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2007: Year of the Business Model?

There was no doubt that 2006 was a wonderful year for anyone into Web 2.0 (See Michael Arrington’s favorites list and Dion Hinchcliffe’s Best 2006 Web 2.0 software list) and there was plenty of venture capital thrown at some of the more promising companies (i.e. Digg recently pulled in another $8.5-million). What should be interesting in 2007 is whether the Web 2.0 landscape begins to see an evolution/maturation in business models.
In other words, there are plenty of cool Web 2.0 services/applications that don’t appear to have a path to become businesses, as well as many that seem to be heavily depending on AdSense to generate most, if not all, of their revenue. Will advertising continue to be the economic foundation for many Web 2.0 businesses or will other sources of revenue emerge such as subscriptions and premium services?
If advertising is the major pillar, then you have to ask if whether the pie is big enough for everyone, especially after Google walks away with a big chunk of it. In an ideal world, subscriptions will emerge as a second revenue source but so far few companies seem have to have the chutzpah to ask people to actually pay for services, and/or have a service that people are willing pull out the credit card to buy. The poster-child for the Web 2.0 subscription business continues to be 37 Signals.
In terms of premium service (or the freemium model that Fred Wilson has highlighted), that strikes me as having intriguing potential IF you can convince enough people to upgrade to a paid service from a free service. A good example of a company successfully pulling off the freemium model is Freshbooks, which offers a nice, but basic, free invoicing service as well as a more robust and subscription-based premium service. You could also put Skype into this category, particularly in the wake of its all-you-can-eat North American long-distance plan that was rolled out a few weeks ago.
My feeling is there isn’t enough advertising around to support the plethora of ad-supported services that have been launched and will be launched. As a result, you can expect to see dozens of companies disappearing or selling their assets. In an ideal world, the freemium model will gain more momentum in 2007 because it will suggest people are willing to pay for useful, valuable services. That said, free still rules the roost so I’m not holding my breath.

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  • http://hd.oliverdueck.com/ Oliver Dueck

    An interesting and highly relevant post. Clearly, I think the “business model” of many companies is to be acquired by someone like Google or Yahoo – definitely not a bad thing if you can pull it off. But these companies are selling their user base, not their revenue models.

    Interesting that you mention Digg. Clearly, the site is remarkably successful in terms of traffic but they don’t seem to have any sort of real revenue model yet and I have to wonder how long they will continue to exist without either being acquired or coming up with a way to make money.

  • http://www.webomatica.com/wordpress/ Webomatica

    Good points. One thing about “freemium” is it makes you think a bit differently about sites that have real value for something more robust or if free is all there is. For example, I use digg regularly, but would I pay money for it? Nope. There is no “premium” version of digg that I can even imagine.

  • http://www.agoracom.com Agoracom

    …there are plenty of cool Web 2.0 services/applications that don’t appear to have a path to become businesses,…

    Mark, you’re starting to sound like me now :-)

    My opinion is that Web 2.0 will continue to slowly proliferate into the real world and entrepreneurs will create practical/boring applications that people/business will pay for. It’s just a natural progression as the real world figures out how to use Web 2.0 tools to beat encumbent competitors.

    For example, you bring up Freshbooks. Who the hell cares about an online invoicing company? Borriiinnnggg! You can’t get anymore boring and uncool than that right? Wrong. Freshbooks = real service, real customers and real revenues.

    Yes, we will continue to see YouTubes pop-up every year but watch for more and more real/boring companies to emerge and create real, long-term value.

    P.S. How about a little love for AGORACOM as another example of a paid Web 2.0 service? You’re making McDerment blush with all the Freshbooks references in 2006!

    Happy New Year.

    Best,
    George

  • http://www.fuelmyblog.com Kevin D

    The site I hope people couldn’t be without is the one I am launching today. It is aimed at bloggers and people that need to promote their myspace. I just hope you guys are talking about our site next!

    http://www.fuelmyblog.com

    We got 1500 unique hits the few days before launch.

    Happy New Year all.

    Kevin D

  • http://www.mappingtheweb.com Aidan Henry

    Mark,

    Where did you get a crazy idea like that?

    Web 2.0… business model… hmmm… I thought those were mutually exclusive ;)

    Cheers,
    Aidan

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  • http://www.sneakerplay.com rj

    What ever happened to that old ‘web 1.0′ model where you sell stuff…it was called e-commerce right? Sarcasm aside, I think e-comm is a model that is definitely overlooked by many…if you are in a position where you can provide your community with cool products…that your loyal user base is passionate about…then I’m sure you’d do fine and you probably wouldn’t have to rely on Ads. ‘Web 2.0′ing up the online retail game, by using commerce to support communities sounds like a logical step.