10 Responses to “Soft economy and the Web 2.0 business model”

1. Vivek on October 13th, 2008 1:14 pm

   Bang on. Economic cycles are therefore important to prune out non essential models.

2. pranav on October 13th, 2008 7:34 pm

   yeah,

   the crisis will most likely weed out the chaff from the better ones..

3. Raj on October 14th, 2008 5:55 am

   Pranav - you seemed to be prejudiced against ads as a fundamental business model. I am a web2.0 website creator, and have an otherwise opinion.

   #1) This crisis is to hit everyone hard - be it web2.0 or real-estate 0.0 or stocks 1.0 (may be it would hit real state and stocks much more). Advertising would be affected , Car business (one of the most non-web2.0 ) is already adversely affected in the US with such a downward consumer confidence

   #2) on web advertising as the business model - Some of the pillars of web - Google, Yahoo! are based on pure advertising. Look at stellar year of myspace( based on ads). Just read how our desi NON web2.0 - naukri is trying to increase revenue - http://www.watblog.com/2008/09/09/jobsites-shut-down-naukri-india-clickjobs-slowdown-2/
   - by Ads!!

   #3) Loved ur charatecterization about Ads based business models - as “Non solid revenue model” . In one shot u slapped me, all the media - all the TV and all the newspapers. I hope they all are wrong, and you are right.

   #4) Also I have seen bloggers and general people doing this stuff - slamming
   web2.0 and advertising business models. I think people miss the main points - instead they should try to see what businesses can be built on that model, and what cannot be- there is enough on the internet to get a good hang on this topic. Also there are businesses on both sides. Just see what stands where rather than making a general point against all .

4. Raghu on October 14th, 2008 9:03 am

   I being an Internet entrepreneur believe that the mantra of .. “Get the users and the advertising dollars will follow”… has nothing wrong in it. Just the “get-the-users” part is worth debating on. And this where the serious/worthwhile value propositions differentiate themselves from stupid ones.

   Even in boom time i am sure the stupid ones were not getting any ad revenues. And even in the time of recession the good propositions will continue to get the users and hence earn ad revenues.

   I would like to share my ‘to-do’ list about building a solid value proposition and sailing confidently through the recession period (borrowed from recommendations from successful entrepreneurs & VCs like sequoia)…

   1. Focus on long term objectives and quality.

   2. Build upon real market needs… NOT what is “cool”. Specifically dot-coms should remember that.. Internet (read web 2.0) is just a new tool for solving the needs of this old world.

   3. Focus on core features of your service/product, rather than add-ons.

   4. Be revenue oriented rather than marketshare/mindshare oriented.

   5. Be capital efficient (specially when youdon’t have any :)). To be specific for startups… delay investing in technology until you have executed 2-3 cycles of ‘rapid prototyping – market testing’ of your product (open source can help in this). Do the same with your marketing strategy in parallel to above (use guerilla mkting tactics).

   And yes pranav u are right .. “Yet Another ad supported Social Network” should be totally out of question

5. pranav on October 14th, 2008 10:30 am

   @raj,

   I’m not prejudiced against using an ad-supported business model. However, I do hold the opinion that an ad-supported business model may not be sustainable for a startup.

   1) slowdown in other sectors like real estate / cars isnt relevant to the topic of this post. Auto sales have been slack ever since oil hit $100+ a barrel. Real estate has been a bubble, waiting to explode - and the root cause of this economy crisis is the bursting of this real estate bubble

   2) Are you really comparing the likes of Yahoo / Google / Myspace with a nascent startup ? Google, yahoo, myspace, newspapers — none are immune to the ad revenue slowdown. However, for these companies, it just translates into missed revenue targets for a few quarters and dip in the stock price. for a startup, it means the struggle between life and death

   3) You’re missing the point here — again — the key is the word ’sustainable’. If you say that New York times has an ad supported model..yes i agree and it seems to be working well. however, the point is — at this stage in your startup, can you match up to that level ? TechCrunch and other leading bloggers make serious money off the advertisements on their blog. But thats just a handful of the top bloggers. Other bloggers make pretty much next to nothing.

   You need to understand that only when you hit that tipping point in the scale, advertising revenue is good enough to make your startup profitable. Not all startups will — and that’s why its important to identify any alternative revenue streams from the get go.

   Now, you say that you have a Web 2.0 site — Assuming you solely depend on advertising, are the ad revenues enough for you to consistently run the business without any hiccups ? Will the ad revenue bring in enough to cover your hosting, scalability and other issues ? If you have employees, is the ad revenue generating enough cash to pay these employees ?

6. gk on October 15th, 2008 1:19 am

   pranav - your conclusion is right (startups need to consider every revenue source in this bleak economic environment) but your argument that the advertising business-model doesnt work unless you have scale is wrong.

   There are literally hundreds of small/med publishers that are cash-flow positive today based solely on advertising. Publishers on the glam network, facebook app developers, Sugar network, niche community sites, ning soc-networks, are just a few of the areas where this model has been proven. The key to making a pure advertising model work is - keeping costs low, appealing to a loyal audience (maybe niche) and working with a good advertising network. Dont look for “any” traffic - focus on monetizable traffic.

   Raj is right - this is no different than a newspaper/mag business.

7. Rahul on October 15th, 2008 3:57 am

   I totally agree to the point of considering a different revenue model. In fact, I strongly profess on building a startup with a revenue model that is void of the AdSense support. Any dollars coming in through the ad network should just be a bonus here. And this should be irrespective of the economic condition. When startups are talking about sustainability and growth, the talks fail when the only revenue generator is through ads.

8. pranav on October 15th, 2008 3:45 pm

   @gk,

   There are literally hundreds of small/med publishers that are cash-flow positive today based solely on advertising. Publishers on the glam network, facebook app developers, Sugar network, niche community sites, ning soc-networks, are just a few of the areas where this model has been proven.
   

   Being cash flow positive doesnt really mean success. For instance, I may be running a niche blog and using glam / sugar networking for advertising. If I’m paying only around 100-200$ annually for hosting and making about $600 annually via advertising, yes — I’m cash flow positive. But the net revenue is a measly 300-400$.

   How many facebook app developers are making thousands ? In other words, how many of them are making enough to pay day-2-day bills and sustain the business ? How many of the niche sites have proven to be lucrative enough to be acquired ?

9. jaggu on October 16th, 2008 6:39 am

   I have a rather contrast view, as the global economy is facing a recession like situation, the companies will try to get more for thier dollar. hence they will essentially be required to find cost effective ways to attract customers towards their products. so they will try to finds cost effective advertising mediums that will provide them with more eyeballs. Hence, i believe they will ignore the expensive mediums like TV advertising and choose cost effective mediums likeinternet advertising to strenghten thier brands and hence i believe that new intenet start-up will grow as companies will harness internet advertising to the maximum

   Regards
   http://www.sutrajobs.com

10. Rajeev on October 31st, 2008 4:07 am

    Hi

    Can any website in india sustain purely based on advertisement business model? I have launched a website http://www.brandsindiaonline.com which
    Consolidates web site links of quality brands of products/services in Indian market
    Consolidates Deals Discounts Promotional Offers on different products/services in Indian market by different brands.

    Consolidates new product launched by different brands in Indian market.

    Now sucess of this website depends upon revenue from advertisements on this site. Let’s see how this business model works.
    Thanks,
    Rajeev
    http://www.brandsindiaonline.com

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