populated) by people looking to gamble or for some erotic pleasure (hey, that does not sound surprising for an Internet platform)

My 2 cents on Second Life and Hype Cycles is that:

• Second Life should be placed in a Hype Cycle for Web 2.0, as I consider it a social networking platform / community
• Secondly, I think it should be placed just beyond the peak of inflated expectations.
• Finally, "Years to mainstream adoption" will be the red circle with the cross in it ("obsolete before plateau"), because I think another contender will take the crown from Second Life and will create a highly successful "virtual world"*

* If I had to place "virtual 3D communities" on the Hype Cycle (instead of its most popular current incarnation, Second Life), I would say it takes another 2 to 5 years before mainstream adoption.
Yes, I do believe that virtual 3D communities have a quite bright future, I just don't think that Second Life will be THE future virtual world of choice. Second Life will suffer from the the 'dialectics of progress', in fact you could even say that it will become a victim of its own success.

Adobe Photoshop goes SaaS

The news that Adobe is offering its flagship product Photoshop (or should we call Flash its flagship product after the acquisition of Macromedia?) as an online service has caused quite some speculation on the acceleration of SaaS (Software as a Service).
I find this news interesting for 2 reasons: what is Adobe's product strategy and plan with this move, and what are the consequences of a move to a true SaaS model?

As for Adobe's strategy: I predicted earlier this year that Adobe will be acquired by Oracle. Although there are still some rumours that Oracle's first acquisition priorities are with BI vendor Business Objects, I still believe that an Adobe acquisition by Oracle is very feasible, not in the last place because Oracle might consider Adobe as the doorway to the new, emerging market of rich user interfaces and desktop computing (Acrobat, Flash, Photoshop, video editing stuff). If Adobe manages to leverage its web presence with a Photoshop SaaS offering, it will probably become an even more attractive target for Oracle. This move by Adobe has not and will not go unnoticed, and the exposure Adobe is getting for its SaaS efforts, can create the right momentum for the acquisition by Oracle.

In the second place, I find this news interesting because it is a test case to see whether the open source business model works for software as well. We should not be mistaken about the Adobe plans: it is nothing more than offering only a limited set of Photoshop capabilities on-line, it is not like all the very sophisticated functions from the desktop version are incorporated in the online version. Add that to the fact that Photoshop online is what is called an "ad-supported online service", and it becomes clear that also with Photoshop as most people know it, there is no such thing as a free lunch.
In line with the Web 2.0 business model discussed before, Adobe is giving away something expensive but considered critical, hoping to get something valuable for free that was once expensive. It could be a way of attracting customers and make them want the full, desktop version of Photoshop, or it could be a true step towards "good enough" software offered via the Internet. The question with the latter is: what's in it for Adobe? Will they charge users in the future for using the online Photoshop? Will they gain income through support and services (I wonder if this will work: I predict that online communities will emerge that provide peer-to-peer support for online Photoshop users)? Are they only doing this for brand recognition or to win sympathy?

Many people applaud the SaaS model, because they feel it is important to cut down on physical media, and replace this with online storage. However, the SaaS model requires a much higher bandwidth, and not only that: it requires a reliable connection to the software that is consumed as a service. You do not want to be in the middle of editing your pics from your latest holiday, and all of a sudden find out that your connection is slow, and the HTTP request from your browser times out. Another aspect could be the enormous media exposure that such initiatives could get: are the online services prepared for the huge peak load when influential media have a story about it and all of a sudden everyone wants to check out that cool new service.

According to Adobe's plans, Photoshop should be online in 6 months. Enough time then to think about some of the above issues, and I will follow this with great interest.