If I would have to name one thing technology has brought us the past years it would be the ability to interact with each other. There are so many ways we can connect now that we almost need to hire a PA to manage all these connections. People love to interact. Without interaction life would be meaningless (probably why prisoners are sometimes locked into isolation). As interaction provides value, we should be looking at ways to monetize on that interaction (instead of monetizing on ads). The ability to interact is in my opinion the most important value driver for any service.
There are so many examples of interactions creating value. When writing this up I remembered a Harvard Business Review study about eBay. It turns out that people that joined the eBay community buy and sell more stuff on the eBay site, than people that are not part of the eBay community. Approximately 80.000 people were asked to join the eBay community, 3300 became active users, and 11.000 became lurkers. Revenues after one year of following these people increased up to 56% with eBay profiting several million dollars from the increased trading of both active community members and lurkers.
Or what about the study here, that tells us that in 2012 4,81 Bln mobile users will sent approximately 3,7 trillion SMS messages to each other, That is an average of 769 SMS messages per year, or 2,1 SMS messages per user per day, leading to $ 67 Bln SMS revenues. BTW, the largest mobile growth is to be expected in Asia.
Why do people love to watch video’s on YouTube or look at Facebook most of their time. In my opinion it is not the “sit back and watch” or “entertain me” behavior we all display when watching TV. I bet that every time we are at YouTube or Facebook it provides us with thoughts, ideas, memories or experiences that we can communicate about. It is this communication that makes the experience valuable. Sharing this crazy video with a friend and have a laugh about it. Looking at this dorky or very cool person on Facebook and talk about that with friends. We just can’t help ourselves. We need to communicate.
A recent study in Canada shows (again) that people that download music using peer 2 peer technology (in other words download illegally) buy more CD’s than people that don’t download music. Bands are now bypassing the “old”music distribution and distribute music themselves, even leaving the responsibility to pay for it with the user. Why does it work? Because it leads to interaction. Interaction between the band and its fans. Interaction between the fans, and interaction between the fan just downloading the music and his non-fan friend which he now tries to convince how incredibly cool this band is. Focusing on the interaction in music provides an experience that in itself will create value.
Why then, when people display such obvious needs to communicate, do web 2.0 business models not leverage this interaction directly? It is because the web enforces disjoint metrics upon us. Actually Google is probably largely responsible for this. Their PageRank has made us all into traffic slaves. When providing commercial services on-line it is all about having a high PageRank, about users being able to find your service and then view it. In order to be noticed, what better to do than provide cool services for free? But someone always has to pay the bill. And the way to do this, orchestrated by large media companies like Google, Yahoo, Facebook, is to create advertisement revenues. The metrics are easily manipulated leading to possibilities to fraud the system. Before you know it we are back into the advertisement bombarded TV world again. But advertisement does not increase the value of interaction. It doesn’t provide real value when two people are connecting (“this message was sponsored by..”). And people have found effective ways to get around it, using the remote control zapping away, or using DVD recorders to fast forward advertisement. On the Internet, most users will simply ignore ads, like a blind spot. This leaves only those that create massive amounts of traffic to their sites to actually earn some revenues in advertisement (there is always some fool clicking on an ad). I’m not naive, advertisement will always be there, but I don’t think it should rule our interactions.
The things is, people will interact, no matter what. Why not focus on increasing the value of the interaction itself. Let people pay for the interaction, instead of trying to monetize something on the side that doesn’t ad value to this interaction. It goes against all rules of web 2.0 business models. It might be a barrier for people to join a service when everything else is free. You are probably scaring of both investors and advertisers with this approach. But, if you provide real value to a user, and you are able to get that message to him, isn’t it worth a try? You know there is one piece of knowledge that supports you taking that disruptive step. The conversation never stops.
Just after posting this I saw Tom Foremski posting a message that there is a growing distaste by VC firms of web 2.0 companies.
For example, Kleiner Perkins Caufield & Byers, Silicon Valley’s leading VC firm, has stopped investing in Web 2.0 startups. “We have absolutely no interest in funding Web 2.0 companies,” says Randy Komisar, a partner at Kleiner Perkins. He mentioned this during an after dinner conversation last week. He said he had recently told John Battelle, one of the organizers of the rapidly growing Web 2.0 Summit conference, that the term no longer had the same positive cachet it once had. In the VC community it clearly has a negative one.
Sounds like we are perhaps on a turning point? Maybe this will trigger startups to step out of the usual business model and come up with exciting new services and equally exciting new revenue models.