Entries categorized as ‘business model’
There is so much to read, so much to say, and no time to do all of that. This week several interesting posts about my favorite business model, Freemium appeared. All of them triggered by Chris Anderson’s new book, “Free”.
Posts you should be reading about this are:
A skeptic post by FT.com, and a followup questions and answers post series between the author and Chris Anderson himself.
Mark Cuban with a post explaining that anyone using Free will die by Free. My initial take is that is makes very broad claimes but doesn’t tie it very wel into the ‘free’ aspect.
And Fred Wilson, who I always find has a very good view when it comes to Freemium.
I have lots of thoughts about all of this, and no time to write them down. Sorry about this link post only, that is usually not my style. But hey, now you can make up your own mind about all of this, instead of having to read through mine 
. I do know that my company has chosen to move forward with the Freemium business model, so I’ll be trying to avoid all pitfalls. I’ll be gone for 2 weeks for yet another great vacation in Greece, Korinthos. I might try to experiment with iPhone blog posting, but don’t count on it 
See you in 2 weeks!
Alexander
Categories: Freemium · business model
Tagged: business model, Freemium
The iPhone will not generate significant mobile revenues
Tomi Ahonen has written a very long post about the history of mobile phone development in Europe and the United States. Tomi is a well known authority in the Mobile space and is the author of the well known Communities dominate brand book.
His post contains a number of provocative and thoughtful observations. The post itself is as long as an e-book, but I urge you to read it all the way. It’s excellent.
In his post Tomi argues that even though the iPhone has brought a revolution in smart phones it will not dominate mobile revenues with its current offering. the bulk of mobile revenues are not in App stores or the real Internet. Apple’s iPhone represents less than 1% of the mobile market, and it’s revenue generation is infinitely small compared to current real mobile Internet revenues. A quote from Tomi’s post:
So we come down to the applications. Tomi, its a smartphone. By definition, a phone that can accept applications? Why aren’t you talking about the Apple iPhone Apps Store. Yeah, sure, its important for us nerds and geeks, the early adopters of new technology, who have been envisioning a pocketable PC that could be perfect for the gadget freak. Yes, the Apps store is wonderful. A billion downloads, yeah. Except that the mass market consumer, your mother, your father, your sister and your brother, are not like you and me at this blog. They will not madly download tons of apps to any smartphone. The theory of “Crossing the Chasm” has been explained by Geoffrey Moore a decade ago and is not disputed. Techie-geeky appeal of ultra high tech does not translate to the mass markets, in fact in most cases what geeks want and mass markets want are diametrically opposed.
No matter what stats you see for Apple iPhone Apps Store success, whatever the stats, the total market share of Apple is 1% of the phone market. It is exactly at the pointed end of that Crossing the Chasm theory that Moore talked about. This is NOT a mass market, and CANNOT BECOME one if the same model is repeated. Understand what I say. Even if you are able to make a success out of your app in the Apps Store today, it CANNOT translate to a mass market success, using that same model. its not my theory, Moore’s theory holds near unanimous agreement by all technology marketing gurus. Do not kid yourself.
The problem with the iPhone is that it has been developed with a pc in mind. It is a pc device that can also call. This is exactly why I wrote a post about a year ago explaining why the iPhone is probably one of the worst mobile phones I have ever used. It comes with downloadable applications that let the user customize his device. But that is exactly why it will not be adopted by the mass market.
Yes there is a big opportunity for apps to be sold to smartphones. Yes, it is a very significant market, when viewed from the angle of the software applications industry. But it will always be – always be – only a niche. Do not allow yourself to be delusional about this. We do not buy – and the mass market will not ever buy – smartphones so that they could install some apps to it. The vast majority of users will be contented with the apps that come pre-loaded, and then they go to web based services to get their additional benefits.
The real value (in terms of revenues) lies in the mobile web. This is not the real web displayed on a high end handheld like the iPhone. Instead it is the ‘walled-garden’ Internet that is build and maintained by the mobile carriers. Sounds totally unbelievable right? The facts and figures however are indisputable. Again, a quote from Tomi:
That is where the big opportunity is. Not apps that we install onto a smartphone, but the services that we deliver via the network. Mobile premium services, what could be called “mobile internet” and by this I mean a superior, better, money-making internet than the old legacy dumb internet we have on the PCs. So I explicitly do not mean “the real internet” onto the phones. That is as dumb as putting a real horse to power your car! We have a BETTER engine in the car. And now, yes, please understand, the “mobile internet” is the far better internet than that horrid old creaky stupid cheap “advertising-led” “get-me-more-eyeballs” internet which we all use today. The internet is for good reason called the 6th mass media channel and obviously mobile is the newer, 7th mass medium.
No, while that will be there, and yes, there will be millions and millions of users on “the real internet” on our smartphones, that is peanuts. PEANUTS. The far bigger opportunity in mobile is in the 7th mass media type of mobile internet, the better, smarter and richer money-making and magical mobile internet. That is where the opportunity is. To see how vibrant and lucrative it can be, one need not look further than this decade and Japan and South Korea, where the mobile internet really thrives already. Application developers have a hard time making money selling 1 dollar apps on the Apple iPhone Apps Store. You have to be very lucky to make the top 100 apps listing to have any chance of recovering your development costs. A very risky development path.
But in Japan, they offer the service on the mobile internet, take a subscription of one dollar per month (100 yen) and pay 10% to the carriers/operators and the service provider gets to keep 90%. Rather than one dollar from one customer once, the customer is charged 12 months, 12 times per year. 12 dollars, and the content owner gets to keep 10 dollars and 80 cents of it. Which is better? A dollar or ten? I rest my case, milad.
Worldwide the mobile data market is a much bigger opportunity than pc based Internet. There are more users, more devices, payment is integrated on every device (no need for credit cards). In another great and long post Tomi estimates these markets:
The total mobile premium content industry is worth 71 billion dollars and the mobile messaging industry adds another 130 billion, giving the total moblie phone based data services industry a size of 200 billion dollars for 2008. Now, consider the internet. Even as we add not only all content revenues, and all advertising revenues on the internet, but also the access revenues for broadband and dial-up narrowband internet access, the overall size of the internet business is about.. 200 billion dollars. In half the time, mobile has grown to same size.
Mobile is the bigger internet. Mobile is the stronger internet. Mobile is the money internet. Mobile is the faster-growing internet.
It sounds counter intuitive to us geeks, but the smart phone market is a niche market. No matter how sexy and cool we think it is. The SMS market alone is bigger than the current pc based Internet content market. Premium mobile data services add extra growth that can’t be matched by the web. On the web we are stuck with inefficient, crappy old-fashioned web 1.0 based business models. In the mobile data market every bit transferred represents real revenue. Twitter could have done it, but they didn’t pursue the biggest revenue generator.
Facebook missed that one too.In 2007 I wrote a post entitled “Mark Zuckerberg, when in doubt, follow the money”. I said then:
But there are 2 aspects to a mobile phone that are of huge importance when thinking about next generation web services:
- The mobile phone platform has billing capabilities
- The mobile phone user pays to interact with others
Think of the US on-line advertisement spent 2006 ($16 Bln) as a small hill,
think of the worldwide spent on SMS as the Mount Everest (btoh images taken from Wikipedia). It is estimated that the SMS market alone will be $ 67Bln in 2012 (or 3.7 trillion messages a year!) .That is excluding Mobile Internet services. In Japan alone more than $ 1 Bln revenues are generated from mobile data services. So stop thinking ads and start thinking payed services.
The mobile business model is the most User-Centric I can think of. It provides user value and the user pays directly for that value. There is nothing more powerful than that.
Categories: Facebook · Mobile Internet · business model · iPhone
Tagged: business model, Facebook, iPhone, mobile data, Tomi Ahonen
A beautiful bird cage
Facebook announces user names. It generates a lot of buzz on Techmeme. TechCrunch reports the obvious (vanity), but Chris Messina is the only one that is actually analyzing what Facebook is doing and what impact it can have on our online lives. In a post he entitles “Facebook usernames and the digital battle over your identity” he goes into the underlying strategy of this move and the effect it has on your online identity.
Arguing that Facebook shouldn’t get into the vanity URL business, I still think that they had it right the first time around. Digital identity should change the adapt to humans; not force humans to refer to each other in more computer-friendly ways. But the allure is simply too great. I also can’t say that I blame them, even though I think it’s a distraction along the way towards more widespread real identity (and thereby reputability) online.
Chris goes on and hits the one thing that s relevant about this move by Facebook. the online battle to own your identity, profile and interactions:
So, this is happening, and companies are racing to achieve namespace dominance over your online profile. This is what Tim O’Reilly warned about in his definition of Web 2.0. He said that one of the new kinds of lock-in in the era of [cloud computing] will be owning a namespace. There you have it — who are you going to trust to own yours?
I suggest you read the article in full, it’s an excellent read.
Chris hits on a nerve I’ve always felt was important. While web 2.0 has brought us a lot of great things it also provides service providers more opportunities for user lock-in. User lock-in is a term invented by marketeers (they are all idiots you know). Customer lock-in is in essence a protective measure, hence the “lock-in” part. Marketeers will obviously never say that. They brainwash themselves and their company by arguing that achieving customer lock-in is done by excellent service, providing the user with value and more of that. They are wrong of course. Customer lock-in is achieved by simpler things. The inability for a user to leave a service, to hide customer help behind layers of customer service, 23 pages of legal gibberish called terms of service, the impossibility to switch to other providers, downgrade services etc.
In the online world customer lock-in is even worse. Here is where Tim O’Reily’s definition of Web 2.0 lacks a user dimension. Tim says:
Web 2.0 is the business revolution in the computer industry caused by the move to the Internet as platform, and an attempt to understand the rules for success on that new platform. Chief among those rules is this: Build applications that harness network effects to get better the more people use them.
The problem I have with this definition, even though it adequately describes what we refer to as web 2.0, is that it doesn’t address the user and the value he should receive. What we often fail to realize is that the network effect Tim talks about is not only the best thing that web 2.0 has brought us, it is also its biggest tragedy. The network effect forces service providers to concentrate on the size of the network, instead of a primary focus on user value. The Internet is not seen as a platform at all. The service provider sees his own platform as the Internet! And to make matters worse, web 2.0 is governed by old-fashioned web 1.0 business models that leverage that network value, instead of user value.
The network effect and the failure of online business models to evolve with the technological evolution leads to unwanted effects such as customer lock-in, the network value being more important than individual user value, Twitter spam, walled gardens, the total lack of data portability, lack of privacy control, the battle over your online identity, profile and interactions. And now the battle over name space. In effect, it cages us, instead of setting us free. It takes away our ability to be in control of our own profile, our data and our interactions.
And there is nothing we can do about it as individual users are either unaware or unable to generate enough counter force to balance the power on the web. This fight to control you on the web can only be halted if we evolve online business models to a point where revenue and competition are based upon user value instead of network value. If service providers generate revenue buy providing user value they will achieve the exact same effect as they try to reach ow. Users will be committed to user their service. Not because they can’t leave, but because they choose so. All it requires for service providers is to let go, to turn the relationship with the user inside out. Now that would be a revolution.
I’m with Chris here. He sums it all up in one little hidden line in his post:
It’s remarkable how cheap we’ll sell out our identity these days.
The question is, are we seriously going to put up with this? Will we allow Facebook, or any other service provider dictate that their platform is our Internet? That is the ultimate user lock-in. A shiny, gold-plated bird cage.
That is not a future I would feel comfortable with. It’s time we redefine online business models. It may be our only way out of this lock-in to a web that is user-centric instead of network centric.
Categories: Facebook · Tim O'Reilly · business model · social networks · user centric web · web 2.0
Tagged: business model, Chris Messina, Facebook, identity, social networks, Tim O'Reilly, user centric web, web 2.0
I was just reading this CNET post on wave. Rafe Needleman and Stephen Shankland (both working for CNET) answer questions about Google Wave in an attempt to explain what it is.
Sadly, they don’t really get past the Google Wave demo itself. In my opinion, the demo itself, although remarkable, is not very important. Google Wave isn’t impressive because Google build a cool demo. There are 10 other reasons why Google Wave is more important than that. Google set a vision that will change the way we will communicate online.
What I find remarkable about this vision is that Google is breaking through some existing boundaries that hold web 2.0 progress back so far. I could repeat my 10 points made earlier, but I would like to focus on a subset.
Google has not only unified different types of online communication (e-mail, instant messaging, SMS) into one paradigm (wave), but they have also ensured that it can run fully distributed and can integrate with most of the things we have. To understand what that means I urge you not to see Google Wave as a new service, but as a new service layer.
Whereas services like e-mail, instant messaging and social networks always have been build on the premise of a walled garden business model, Google Wave can become the new communication structure services can develop upon. It is set up from the start as an open source project with a clear focus on development API’s. I’m sure that Google will launch a Google Wave service at some point that will attract many users. But it also allows any other service to use that same paradigm to implement unified online communication.
Google has not only spent time and energy making sure Wave can suck content into the platform, it has spent as much time and energy making sure it can get out too! Farewell destination based business models. Farewell walled gardens. If Wave gets adapted, it will put the user in control, and that is exactly what we need to do to break out of our current web 2.0 boundaries. That is what makes this development so remarkable.
Google just did some major plumbing on the web, and honestly, they were probably the only ones that could do this. They, unlike other companies, do not need walled gardens to make lots of revenues. After all, their walled garden is the entire web, and beyond
Categories: Google Wave · business model · user centric web · web 2.0
Tagged: business model, Google Wave, user centric web, web 2.0
Image taken from: http://www.pinkfloyd.co.uk/insideOut/
What are the most important aspects for a User-Centric web to me? In a User-Centric web:
- I get to own my data and my interactions
- I control my privacy
- Services travel along with me, instead of me traveling to those services
- I do not perceive walled gardens, I can take my data with me and (re-)use it wherever I want
- Services connect to me in a standard manner, allowing me to (re-) use my data (think friend list, unified messaging, interaction, privacy control etc here)
- Services read my privacy policy and terms of use, and agree to my terms when connecting
It basically changes the balance of power inside out. Instead of putting control at the web service, control should be with the individual user. If we switch to this perspective you will find that a lot of the issues we currently see on the web would be solved quite naturally. We would not need destination-based business models (with complementary user-lock-in and walled gardens). It would solve the biggest web 2.0 tragedy as service providers would have to compete on user value, instead on network value. And privacy, or the lack of control, of it, would be solved automatically, as the user decides what to do himself. that doesn’t imply that everything will be locked down. It just implies the user explicitly can decide what to do, including the option to share everything.
The problem with this concept is that it takes plumbers to realize it. You need development effort to focus on the core aspects of the way the web works. It isn’t about creating a new Facebook or Twitter. There is no glorious, unique business model available to make this happen. It really isn’t even about technology. we already have the technological capability to make it happen. The real issue is revenue. Unless we figure out a way to generate revenue in this User-Centric web, we won’t see it happen easily. There are movements working on this. OpenID is a great example. But we will need commercial companies to embrace this concept and bring it to life. Unless there is a revenue generating perspective they simply will not do this.
The exception is obviously Google. Google is not only the largest revenue generating machine on the web, they are by far the biggest plumber too. Their recently announced Google Wave is a typical example of this. They have just provided us the mean to re-invent the way online communication works. This is going to have a huge impact on existing communication and social networking services if adopted. Google wave to me is one of the first initiatives that will allow us to develop User-Centric services.
Maybe we should simply revert to a very old business model, even older than the current web 1.0 models we upgraded to web 2.0. Maybe we should ask users to pay for the value they receive?
Categories: Google · Google Wave · business model · privacy · user centric web
Tagged: business model, Google Wave, privacy, user centric web
Who am I?
Yesterday I tried logging into a service I hadn’t visited in a while. I couldn’t remember my user name or password. After a few frustrating and unsuccessful attempts I gave up. Recognize this? Happens to me all the time. Currently, my best bet is to search my mailbox to see if I can find the information I need to get access to services.
It is a problem we all face. For safety and security reasons we need to have unique ID’s and hard to remember passwords. But humanly it is nearly impossible to remember all these combinations. There are tools out there that help your resolve this issue (take 1password as an example). But the tools mask the underlying problem. Why do I need a new online identity for each new service I sign up for?
OpenID addresses this problem. It let’s you sign in to different services using one identity. Several big sites, including Facebook, now support OpenID. You can now, for example, use your mail account to get access to Facebook.
To me, OpenID only solves the initial problem that I described above. It provides me a simple way to get access to different services, without the need for me to remember user names or passwords. But I would like to take it a few steps further. If I can have one identity, securely stored, and usable across different services, then why not store my online profile there as well?
Every service I sign up for requires me to reveal some aspects about myself. It could be anything ranging from name, address, phone, gender, birth date, icons, preferences for movies, books, friends. It could be information linked to my profession, to my free time. I need to set preferences. How open do I want my data to be? There is privacy settings to consider, e-mail addresses to be filled in. The list is endless. The problem is that this information doesn’t change all that often. I might decide that I want to reveal more or less of myself but all this information is stored (in my head, my computer, my address book etc).
But each of these services force me to enter this information in order to serve me a better experience. It’s no fun on Facebook if you do not indicate who your friends are. At the same time, the fight over data has become an important economic factor. Services exist and have economic viability if they can ‘own’ my data. This economic force creates the boundaries often referred to as walled gardens. By locking in users, services can fire up their economic engine. By locking in more users and more data the engine continues to run. While it seems to make perfect sense to have one identity and profile across different services we have to understand that the economic reality of today is that there is no business model available that supports such a radical change. In other words, companies like Facebook will have a hard time justifying their economic value if they didn’t lock in users and own their data.
Technically, by swapping the current balance of power from the service provider to the user we could easily solve this one identity – one profile issue.The Diso project, started by Chris Messina, tries to address these issues. However, this balance of power can’t be swapped until someone figures out a way to make it economically justifiable to do so. I’m sure service providers are willing to do the right thing, but only if it positively affects their bottom line. It is my believe that we need to solve this economic problem first, before we can solve the one identity - one profile problem. A User-Centric web will only be conceived if it is accompanied by business models allowing service providers to generate revenues without being in control of the user’s data.
The value for the user is evident. Instead of monetizing networks, the service provider needs to monetize user value. Instead of focus on growth, there will be focus on user value. Service providers wont be competing on ‘who is the biggest’ but they will have to compete on delivering value. I’ve been complaining a lot about service providers locking users in, about not respecting privacy, or control over user data. But I’ve come to realise that it isn’t fair to be complaining about this, if we don’t address the economic issue at the same time. If we can develop business models that facilitate a User-Centric web, we will have optimal conditions to make it happen. This is a case where economic innovation needs to proceed technological innovation. Forget about technology for now. We already have the technological capabilities to make it happen. We need smart people to focus on defining the business models that will enable this transition to happen.
Categories: business model · user centric web · walled garden · web 2.0
Tagged: user centric web, walled gardens, web 2.0 business model
Chris Messina has a long and good post up about the open Social Web. He hits on a topic I have written about many times as well:
Moreover, by commoditizing certain fundamental features, service providers will move to compete on the level of user experience and service, rather than on lock-in alone. And in the distributed social model of the web, there is nothing more fundamental than establishing a means of expressing durable, cross-site identity.
It is my contention that the individual is the basic atomic unit of society, and without society you can’t get to acting on the “social” layer. And since change only can begin at the scale of the individual, OpenID must occupy a cornerstone of the open, social web.
The commoditizing fundamental features Chris talks about are identity, discovery and access control, contacts and friends, activity streams, messaging, groupings and shared spaces. I read his post and ended up posting a comment on a Friendfeed discussion in which I said:
I guess it all boils down to the point that most initiatives are not willing to work on the plumbing of the web. Everyone wants to build the house and contain people within it. The irony of course is that if you build the plumbing smart you would be part of everything, instead of “owning” a small piece of the web trying to lock users in (And I thought my posts were long )
It reminded me of an old post Rolf Skyberg once wrote about the plumbing on the web. In a post called 98%, or even 100%-open, not enough in social networks he writes:
Unfortunately, this pattern all points into an area where few large companies want to compete: commodity services. To those with dollar signs singing in their sleep, “commodity” is a painful, dirty word where products must compete both on their merits and consumer whimsy. Even if you’re the best, you are forced to walk that careful line between technological prowess and merchantability. It also shines bright lights into the cobwebs of your code; ruthlessly ferreting out weakness.
I’ve written about my view of a User-Centric web (although I was told I should be calling it the User Driven Web). It’s what Chris calls the Open Social Web. In this web the user is the most important actor. The problem of getting to this type of a web is that we need these commoditizing features in place first. The question is, what is withholding this plumbing? They are not brilliant new insights (brilliant, but not new ). It isn’t that no one before Chris, Rolf, Doc Searl, myself or others have thought about the need of having this plumbing taken care of. It seems common knowledge, yet it hasn’t been sufficiently addressed or implemented.
I can think of only one reason. There hasn’t been a commercial incentive to make the User-Centric Web happen. There is no money to be made in plumbing, given the current state of web business models. We are still ruled by old-fashioned web 1.0 business models, and they prevent us taking the leap to a fully open, social web. We need to break free from Tim O’Reilly’s definition of web 2.0 and move beyond that. Until someone figures out how to create revenues by setting up the plumbing , there will be slow progress towards solving it. There are many initiatives, many projects. But turning the web inside out, making the user the center of it, won’t happen until we break through the glass ceiling of current traffic and destination oriented web business models. We need less focus on steroid growth and more on basic infrastructure.
Not only is it more sexy to build a new Facebook, or Twitter, but it is also more lucrative. It’s hard to get investors to line up for basic plumbing. It is hard to convince people that you may earn a decent living by delivering commodity. It is extremely hard to come up with a revenue model for commodity. And until we solve that problem, we won’t easily be able to make the User-Centric web happen.
Who is willing to take care of the plumbing?
Categories: FactoryJoe · OpenID · Rolf Skyberg · Tim O'Reilly · business model · user centric web · web 2.0
Tagged: Chris Messina, Rolf Skyberg, Tim O'Reilly, user centric web, web 2.0 business model
Who is on control now?
I do not often agree with Facebook, but I do agree with their decision to make privacy settings of their users more important than opening up the vast amount of data they track to 3rd party developers. Marshall Kirkpatrick writes about that decision and points out that Facebook isn’t opening up everything:
Facebook holds a mind-blowing amount of conversational data. The company is analyzing it extensively and it has an omniscient view of conversations across all the networks of friends and privacy restrictions. It uses that aggregate data analysis to make business decisions and to sell advertisements. The rest of us are only allowed to give Facebook more data and to get back a sliver per user that will facilitate more user-level participation in amassing more data at Facebook.
He continues and decides that the value of the data is too big to be held by one company alone:
The data that Facebook controls, conversations and social connections, could be used for analysis of real-time social patterns which could lead to world-shaking new insights. Do we get access to that data? No.
Why not? We don’t get that access because Facebook was built on a fundamental promise of privacy and a complex system of privacy controls. Privacy is good, it’s very good. But, the census gathers and exposes personal data without violating privacy. Lots of systems do.
[stuff deleted...]
The data the network controls is just too valuable to keep locked up for only the company’s own analysis.
Marshall asks an interesting question and provides a provocative answer for it. Is the ability to innovate with user data fundamentally more important than the right of a user to keep his data (interactions) private?
It is tempting to answer this question with a ‘yes’. Many web advocates will explain that by giving up privacy they get value. That the free flow of data has lead to new interaction possibilities that were impossible before (web 2.0). We’ve made our progress because everything is set free. Data that is free can be mashed up and provide new value, unprecedented.
While we all benefit from these effects, we should not lightly dismiss this as a simple case of ‘collateral damage’. Marshall touches a fundamental dilemma. What is more important, the rights of the mass, or the rights of the individual. In the western world we tend to assume an inverse relationship between individual rights and social control. More social control leads to less individual rights and vice versa. Marshall suggests that individual rights may be less important than the ‘greater cause’ of being able to provide more value to users if data is freely accessible. The obvious question to ask when resented with this view is “where do you set the boundary?” In other words, what violation of individual rights is still acceptable for the greater cause of innovation?
But to me, there is a more fundamental flaw underneath. Individuals do not really have the means to protect their rights in the first place. Even with every privacy setting Facebook offers a user, there isn’t a single setting that protects the user’s rights from Facebook itself! There is only one way a user can be in control of his own rights. The user can decide not to participate. The web gave us value, and in return it forced us to give up our most important right. The right of the individual. Everything is free and accessible for all. But in return we have to accept that there is no way for us to control what these companies know or do with the data they collect. No matter how honorable Facebook is, they have a disproportional power that allows them to crush individual user rights. Currently, 3rd party developers complain they can’t store Facebook data because of privacy settings, but Facebook itself doesn’t have that limitation. Teh user doens’t own his data, Facebook does.
I realise that these views aren’t popular. That many already (un-)consciously made the decision to participate. We are accepting a world in which the balance is in favor of the companies that develop services. That it is ok that I have to accept a Privacy Policy and Terms of Use of a company, but that that same company doesn’t commit itself to my individual rights. I do not mind data being set free, but I do mind that I do not really have the means to decide for myself what the tradeoff is. It’s all or nothing. Join the party or stay home. And while we might see the benefit of more value now, this is a decision that can’t be undone easily.
Don’t get me wrong. I totally agree with Marshall that the innovation over user data can lead to incredible value. I’m fine with sharing my data in order to have access to that value. What bugs me is that I do not have control over that decision or that balance. We are scared to give that fundamental right back to the individual. It might break all web business models. But I am an optimist. I think we would be surprised to see how many people would be quite willing to share data in return for value. The difference is that in this new situation they would be able to make a conscious decision. The user would be in control. He would join a service like Facebook and consciously deciding the best trade off between sharing information and obtaining value from the service. And that conscious act would provide us all more value than the current situation in which we are hijacked.
The only way this can be solved is by putting the user in control. Turn the entire model inside out Privacy/accessibility settings should not be set per service, but set by the user. The user shouldn’t have a fragmented profile across every service, but instead have one profile that can connect to any service. He should not have to find friends across many services, but have his friends within his profile, accessible to him across any service he wishes to use. The user can be in control of what his profile would look like per service, who his friends are, what data he is willing to share. The user should own his data. If that would be the case then we would have balance between user and service provider. If the user has control over the decision to share, then there can be a much more effective exchange of data for value. A service provider wanting access to some of that data will have to agree to the individual’s privacy policy and terms of use. We would not need a new developer’s APIs for every service, but we would need one standard API that allows users to connect to services. In many ways, putting the user in control would simplify technology and our ability to mash up data in order to create new value. It enforces a more natural cooperation between service provider and user.
The real innovation of the web would be to restore balance and put the individual user in control again.
Categories: Facebook · business model · freedom · privacy · social networks · web 2.0
Tagged: business model, Facebook, privacy, social networks, web 2.0
Networks and destinations
1. If everything becomes open and connected, what will happen to the big destinations?
2. Why is the web rapidly evolving into uncountable databases with connections, instead of one database where everything connects?
3. If all services and destinations become open, then what is the point in being a destination site in the first place?
4. Why are we creating webs within webs, instead of one network that connects it all?
Personality and identity
5. Why am I forced to be fragmented across the web, instead of having one presence that can connect anywhere?
6. Why do I need to get my friends to use the social services I’m on, instead of having my friends with me no matter what service I use?
7. What is or defines my online identity? Am I my profile, my interactions, my data?
8. What defines my presence on the web? Is it the fact that I can be found, or that I can interact anywhere?
Data
9. Why is ‘having data about me’ more important than ‘serving me the right data’?
10. Why is real-time data more important than serving the right data at the right time?
11. Can data lead to demand, or does it only take care of supply?
12. Why does a company have control over all data, instead of letting the user be in control of his own data?
Privacy
13. Why does every service need a TOS and a Privacy Policy, but at the same time the users that are exploited don’t have a TOS or personal Privacy Policy?
14. Why does every service have to implement privacy controls for the user, while we could implement 1 set of privacy controls that the user can control across all services?
Business models
15. Why is the economic model on the web broken for most companies?
16. Why do most companies work with advertisement models while clearly few manage to be sustainably profitable?
17. When does the network effect diminish in web business models and thinking?
Behavior
18. Why can we now publicly rant about anything or anyone, without really being held accountable for our actions?
19. Why do we expect everything to be free, and then have high demands and complain about service?
20. Why would we want to have thousands of friends and interact everywhere?
21. Will we continue to increase interaction or are we reaching saturation?
22. Why do we spend more and more time online while real life passes by so quickly?
Just a few questions that I have. How about you? Do you have any?
Anyone have some answers?
Categories: business model · human behavior · interaction · privacy · social media · social networks
Tagged: business model, human behavior, interaction, privacy, questions, social media, social networks
We're all idiots
/rant on
I read a number of posts in the last week that seem unrelated but ended up making me think about this social media circus we are in. Unless you are deaf, blind, and have been sitting on a deserted island the past weeks you must have noticed the hype the media are now creating around Twitter. Respectable media like the NY Times are running Twitter stories almost on a daily basis. We now know how it was thought out, that investors think loads of money will be made on search, that they turned down an offer by Facebook, and especially that it is now going mainstream. We’ve had a few terrible accidents and disasters and Twitter users were able to beat “old-media” bringing the news. As a result every respectable reporter now turns to Twitter not only hoping to pick up some early scoops as well, but more importantly look really cool at the same time too. And don’t forget about real-time search on Twitter, the next Google killer (yeah right).
Personally, I think it is a load of crap. Twitter is currently flooded by people and organizations “playing the system”. Twitter has embraced the hailed network effect of web 2.0, and that is also it’s biggest tragedy. Twitter has become an eyeballs game, just like any other service that shows unhealthy growth. Twitter isn’t growing with twitter users, it is flooded with bots and spam playing with the weakness in the system and its management. Sorry , if management wanted, they could get rid of the spam and bot excesses easily. But since they are addicted to web 2.0 growth steroids there is no compelling reason to help users not get harassed by spam and bots. Why? Because removing it would also ensure that Twitter shows less growth than expected. Making the “mainstream” bubble pop. So instead of doing what is right for its users, Twitter not only lets bots and spam free but even plays its own game with handpicked suggested users for you to follow.
Then there was this post by the BBC in which they interview smart people from the industry that claim that social networks are the “new e-mail”. Yes, they did call it e-mail 2.0, because that makes it sound even cooler. Digging into the article we find little treasures like one from the founder of Yammer:
Mr Sacks said: “What people want to do on social network these days is post status updates. We think it’s all people want to do.”
Paul Buchheit is quoted:
“I think it’s a new form of communication; not quite e-mail, more lightweight and more real time, often with little bit of a publishing flavour to it,” said Paul Buchheit, founder of FriendFeed, and the creator and lead developer of GMail, while at Google.
And there is this engineer from Facebook that takes it one step further:
Ari Steinberg, an engineering manager at the firm, told BBC News: “It’s been interesting to see the way people change the way they communicate. “You used to e-mail content to people and you had to choose who you wanted to e-mail it to and you didn’t know if your friends even wanted to see it. “Now you can passively put something out there and let people engage with it.”
Notice how each of them highlights their own service strength in these pearls of wisdom that provide insight into our future. Our online future seems to be driven by status updates and passively watching others interact with that. The growth of Facebook, is unprecedented, but as Ari tells us, it’s mostly about status updates. Research from the Facebook data team suggests that we may have loads of friends on Facebook, we interact with only a few of them. The rest are passive relationships.
I’ve always wondered if my personal experience with Facebook is very different from others. There is the first excitement of joining, getting new (and old) friends. But after a while the excitement wears down and I’m left with a service I can’t get any value from, no matter how hard I try. I can’t explain it any better than this hilarious and ironic article written by Matt Labash in the weekly standard:
One by one, my non-joiner friends have succumbed. As one reluctantly joined the world of “poking” and getting “poked” by people he already talked to, people he had no interest in talking to, or people he didn’t know at all–all conducted under the suspect rubric of “friendship” so that they can look at each other’s photos and write dreary “status updates” on their “walls” (brief squibs about what you are doing at that exact moment, usually with emoticons and inappropriate quotation marks: “Matt Labash is wondering how long to marinate human flesh to get out that ‘gamey taste’ “)–he was almost apologetic about it. Within two days of his birth on Facebook, he said, “I have 198 friends. I have never heard of most of them. This is so dorky, I hate myself for doing it.”
Being a true friend, I didn’t allay his guilt. I told him he was a very sad man, that collecting Facebook friends is the equivalent of being a catlady, collecting numerous Himalayans, which you have neither the time nor the inclination to feed. “You have obviously never been on Facebook,” he said. “It’s so much worse than collecting cats.” By this week, however, he’d lost all ironic distance. When I told him that he now took it all way too seriously, that I liked the old, conflicted him better, and that he should take a hard look at himself, he sloughed me off. He was now just another friend-whore: “I don’t need to look at myself. I have 614 Facebook friends to do the looking for me.”
We're a bunch of Chimpanzees
A new generation is learning that the best the web has brought us is the status update. That friends are measured in terms of quantity, and that interaction can be done passively. We need pokens to connect (my brain just melted by this infantile invention). If that is the future of the web, then you can count me out. I spend the last week without any social media tools and concentrated on real-life relations in both my private and working life. There is no online experience that can remotely match those interactions. We are all sitting behind our screens like a bunch of dressed up monkeys, confusing status updates with real interactions, and failing to see the wonders of life as it passes by. It’s pathetic.
What is the root cause of this idiocy? I firmly believe it has to do with the way business models evolved on the web. When eyeballs, page views, CPM, unique visitors, traffic, and network became more important than individual users we took a wrong turn. We let the web evolve into into a big market place where “Advanced Ads Targeting Features” have become more important than individual value. The web has become a marketing play, instead of a place where we get real value when connecting online.
I’m with 37Signals here who openly wonder why the web lost faith into charging for stuff? Our online future is reduced to a status message and a million marketeers are making plans to exploit that nonsense. I can understand that. Marketeers can’t help it, they are just idiots. But to hear the Web finest entrepreneurs reduce the web’s future to status updates and refer to this as email 2.0 is more than idiocy. It’s mediocre. And it is scary to think that all our creativity, technological progress, and plain smartness has lead to this ultimate achievement of mankind.
It is time to end this madness and start charging people for the value that they get. Sure, you will lose eyeballs, traffic, status and all those other destructive measures the web currently brings us. But you will gain something too. You will get happy customers and you will deliver user value instead of network value. You will have fans instead of statistics. There are plenty of reasons to start today with a user centric, or user-driven business model. The question is, are you brave enough to deal with that possibility?
/rant off
Categories: Facebook · Friendfeed · business model · social interaction · social media · social networks · web 2.0
Tagged: business model, Facebook, Friendfeed, social interaction, social media, social networks, web 2.0
Every once in a while a new product or service appears that is immediately labeled as the new ‘Google’ killer. Usually by the major tech blogs who need to say something smart to get the traffic going to their site. Sometimes by the product company itself who might think that that any publicity is good publicity. I rarely read those posts. The idea itself makes me smile a bit as I personally believe that anyone boasting about such a possibility rarely really understands the nature of the power that Google has build up in the past years.
The nature of the strength of Google can be derived from their mission “to organize the world’s information and make it universally accessible and useful”
The first thing that comes to mind when reading that is their audacity to think beyond reasonable boundaries. Google doesn’t want to organise a specific set of information, they want to organise all information. I do not know a single company that publicly dares to think this big. The consequence of dreaming this big is that you have to act upon in. And that brings us to another strength of Google. If you wan tot organise the world’s information you need unprecedented data storage and manipulation capabilities.
Many people will recall the search engine when thinking about Google. Others might think about Google maps, GMail, Google Earth, Adwords, or other remarkable services Google provides. I tend to think about the infrastructure that is needed to accomplish the daunting task of organizing all of our worlds information. The infrastructure of Google i s as immense as their mission. They own huge server parks, run some of the largest infrastructures in the world and own probably the largest and most important glass fiber backbone infrastructures in the world. It is nearly impossible for a piece of data traveling the world not to pass Google infrastructure. And they are extending their reach into all networks, including the mobile network.
Imagine the sheer computational capabilities, the ability to store endless amounts of data, the ability to transport unlimited amounts of data, and you are slowly getting the picture that competing with Google isn’t about a product or a service. You are competing with bricks and mortar, with iron, and motherboards, with glass fiber and server parks. The investments needed to overcome that are beyond any ones reach at this moment.
Does that mean that Google can’t be beaten? I doubt it. History learns that all empires that rise up at some point will come down again. But what is Google’s Innovator’s dilemma? Where will a disruption come from that can overthrow what Google brings on the table right now? I honestly don’t know. But with their ability to diversify, their incredible computational power and infrastructure, their current money generating platforms it has to be something that hurts them in their core. Forget about individual services, walled gardens, huge traffic drivers like Facebook or MySpace. Google’s walled garden is the entire planet. Who has the audacity to think big enough and overthrow that?
Categories: Google · Innovator's dilemma · business model
Tagged: business model, Google, Innovator's dilemma
Mark Zuckerberg just announced that Facebook will revert back to the old terms of service as too many people complained about the new ones. I think it is a honorable that Facebook is retracting a pretty bad plan. It is also good to see that they are now engaging with their community about where to take this. In the post Mark states:
Going forward, we’ve decided to take a new approach towards developing our terms. We concluded that returning to our previous terms was the right thing for now. As I said yesterday, we think that a lot of the language in our terms is overly formal and protective so we don’t plan to leave it there for long.
More than 175 million people use Facebook. If it were a country, it would be the sixth most populated country in the world. Our terms aren’t just a document that protect our rights; it’s the governing document for how the service is used by everyone across the world. Given its importance, we need to make sure the terms reflect the principles and values of the people using the service.
Our next version will be a substantial revision from where we are now. It will reflect the principles I described yesterday around how people share and control their information, and it will be written clearly in language everyone can understand. Since this will be the governing document that we’ll all live by, Facebook users will have a lot of input in crafting these terms.
It’s a difficult thing to get right. Facebook has obligations to shareholders, advertisers, business partners, 3rd party application developers, the employees of the company, and yes, the user too. What makes the task even more daunting is that the Facebook business model (free, advertised based) forces them to leverage the size of the network, instead of monetizing on individual user value. It puts them in a balancing act where the advertisement capabilities need to outweigh the individual user rights in order to keep a decent revenue stream. In other words, the more freedom Faceook has to use the data coming from user profiles and interactions, the more capabilities they have to create revenues.
Why do people sign up for Facebook? I suspect in most cases to have a good time and connect with friends. They do not want or need advertisement. It’s a distraction from the core value they wish to receive from Facebook. At the same time, you can’t provide 175M people a free service without some way of creating revenues (although it remains to be seen if advertisement is going to create enough revenues). The problem is that most people are not aware of this and Facebook is not providing the transparency to make sure people are taking a conscious decision when they sign up for the service.
If anything, it is this lack of transparency that should be solved first. The TOS is only one aspect of that. When you sign up for Facebook it should be clear how the service is making money. It should be clear that when you start adding friends, interact, upload content, etc. that all these actions are monitored and stored. It should be clear that even when you are setting privacy controls to a high level it only affects other users, but that it doesn’t protect you or your interactions from Facebook. It should also be clear what Facebook does with 3rd party developers, advertisers and other companies that use the Facebook ecology to create businesses or revenues themselves. And when all of that is clear, then a user can take a conscious decision whether all of that is ok or not.
That is the dillema Mark faces. How are you going to educate 175M people about your business model and all its effects? A User-Centric or User Driven business model would force you to do the right thing for the user, and as a result of this you create revenues. Facebook is forced to do the right thing for the company in order to protect its revenue streams. And that is a big difference.
Categories: Facebook · Mark Zuckerberg · advertisement trap · business model · privacy
Tagged: advertisement trap, business model, Facebook, Mark Zuckerberg, privacy
There has been quite a bit of uproar about Facebook changing their Terms of Service. Unfortunately, no one is asking the right question, thus letting Mark get away with answering the wrong one. The section that created this uproar reads:
You hereby grant Facebook an irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to (a) use, copy, publish, stream, store, retain, publicly perform or display, transmit, scan, reformat, modify, edit, frame, translate, excerpt, adapt, create derivative works and distribute (through multiple tiers), any User Content you (i) Post on or in connection with the Facebook Service or the promotion thereof subject only to your privacy settings or (ii) enable a user to Post, including by offering a Share Link on your website and (b) to use your name, likeness and image for any purpose, including commercial or advertising, each of (a) and (b) on or in connection with the Facebook Service or the promotion thereof. You represent and warrant that you have all rights and permissions to grant the foregoing licenses.
In other word. Anything you publish on Facebook can be used by Facebook. TechMeme sees a large number of replies to this change and this forces Mark Zuckerberg to write a post explaining Facebook’s motives. He writes:
Our philosophy is that people own their information and control who they share it with. When a person shares information on Facebook, they first need to grant Facebook a license to use that information so that we can show it to the other people they’ve asked us to share it with. Without this license, we couldn’t help people share that information.
[stuff deleted...]
Still, the interesting thing about this change in our terms is that it highlights the importance of these issues and their complexity. People want full ownership and control of their information so they can turn off access to it at any time. At the same time, people also want to be able to bring the information others have shared with them—like email addresses, phone numbers, photos and so on—to other services and grant those services access to those people’s information. These two positions are at odds with each other. There is no system today that enables me to share my email address with you and then simultaneously lets me control who you share it with and also lets you control what services you share it with.
Mark tries to explain the complexity that arises when users start sharing information. He explains that this TOS change is needed to allow users to have access to shared information , even when the original sender/sharer has deleted his or her account. In other words, if I share a photo with you, and I decide to delete my account, should you then not have access to that photo anymore?
While Mark does a good job explaining this process and it’s complexities I cannot help but feel that the blogging community has let Mark get away with answering the wrong question. He has done a perfect job in avoiding a much more important privacy issue than the issue that arises when two people share information via Facebook.
The questions Mark should have answered are the following:
What exactly does Facebook do with all the user data has been collected on Facebook, and how exactly does it monetize that, even after a user has deleted his or her account?
I could care less about the information I share with others via Facebook. That sharing process is a conscious act. I know that if I share that whatever gets shared is out of my control. What I do not know is what Facebook does with that information. Why do they tap into all of my interactions and my data? What do they store, and how do they monetize that exactly? If I set my privacy settings as strict as possible do they still see everything? How is that data being used outside of Facebook? Do 3rd parties get access to that information as well, even if I do not want them too?
The problem at hand isn’t users sharing things on Facebook. It isn’t even controlling privacy on Facebook. The problem is that I do not have a clue or option to protect myself from Facebook. Any service that monetizes user data and interactions indirectly using a free but advertisement business model puts the value of the network in front of the value of the individual user. You get a free service, but you do not know exactly what you are giving up for that. And that is what Mark should be explaining. The rest is just a decoy so that the really difficult questions do not need to be answered.
I might not even mind that Facebook monetizes my user data, my friends, and my interactions. But right now, I don’t know how Facebook uses that data.We might think that our online lives are not connected to our real lives. We might even think that privacy is dead. But the problem is not that privacy is dead, but that it is distributed unevenly. In other words, the user is forced into total transparency when signing up for services like Facebook. But the service itself lacks transparency. There is no way we are going to find out what Facebook does with us. And it is this unbalanced relationship that we should be worried about. Mark Zukcerberg does a great job answering the wrong question, and we all fell for it again.
Categories: Facebook · Mark Zuckerberg · advertisement · business model · privacy
Tagged: advertisement, business model, Facebook, Mark Zuckerberg, privacy
A few posts drew my attention this weekend. first there was Chris Anderson talking about the economics of giving it away. It seems to me that Chris is changing his tone of voice in FREE. Whereas he often has focused on the zero cost distribution of FREE, he now talks about the revenue side of things. He notes that in a market where both venture capital and advertisement investments dry up startups need to make real money. This quote says it all:
What about those companies trying to build a business on the Web? In the old days (that would be until September of last year) the model was pretty simple. 1. Have a great idea. 2. Raise money to bring it to market, ideally free to reach the largest possible market. 3. If it proves popular, raise more money to scale it up. 4. Repeat until you’re bought by a bigger company.
Now steps 2 through 4 are no longer available. So Web startups are having to do the unthinkable: come up with a business model that brings in real money while they’re still young.
Fred Wilson follows up with a post about the need to not only look at revenues, but also at costs. He writes:
Chris goes on to suggest that Internet entrepreneurs are going to have to get people to step up and pay for something instead of just giving everything away for free because advertising isn’t going to foot the bill for every company. That may well be true and we are certainly thinking that way for most, if not all, of our portfolio companies. But Chris’s examples, particularly Facebook and Digg, are examples of companies that might benefit from looking at the cost side of the profit equation at some point (maybe not yet).
And then there is Facebook, with Mark Zuckerberg who feels he has found the pot of gold at the end of the rainbow. In an NY Times article, ironically entitled “Networking site cashes in on friends” we can read about his strategy:
Facebook is planning to exploit the vast amount of personal information it holds on its 150m members by creating one of the world’s largest market research databases.
In an attempt to finally monetise the social networking site, once valued at $15bn (£10.4bn), it will soon allow multinational companies to selectively target its members in order to research the appeal of new products. Companies will be able to pose questions to specially selected members based on such intimate details as whether they are single or married and even whether they are gay or straight.
I feel we may finally have reached a tipping point in thinking. While the FREE advertisement based business model might have given us lots of good things (free services), it comes with many downsides and basically holds web evolution back:
- It leads to focus on network value instead of user value. In other words, the network and growth are more important than providing individual users value
- It leads to walled gardens. If you have to make money with advertisement, and your business is not search, then it is imperative that you keep your customers locked in. The phrase locked in says it all. Instead of freedom we contain our users. Get him into the service and then never let him out.
- It leads to destination sites, instead of user centric services. For advertisement we need traffic and eyeballs. It is therefore important to get your users to gather together in one place.
I feel Facebook still isn’t convinced. They choose yet another indirect business model. Instead of focus on user value, they will now try to exploit user data towards brands. You get a service for free, but in return we sell you, your friends, and your data to other brands. Possibly the largest marketing database in the world. I’m not looking at any moral aspects of such a deal, but think about the inefficiency for a second. There is a clear misalignment between what the Facebook user perceives as value received from Facebook versus the value Facebook executives are trying to exploit. And it is this misalignment that makes it so hard for Facebook to make enough revenues. They have huge operational costs with servers and a large organisation. And they can’t back that with advertisement money. My prediction is that it will be quite hard to monetize the user database the way they are thinking about it now. The reason for this remains simple. A Facebook user is there because of interaction with friends. That’s it. Having a good time online doesn’t match any advertisement or marketing goal. If they want to pull this off, they better start lowering their operational costs big time.
I believe a User Centric business model is more powerful in the end. Focus on user value and monetize that value. It is the simplest and clearest business model there is. It is a model that comes with several advantages:
- With one specific variant, Freemium, you can use the best of FREE (near zero cost distribution) while at the same time monetize on user value
- You will be forced to keep your operational costs to a minimum as you do not want your customers to pay for the overhead you are creating to deliver value
- If your main focus is user value, you will build user centric services instead of network value services. Everyone will benefit from that. It will lead to open systems, cross platform integration and service oriented business.
- It forces you to constantly innovate your concept of user value. You want customers to stay with you because of the trust and value you provide, instead of locking them in. As a result constant user centric innovation will keep competition out and your customer happy
- It is fun to engage with happy customers. Do not underestimate this aspect. I can still get very excited when I read the “300.000 paying customers of SmugMug”. SmugMug doesn’t really have customers, they have fans!
Let’s hope more services will follow that path. it will do the user and the web a lot of good. A User-Centric web is to prefer over any other type of network.
Categories: Chris Anderson · Facebook · Fred Wilson · Freemium · business model · user centric web
Tagged: business model, Chris Anderson, Facebook, Fred Wilson, Freemium, user centric web
January 30, 2009 · 1 Comment
What is the difference between customer lock-in and customer value It’s huge! Customer lock-in is a marketeers wet dream. It is a bonus received at the end of the year. It is an internally focused measurement. It is EGO. If your CEO, organization, or marketeer is talking about customer lock-in you can be sure of one thing. Making revenues is more important than bringing value to a customer.
Don’t get me wrong, every company has to make revenues. But think about this for a second. Which company would you rather work for, or buy products from? A company that is focused on revenue and sees customers as a byproduct of that revenue? Or a company that is focused on providing user value, and as a result of this earns a good living?
How to you reach a status of customer lock-in? You can’t accomplish that by serving the customer value. Instead you focus on the costs involved to move away from your service. If the cost of leaving the service are high enough, your customer will not attempt to leave. Too much hassle. Examples? We see lots of businesses attempting some form of customer lock-in. Try leaving a mobile operator and taking your mobile phone number with you. Leave an Internet access carrier and then try to keep your data or e-mail address. Try switching banks making sure your monthly payments are still in order. The list is endless.
The online space isn’t any different. Web 1.0 thinking is essentially customer lock-in thinking. Web 1.0 business models force customer lock-in. It is their oxygen. Without customer lock-in, no revenues. It is the reason web 2.0 isn’t really a revolution but simply an evolution. Examples? The most obvious one is Facebook. Once you sign up your soul is sold and leaving again is impossible. Actually, that is not entirely true. If you simply quit, your account will not be deleted. But if you really want to get out, start acting against the terms of service and they will wipe your account faster than the speed of light. Facebook is a black hole that sucks you, your friends, your interactions and data in, but never lets it out again. It is the perfect customer lock-in platform.
Another example? The Apple iPhone. Apple builds great products but dictates everyone how to use it. I have an iPhone but I couldn’t buy it from the mobile operator I have been happy with for years. Instead of offering me choice, Apple has decided to make it exclusively available via a select set of operators. The reason is simple, it isn’t about customer value, but revenues. While the iPhone itself may be a great and user-friendly product, the Apple strategy is a lock-in strategy. Forcing me to buy the phone and jail breaking it. Sorry Apple, I don’t give a toss about your exclusive strategy, I want choice! Google’s g-phone? Exactly the same issue. Not because of the way they will distribute it. But because it needs a Google account to be useful.
Customer lock-in is a lucrative business. Corporations have tons of marketeers employed to build their customer lock-in strategy. The funny thing about it is that if you would get rid of all that overhead (yes, marketeers are idiots), you would not only save a whole lot of money unwisely spend, but you would also have the chance to work on customer value. It would make your customer, your employees much happier. It would generate profit and build you a strong business with loyal customers. You would not need a “Social Media strategy” to “engage” with your customers. You would not need “loyalty” programs. Note that these two “social” strategies become customer lock-in tools if applied within a customer lock-in organization. You would not need Tara Hunt to explain to you what the Whuffie factor is, as it would be in your genes. Having said that, you’d be crazy not to hire ten Tara Hunts and turn your company around form customer lock-in to customer value. A company build on customer value would be doing these things naturally, well before any consultant has thought of a new Powerpoint title called “Social media”. It is funny to realize that great developers tend to understand this much better than any marketeer ever can. It’s because a great developer does not take revenues into account. He looks at customers first.
There are many reasons thinkable why customer lock-in is dominant in company strategy, but that is big enough in itself to write another post about. Sufficient to say that if your company is using social media consultants to enter this exciting new web 2.0 world, you are in deep trouble
Categories: Apple · Customer Value · Facebook · Google · business model · customer lock-in · freedom · social media
Tagged: business model, customer lock-in, Facebook, freedom, Google, marketeer, social media
I’ve often wondered how web 2.0 is really different from web 1.0. Most seem to agree that web 2.0 was an evolution in which we went from portals and destination to data and interactions. Web 2.0 is about interaction, social media. Everyone connecting in one big network. Data is the currency. It’s all true and sounds great to me. But why do we then still have huge destination sites? Why is there still a battle over users, eyeballs and visitors? Why is Facebook essentially a vacuum service, sucking everything in, and letting nothing get out? Why does Techcrunch report Friendfeed has a million unique visitors? We mash data up, connect it everywhere, but still force people go somewhere to fetch it.
If you think about it, the sexiest services right now are nothing more than old fashioned destination sites with some conversation added to it. In terms of business models, nothing new there. Business wise it’s not web 2.0 but web 1.0++ in disguise. I believe that the main reason behind this is that, although technology wise we have innovated many aspects of the web and its services, our online business models haven’t evolved with this change.
Just to be sure, I’m not talking about the huge impact online business models had on offline business models (e.g. tradition print getting killed by online media). I’m talking about online business models that existed say 5-8 years ago, compared to the models used now. Essentially investors and web entrepreneurs seem to be web 1.0 thinkers. They think in terms of destinations, eyeballs, unique visitors, traffic, advertisement, CPC, CPM. All of these elements have been around in online business models for ages. Nothing new there.
As a result of this there is no fundamental revolution taking place, it is more of a logical evolution. A tiny step given the potential that is really out there. Don’t get me wrong. The way the web presents itself to us, and the endless possibilities for us to connect online, has changed our online experience considerably. The question remains though. What if business models would evolve with that technological and behavioral change? What if we would stop thinking in terms of advertisement display or cpm, and would focus on other value drivers? What if we would care less about keeping users sucked into a database, and set them free because you don’t need to hold on so tightly to make revenues? It is this ‘old school’ thinking that inhibits us from starting true revolutions. Technology wise we can revolutionize our experience on the web. Business wise we are held back and forced to take smaller steps.
One could argue it is because current web business models are perfect and need no change. But that seems incorrect as many companies have problems creating sustainable revenues. My biggest concern however is that current (often advertised based) business models are in most cases network centric instead of user centric. By that I mean that the business model works when the network that is being exploited gets larger. As a result the company executing that business model is forced to think in network value. I prefer business models that focus on user value. It is the cleanest and simplest business model. It works out best for the user (as he gets most value), and the company (as they receive revenues based upon that user value).
But here is the catch. Since 99% of current business models are network based and most web investors and entrepreneurs are trained to think that way, we can’t easily make the switch to a user value business model. And because of that we are stuck in our own trap of web 1.0 business models and unable (yet) to unleash the full potential of our technological capabilities to create user value. We end up with more destination sites and customer lock in. Customer lock in fits really well, wouldn’t you agree?
There are counterexamples of companies that did make that switch (e.g. 37signals, smugmug) and generate sustainable revenues. But we need more leadership in this direction. We need investments that step away from current practice and take a more user-centric approach. It would set us all free and help us build a User-Centric web.
Categories: advertisement trap · business model · customer lock-in · on-line advertisement · user centric web · web 2.0
Tagged: advertisement trap, business model, on-line advertisement, user centric web, web 2.0
MySpace has over 200 Mln registered users. Facebook follows fast with 140Mln registered users, and they are adding an astonishing 600.ooo new users every day. A rough estimate suggests that more than half a Billion people are registered in social networks worldwide. That is half of the entire Internet population. Clearly there is a need to be participating in social networks. The need is interaction.
While social networks undoubtedly have brought us many great things I find that the current setup is undesirable. Techies might consider Facebook and MySpace web 2.0, but their strategy is very much 1.0. They are silo’s. You are either in, or out. Or as Doc Searl puts it, Facebook is the Borg. Once in, it is hard to get out. You should realise that it isn’t Mark Zuckerberg or a talented developer providing you cool features that keeps you locked inside a social network. It is their choice of business model. MySpace and Facebook have only one mission, and that is to become the single silo everyone uses as their communication platform on the web. It allows them to execute their free, advertisement based business model. In this business model the network is more important than the user. In other words, the business model becomes more effective when the number of users increase. This is not to be mistaken from the network effect Tim O’Reilly often speaks about in referral to web 2.0 services. Web 2.0 services improve as more people join, in other words, the quality of the service improve as more people use it. In the case of the free advertisement based business model the revenue stream increases when more users are joining, but the overall value provided to the individual user is not 1-1 related to the number of users.
For that reason social networks make it super simple for you to add new friends. At the same time it is nearly impossible to leave the network, taking your data with you. And it is a service violation to export your Facebook contacts to another service. Getting in is easy, leaving is out of the question.
In order to keep the silo the most important platform, new services are added all the time. Facebook is not just a social network anymore, it is a platform of services. It provides users so much functionality that there seems to be no reason leaving it once you are in. A whole generation is now growing up thinking that Facebook is the Internet. And while Facebook and other social networks continue to add new services making this sound very reasonable I see a few reasons why this is undesirable:
- There should not be a single company having so much power over our web experience. Especially if such a company leverages our (private) data in their business model. Diversification is good, building one platform and closing everyone into that platform sounds more like an old fashioned communist-like scheme to me
- Privacy needs to be controlled by the user, it should never be controlled by the company that exploits all data and interactions of that very user
- People are largely ignorant about possible dangers of the information they are sharing through social networks
- The business model involved is mostly destructive as hardly any value is created. Facebook has a gazillion pageviews every day. While we are interacting with our friends, they display advertisement to us, thus trespassing through our relationships. The advertisement is largely ignored by all of us. No value creation there. And the sucker that ends up paying for this “value”? The advertiser, unaware of the bottomless hole he is throwing his money into.
Social networks are there for our desire to interact. But that interaction comes at a cost, we lose our privacy and diversity. While that might not sound like a big deal now I believe that in the end this will not be beneficial and even dangerous for us. The nearly unlimited growth of social networks will stop at some point. As we are all on MySpace or Facebook, it will become less valuable and cool to be part of it. Human nature simply doesn’t like captivity.
Categories: Facebook · business model · interaction · myspace · privacy · web 2.0
Tagged: business model, Facebook, interaction, myspace, privacy, web 2.0
A good article by Brad Stone at the NY Times entitled “Facebook aimes to extend its reach across the web”. Brad talks about Facebook Connect:
Facebook Connect, as the company’s new feature is called, allows its members to log onto other Web sites using their Facebook identification and see their friends’ activities on those sites. Like Beacon, the controversial advertising program that Facebook introduced and then withdrew last year after it raised a hullabaloo over privacy, Connect also gives members the opportunity to broadcast their actions on those sites to their friends on Facebook.
This is beginning to sound like a development I have talked about many times, the user-centric web. In a User Centric Web, the user is in control of his data and interactions. Facebook’s attempt sounds like it, but it fails in one major perspective. And Sheryl Sandberg, Chief Operation Officer of Facebook, together with Brad’s analysis indirectly explain where it fails.
Sheryl is quoted in the article:
“Everyone is looking for ways to make their Web sites more social,” said Sheryl Sandberg, Facebook’s chief operating officer. “They can build their own social capabilities, but what will be more useful for them is building on top of a social system that people are already wedded to.”
Brad writes about the possible intentions of Facebook Connect:
Facebook has detailed information about its users: their real identities, what they like and dislike and whom they associate with. With a member’s permission, it could use that data to help other Web sites deliver more personalized ads. Similarly, those sites could tell Facebook what its users are doing elsewhere, helping to make its own ads more targeted.
In many ways Facebook Connect, and Google’s OpenSocial, attempt to do what the User Centric Web is about. It allows users to take their data with them on the web. It allows them to be in control of their data and their interactions. The problem I have with Facebook Connect and these other initiatives is that to me it seems the wrong intentions are used to build it. Facebook Connect looks like a scheme that will provide Facebook more value. By letting Facebook users leave the Facebook platform they are actually hooked tighter to the platform. And that is good news for the advertisement revene streams of Facebook. User value seems to be reduced to welcome side effect. Facebook Connect lets Facebook extend the reach of its social graph beyond the platform, making the network inevitably more valuable than the user.
In my opinion the underlying business model makes it very difficult to provide the user true control over his data. If your business model is free advertisement based services, then you are forced to make network value more important than individual user value. It make privacy control an “issue” to deal with, instead of a value you can provide your user with. Big difference. I am afraid most social network users don’t care or are ignorant, but the issue of privacy will become more and more important as social media takes control of our lives. Openness and interaction that come along with it are great, but there are also dangers to consider with Social Media.
I’m afraid the NY Times calls it right when they say Facebook aims to extend their reach on the web with Facebook Connect. That sums it all up. Facebook pitches Facebook Connect as a privacy tool. I am left with one question. Who is going to protect me, my data and my online interactions from Facebook?
Categories: Facebook · business model · privacy nightmare · social media · social networks
Tagged: dangers of Social Media, Facebook Connect, privacy
A few interesting posts drew my attention this morning. First there was Dave Winer who predicts that on-line advertisement will be dead. Not because it will completely disappear, or that it’s growth will slow down considerable. But because it will be replaced by something more valuable, commercial information. Interesting thought. I’ve always felt that on-line advertisement only makes sense when the advertisement itself has value to its user. Dave takes that thought one step further and explains why commercial information is more relevant.
Erik Schonfeld at Techcrucnh shows statistics that advertisement growth is grinding to a halt. He uses the results of the 4 major advertisers (Google, Yahoo, Microsoft, AOL) to show that growth is slowing down considerably. Together they still create a staggering $ 8,2 Bln revenues per quarter, but what would interest me is to know the total market value right now. It would most likely show that more than 90% of all advertisement revenues are generated by these four companies. Why there are so many startups still executing the free advertisement based business model is beyond me.
Chris Anderson explains about the metrics behind a business model I like a whole lot better, Freemium. In this business model you provide most of your service for free and generate revenues from a small part. The model works only in cases transaction costs are nearly zero. You can have a huge distribution at near-zero costs and at the same time convert some of your users to paying customers. As your user base grows and you become more effective converting some users to paying customers you can have a successful business model.
Chris provides some market statistcs on this:
But that was just a hypothetical percentage split, to make a point. In the real world, what’s the right balance? The answer varies from market to market, but some of the best data is in the games world.
In online free-to-play games, companies aim to structure their costs so they can break even if as little as 5-10% of the users pay. Anything above that is profit. Which is why these numbers from Nabeel Hyatt are so impressive:
- Club Penguin: 25% monthly uniques pay, $5/mo per paying user
- Habbo: 10% monthly players pay, $10.30/mo per paying user
- Runescape: 16.6% monthly uniques pay, $5/mo per paying user
- Puzzle Pirates: 22% monthly players pay, $7.95/mo per paying user
As the blog notes, that compares very well to the 2% of the casual downloadable game market that pays, or a 3-5% that a lot of “penny gap” free trial web startups get. Estimates for the number of free Flickr users that convert to paid Flickr Pro range from 5-10%. Ning says 3% of its 500,000 social network creators pay for the premium version. And shareware software programs often see less than 0.5% of users paying up.
If you can get 5% of your user converted to paying customers then your business case can become profitable. As your business keeps scaling (due to the FREE component), 5% quickly becomes an interesting number of paying customers and a healthy stream of revenues.
What I like best bout Freemium is that it combines the best of both worlds. You have excellent distribution possibilities while at the same time you ask customers to pay for the value they receive . It is the most straightforward business model there is. So those of you that are thinking about starting a new business, why not forget about the FREE advertisement based business model and concentrate on Freemium instead. not only is it a proven business model. But it will force you to think and act in terms of user value instead of network value. And that strategy is better for your customers and therefore better for your business. To me, Fremium is better than Free advertisment based business.
Categories: Freemium · business model · free business model · on-line advertisement
Tagged: free, Freemium, on-line advertisment
