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Technology and Business
I'm taking a required Telecommunications Management course this mini, and a significant portion of my final grade is a group term paper on any Telecom-related subject of our choice. My team decided to do a semi-treatise on Web 2.0 and its implications for business, a topic on which I have only a superficial knowledge but hope to learn much more over the coming weeks as I engage in research. But one of the biggest questions I find myself asking now - and this is a question that I have long pondered, long before I had this project - is: Are there viable (i.e., profitable) Web 2.0 business models that are not based on advertising, nor on being purchased by a larger firm (i.e., Youtube being purchased by Google, and only thereby enriching the founders of Youtube)?
Think about this for a second. I don't pay a dime for this Blogger account; nor do I for my Facebook, nor do users for 99.999% of the social networking and content sharing sites out there pay any sort of fee to use the site as much as they wish. And it costs lots of money to run these sites. To generate money, virtually all of them operate as nothing more than highly sophisticated advertising schemes. You undoubtedly know how it works; I'm gay and live in Pennsylvania, this information is on my Facebook profile, so I get bombarded with ads on the side of my Facebook page for LGBT networking sites and historic tours of Philadelphia. Yahoo! pioneered targeting advertisement, Google fundamentally revolutionized it by implementing a proprietary algorithm based on linking to other sites, and this advertising model in various forms now drives revenue generation on the 2.0 Web.
But are companies really getting an acceptable ROI for the billions that they pour into Web 2.0 ads? Or are the benefits of having a Web 2.0 presence not precisely quantifiable? And if these "benefits" are not quantifiable, aren't we risking going back down the trail that led us to the catastrophic Web 1.0 bubble?
I'm a heavy Web user - several hours per day - and I'm constantly bombarded with digital ads as I surf. And yet I can recall precious few times that seeing one of these ads inspired me to purchase a new product or service - probably well under a dozen times, in my life, in total. Not exaggerating there, and I'm hardly a penny-pincher. At best, ads on the Web might have reminded me of something that I already intended to purchase, or perhaps informed me of a complimentary or alternative product of which I was not aware. I run a very good pop-up blocker application and very rarely pay attention to the ads that I do see online. All of this is purely anecdotal, of course, but I certainly don't know anybody whose purchasing decisions are heavily informed by Internet ads.
So this goes back to the ROI point; are companies simply wasting money on these things? Many Web 2.0 platforms would crash and burn with the advertising foundation removed. I'll be posting much more on this topic as my research goes forward, but at this point it seems to me that there is indeed some "qualitative" benefit of maintaining an online presence that motivates many companies in their Web 2.0 investments. Do people, like the folks who attempt to anonymously friend everyone on Facebook, value attention for the sake of attention? If so, should companies also place some value on pure attention? It's a thought; perhaps these types of factors can lead to more loyal customers, and it can certainly be argued that more loyal customers tend to spend more money, and spend more money consistently. So we do arrive at cold hard cash after all, albeit through an indirect route.
Let's table that discussion for now and switch gears. For while the impacts of the massive rise in Web 2.0 advertising may be having, at best, a difficult to determine impact on the bottom lines of major companies, it is certain that the rise of Web 2.0 is threatening to put old-fashioned newspapers out of business. As just one very concrete example, you may have heard recently that the Christian Science Monitor will abandon its print edition next year, resorting instead to a purely online edition with only a once weekly print edition. The newspaper industry has been struggling for some time; according to some sources, newspaper readership has fallen a staggering 30% in 20 years. The Internet is certainly responsible for drawing away millions of readers of traditional print editions, but the more significant trend is that millions have moved to the 'Net - often Web 2.0 sites - for advertising, as opposed to static newspapers. This is the veritable coup de grace, because newspapers have long derived far more revenue from classified advertisements than from the pittance of a subscription fee that they charge. Painful for newspaper, but it's a no-brainer for the person wishing to advertise and presented with choices. Internet penetration rates are skyrocketing while print newspaper circulation is nearly universally down. Web 2.0 sites, such as my example from Facebook, can offer a type of dynamically targeted advertising that no newspaper, not even newspapers in the most obscure of niches, can ever match. And then, there's the fact that in many cases, Internet advertising is free. I can post an extremely detailed Craigslist ad for nothing and have dozens of responses within an hour, as opposed to paying an arm and a leg for a tiny newspaper classified ad, to be buried among 10,000 other similar newspaper classified ads, and tucked away in the part of a newspaper that most people don't read - and of course, the newspaper will be delivered a few days later at best after I get my ad in to the main office.
So is advertising a zero-sum game? Has the meteoric rise of Web 2.0 advertising effectively murdered the newspaper industry? Not necessarily, and I believe that technology is the key to survival for the newspaper industry; nearly any reputable newspaper has a web presence, and digital newspapers are a rapidly rising trend. I am rather old-fashioned in that I will always have my print newspaper subscription until this is no longer available, but I also have a digital subscription to the Miami Herald:
Digital newspapers coupled with a strong online presence is, in my eyes, a highly effective response to the rise of Web 2.0 advertising. Digital newspapers are exactly the same as the print edition - it's just like having the print Miami Herald in front of me - and even include the advertisements. They're actually even easier to read because you don't have the awkward newspaper-folding experience to contend with. And I see all kinds of possibilities here, not currently exploited, for turning this nascent segment into a major revenue stream.
My key observations on Web 2.0 and advertising?
Think about this for a second. I don't pay a dime for this Blogger account; nor do I for my Facebook, nor do users for 99.999% of the social networking and content sharing sites out there pay any sort of fee to use the site as much as they wish. And it costs lots of money to run these sites. To generate money, virtually all of them operate as nothing more than highly sophisticated advertising schemes. You undoubtedly know how it works; I'm gay and live in Pennsylvania, this information is on my Facebook profile, so I get bombarded with ads on the side of my Facebook page for LGBT networking sites and historic tours of Philadelphia. Yahoo! pioneered targeting advertisement, Google fundamentally revolutionized it by implementing a proprietary algorithm based on linking to other sites, and this advertising model in various forms now drives revenue generation on the 2.0 Web.
But are companies really getting an acceptable ROI for the billions that they pour into Web 2.0 ads? Or are the benefits of having a Web 2.0 presence not precisely quantifiable? And if these "benefits" are not quantifiable, aren't we risking going back down the trail that led us to the catastrophic Web 1.0 bubble?
I'm a heavy Web user - several hours per day - and I'm constantly bombarded with digital ads as I surf. And yet I can recall precious few times that seeing one of these ads inspired me to purchase a new product or service - probably well under a dozen times, in my life, in total. Not exaggerating there, and I'm hardly a penny-pincher. At best, ads on the Web might have reminded me of something that I already intended to purchase, or perhaps informed me of a complimentary or alternative product of which I was not aware. I run a very good pop-up blocker application and very rarely pay attention to the ads that I do see online. All of this is purely anecdotal, of course, but I certainly don't know anybody whose purchasing decisions are heavily informed by Internet ads.
So this goes back to the ROI point; are companies simply wasting money on these things? Many Web 2.0 platforms would crash and burn with the advertising foundation removed. I'll be posting much more on this topic as my research goes forward, but at this point it seems to me that there is indeed some "qualitative" benefit of maintaining an online presence that motivates many companies in their Web 2.0 investments. Do people, like the folks who attempt to anonymously friend everyone on Facebook, value attention for the sake of attention? If so, should companies also place some value on pure attention? It's a thought; perhaps these types of factors can lead to more loyal customers, and it can certainly be argued that more loyal customers tend to spend more money, and spend more money consistently. So we do arrive at cold hard cash after all, albeit through an indirect route.
Let's table that discussion for now and switch gears. For while the impacts of the massive rise in Web 2.0 advertising may be having, at best, a difficult to determine impact on the bottom lines of major companies, it is certain that the rise of Web 2.0 is threatening to put old-fashioned newspapers out of business. As just one very concrete example, you may have heard recently that the Christian Science Monitor will abandon its print edition next year, resorting instead to a purely online edition with only a once weekly print edition. The newspaper industry has been struggling for some time; according to some sources, newspaper readership has fallen a staggering 30% in 20 years. The Internet is certainly responsible for drawing away millions of readers of traditional print editions, but the more significant trend is that millions have moved to the 'Net - often Web 2.0 sites - for advertising, as opposed to static newspapers. This is the veritable coup de grace, because newspapers have long derived far more revenue from classified advertisements than from the pittance of a subscription fee that they charge. Painful for newspaper, but it's a no-brainer for the person wishing to advertise and presented with choices. Internet penetration rates are skyrocketing while print newspaper circulation is nearly universally down. Web 2.0 sites, such as my example from Facebook, can offer a type of dynamically targeted advertising that no newspaper, not even newspapers in the most obscure of niches, can ever match. And then, there's the fact that in many cases, Internet advertising is free. I can post an extremely detailed Craigslist ad for nothing and have dozens of responses within an hour, as opposed to paying an arm and a leg for a tiny newspaper classified ad, to be buried among 10,000 other similar newspaper classified ads, and tucked away in the part of a newspaper that most people don't read - and of course, the newspaper will be delivered a few days later at best after I get my ad in to the main office.
So is advertising a zero-sum game? Has the meteoric rise of Web 2.0 advertising effectively murdered the newspaper industry? Not necessarily, and I believe that technology is the key to survival for the newspaper industry; nearly any reputable newspaper has a web presence, and digital newspapers are a rapidly rising trend. I am rather old-fashioned in that I will always have my print newspaper subscription until this is no longer available, but I also have a digital subscription to the Miami Herald:
Digital newspapers coupled with a strong online presence is, in my eyes, a highly effective response to the rise of Web 2.0 advertising. Digital newspapers are exactly the same as the print edition - it's just like having the print Miami Herald in front of me - and even include the advertisements. They're actually even easier to read because you don't have the awkward newspaper-folding experience to contend with. And I see all kinds of possibilities here, not currently exploited, for turning this nascent segment into a major revenue stream.
My key observations on Web 2.0 and advertising?
- I'm still in search of a Web 2.0 model which actually generates revenue AND has nothing to with advertising. More on this when (if?) I find it.
- I'm still not convinced that companies pay adequate attention to the ROI on Web 2.0 investments, and I'm afraid that this could be leading us to another mini-bubble a la 2001. The hype is certainly not the same now as it was then, but when Google purchases Youtube for $1.65 billion - $1.65 billion for a site which people don't pay a dime to access and only share videos - it leaves me scratching my head.
- Granted, Web 2.0 advertising is more effective than traditional, static advertisement. Many are blaming this for the dramatic decline in print newspaper circulation and the possible death of traditional newspapers, but I believe that old-fashioned, slow to innovate media companies have nobody but themselves to blame. Newspapers that empoy technology - engaging user-generated content, blogs (the Miami Herald has a Gay South Florida blog that I regularly follow), and other state-of-the-art technologies such as digital editions are going to fare much better than those who don't. By the way, if you've never tried one before, you can demo a digital edition newspaper here.
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