cdixon: What if online business model innovation is slowing down?
Mark Essel
· 3 months ago
If the Internet were a static technology advancement I could consider that its innovation boom could slow down. But consider that it's a dynamically layered tech that is continually evolving. Our utilization of global sharing, filtering and collaboration are in an infant stage. I wouldn't bet on web tech slowing down anytime soon, if anything the innovation curve is getting steeper.
Vijaya Sagar
· 3 months ago
Good question you've raised. Not sure if the time for a slow down has already come. Business model innovation might slow down, but product innovation doesn't need to.
As an entrepreneur in this space, I think on these lines: - I like what the product I am creating [even if I am the only user ever] - [Most of] those who use it will like it too - Users will gladly spread the word around, if the product is compelling - Money (big/medium/small) will follow users
While each one of us must dream to create the next GOOG, we should be perfectly comfortable and happy if we succeed on a smaller scale respectably (ex: Basecamp).
There are theoretical limitations on indefinitely sustained large scale successes in any economic system. Do you read Minsky (I once saw Krugman on your blogroll)?
Mark Essel
· 3 months ago
Great focusing thoughts on your personal entrepreneurial vision. I may check out Minsky, thanks.
William Mougayar
· 3 months ago
You make a very good point questioning the business returns on social media. I've always believed that social media (and social networking) are means to an end, not the end itself. Although a few companies will make money at offering the basic services for social media/networking, the bigger upside is in what they enable, and how they boost other things, like: - making advertising more engaging, targeted, better ROI - more social gamers - better journalism - shorter buying cycles - lower costs of doing business - brand loyalties, etc. I think the Internet industry has done a good job at building on existing strong models, and innovating on top of them. I also agree with your optimistic view; that the big companies know where their customers are, and they will undoubtedly follow them there as you've implied.
Mark Essel
· 3 months ago
Right on William, Innovation within the social space opens the doorway to better forms of existing business. Each aspect of our engagement can tie into game like behavior that can further business knowledge of user behavior, and increase user interest in connecting their likes with potential product/service suppliers. I wrote about some vague game/value connections earlier today on my blog, and mentioned the multivalue of a service like reCaptcha as a potential model to pattern.
fredwilson
· 3 months ago
what if facebook is going to make google scale money?
chris dixon
· 3 months ago
You mean with their current model of basically showing banner ads? Unless RPMs radically change I don't see it.
fredwilson
· 3 months ago
well first i hear that their self serve ad system is killing it many of our companies are getting better performance out of it (both cpa and total clicks) than google now
second, the social gaming companies are printing money on the facebook platform. that shows how powerful that model is. they'll need to figure out how to tap into that revenue stream and i think they will
chris dixon
· 3 months ago
To your first point, I have heard the same thing. I'm guessing its a function of 1) FB improving their demographic/behavior based ad target 2) far less competition for ads compared to Google. This all bodes well for FB but I am skeptical it can get the 40x improvement in RPMs needed to match Google. The way the current online ad world works (big caveat-will blog more about that later), you just can't beat someone typing in their intent into a search box.
Agree, virtual goods are very interesting and could be the next big business model on the web. For FB in particular, it's brought the "purchase" (actually usually more like someone take a SuperRewards survey) much closer to the ad.
Mark Essel
· 3 months ago
Facebook has to improve 40x in RPM to match Google, jeez that's rough (but possible). Behavioral and contextual tools are improving, and typing in status (what am I doing) is a different but similar to search intent.
Kishore A K
· 3 months ago
Setting up a Google Calender event to revisit this post ten years henceforth, with subject "Will Facebook ever make Google kind of revenue?", to find out exactly how silly or insightful it may sound then.
Until then, like Vijaya Sagar comments above we continue to do what we love to do.
chris dixon
· 3 months ago
:) this will look insightful or more likely silly 10 years from now.
Adrian Bye
· 3 months ago
i agree. once facebook starts selling things which monetize social relationships, their income will change considerably. china is in the lead in this area from online gaming; there are people in the backwoods of china who pay US$5000/month+ to lead big armies. They pay because they get social value.
Constantine
· 3 months ago
things are changing; transition stage, habits are mutating. It will never be the same again...
chris dixon
· 3 months ago
No doubt things are changing. But are they monetizable changes?
David Semeria
· 3 months ago
I don't think there is a lack of interesting models, the real problem is adoption. As the newspapers are realizing, it's very risky to unilaterally impose a new model on your clients. That is why they are seeking strength in numbers.
The situation is not helped by the presence of so much subsidized free stuff on the web. Subsidies can either be internal (eg Google) or external (eg VC money).
It's tough to compete with free.
Dean Thrasher
· 3 months ago
I don't think the online business model is slowing down. But I don't think that everything that attracts attention is an advertising opportunity, either.
jonathanmendez
· 3 months ago
IMO real innovation is about creating digital channels. Email, Affiliate, Display, Search, Mobile, Social. Every advertiser wants new channels. Some channels have built native models and others have borrowed. Of course the native models kick ass and the borrowed models are weak in comparison. I hope that Twitter can take their $50M and build a native model different from anything we've seen.
There's another huge issue here and that's the digital acumen of people holding the bulk of the media dollars. In short they haven't a digital clue and the kind of advertising they do does not lend itself well to a user controlled medium. I'm not sure that gap will be bridged without radical innovation on both ends. A tall order.
chrisyeh
· 3 months ago
Chris, the irony is, I think you nailed it in your last post. Online advertising is all about purchasing intent. Facebook is rarely about purchasing. Therefore, Facebook should not be advertising supported.
I agree with Fred that some form of micropayments is probably the best bet, but I wonder if you can get Google scale from the virtual goods market.
oscar derrida
· 3 months ago
I don't think we're at the point of slowdown yet. I think there's a TON of experimentation. It's just that not all of it is happening with the big boys, so it flies under the radar. There's exciting stuff boiling under the surface and it will eventually bubble right out for all to see.
Elie Seidman
· 3 months ago
Without disagreeing with you about Twitter's ability to make money right now, what I wonder about is why, if they can make money right now, they choose not to? No matter how cheap that outside capital was, it's got to be more expensive than the profit they would make on revenue. And if twitter users stop coming because they run ads, isn't that something they'd prefer to know sooner rather than later?
FWIW, my guess is that the rate of totally new business creation online will slow down and in it's place will come those who improve upon things that are already done online. FB and Twitter are entirely new concepts - neither really had any parallel in the offline world or in the online world for that matter (though isn't FB just a Friendster whose software did not crash during it's hyper growth phase?).
In the offline world, Sephora did not invent cosmetics retailing but it refined it to great success. Target did not invent the idea of a big box discount retailer but it won away many customers from the likes of WalMart and others by improving on it. I expect that the next major phase of online innovation and profitability will come from upstarts who improve upon existing - profitable - concepts whose roots are in the late 90s or early part of this decade and who have failed to innovate and keep themselves fresh.
And to use your specific example of Google, it's a once in a generation event. Even Microsoft did not grow as rapidly or as singularly. No doubt, the OS monopoly gave Microsoft its start but to make Google money, Microsoft had to out execute again and again in many new businesses. I don't expect we'll see a business as profitable, singular, and as meteoric in growth as Google for a long time to come. Until someone makes a dramatically better search algorithm and does to Google what Google did to Altavista.
Marshall Clark
· 3 months ago
"Without disagreeing with you about Twitter's ability to make money right now, what I wonder about is why, if they can make money right now, they choose not to?"
I'm thinking it relates to their perceived value - it's tough to justify a $1B+ valuation when you're only bringing in $20M in ad revenue.
phineasb
· 3 months ago
I think of social media as a new medium rather than a new feature or mechanism such as IM. With this view, the innovation in business models, such as virtual goods, should be increasing in the coming months/years and hopefully history will repeat the pattern you mention in this post.
bkcookiemonster
· 3 months ago
hey Chris, I'm new in the comments but have been following your blog for the last few weeks. Thought this was interesting:
"The optimistic view (which I tend to hold myself) says that where people spend time, money will follow. If people are spending all their time on Facebook and Twitter, the Proctor and Gamble’s of the world will eventually find an effective way to shift the bulk of their ad spending online."
This totally makes sense. For some companies like Google, their first break through product (search) leads to amazing and instantaneous revenue opportunities. They can then do R&D to figure out how to migrate those users to other potentially revenue yielding applications and experiment a bit (gmail/maps/voice/etc). Others consumer hits (Facebook/Twitter) may need to incrementally tweak features until they hit something that will yield high ROI on that feature/product. But does that mean that Facebook has no chance of being the next Google? (Taken from your tweet stream). In some ways, because Google found their cashcow so early, they have to, at least relatively, act more conservatively. Whereas a Facebook/Twitter has their primary assets in their users and will consistently try to incentivize third-party applications that enhance the value proposition to that asset.. paving the way for them to skim a bit off of others (as Fred Wilson mentioned) down the road, automatically diversifying their revenue streams in the process. Love to hear your thoughts.
chris dixon
· 3 months ago
seems like you covered it very nicely.
Marshall Clark
· 3 months ago
Google was a bit of a one-time case and I think their RPM success will be impossible to replicate as long as keyword search remains the dominant research method for online purchases.
That said, research shows that user reviews are highly influential to many purchase decisions, particularly when the review comes from the consumer's own network.
I'm an avid student of the intersection of Search and the Social Graph and can't help thinking the next generation of Search will probably come from this crossbreeding. Maybe the next generation of Google-caliber intent harvesting will follow?
Some of my recent thoughts on the topic: Docs are Old School, We Need PageRank for People http://bit.ly/128U9V
Sundelin
· 3 months ago
Interesting thoughts, I have two questions in relation to "History suggests that business model innovation is rapid right after the advent of a new medium and then slows down considerably"
1. Do you have a reference for the statement? 2. Do you see the Internet as just another medium?
I believe we will continue to explore new ways to create, capture and monetize ideas the next 15 years. One thing to remember is that not all online businesses need to be Google or Facebook size. As the Internet increasingly enables business models with low cost structures, many profitable models will occur further down the tail, perhaps not showing up on the Google and Facebook radar.
Anders The Business Model Database
Mike Su
· 3 months ago
"where people spend time, money will follow"
agree. but while the money used to come at the expense of traditional advertising budgets, we are likely to start seeing one tech giant make money at the expense of another tech giant, rather than old media. afterall, that money that's following has to come from somewhere, not an infinite bucket of ad dollars :) fun times!!
Mark MacLeod
· 3 months ago
Not sure I share your optimism re: twitter. Twio key uncertainties for me:
Location: "where people spend time" as you mentioned. In many cases that is not on twitter's property, but rather 3rd party clients.
Intent: You have brought this up a few times recently and it is key. I go on google with an intent. Twitter runs in the background and I rarely have a transactional or monetizable intent there.
We should not confuse a big user base and activity with monetizable traction. I am sure they'll make money. Not sure they'll ever make GOOG size money. Nor am I sure that the revenue potential could justify the capital they have raised or the valuations they have received.
In other, generally non-digital, media, incumbent lock up led to innovation slowing. Incumbent lockup is a lot tougher to create and more transient in this case.
ShanaC
· 3 months ago
I don't think we understand the internet as a medium at all yet. even if it has many users, this is a very fresh medium. Abnormally fresh.
Let's put it this way: I'm an art student. In traditional critique language, is this post 2d (because it appears on a flat screen) or 4d (because there will be time delays with any response)? Next, is this world a medium of images- there are lots of images here? Text- lots of text? Where does code fit in?
How fully realized are you, and how fully plastic are you here?
Where are individuals, particularly average non-techie webbie whatever individuals conception of home on the internet? How about work on the internet? Is there a difference? What if there isn't? What if there is? How do we perceive the tools we use to access it?
We've barely grappled with these questions. (I do my fare share of reading.) Once we start attacking at the idea of people and internet and space and how we intermix these ideas, we'll have a variety of new ways to rethink a whole lot of these models.
In the meantime- where is my front door on the internet?
All Comments
As an entrepreneur in this space, I think on these lines:
- I like what the product I am creating [even if I am the only user ever]
- [Most of] those who use it will like it too
- Users will gladly spread the word around, if the product is compelling
- Money (big/medium/small) will follow users
While each one of us must dream to create the next GOOG, we should be perfectly comfortable and happy if we succeed on a smaller scale respectably (ex: Basecamp).
There are theoretical limitations on indefinitely sustained large scale successes in any economic system. Do you read Minsky (I once saw Krugman on your blogroll)?
- making advertising more engaging, targeted, better ROI
- more social gamers
- better journalism
- shorter buying cycles
- lower costs of doing business
- brand loyalties, etc.
I think the Internet industry has done a good job at building on existing strong models, and innovating on top of them. I also agree with your optimistic view; that the big companies know where their customers are, and they will undoubtedly follow them there as you've implied.
many of our companies are getting better performance out of it (both cpa and
total clicks) than google now
second, the social gaming companies are printing money on the facebook
platform. that shows how powerful that model is. they'll need to figure out
how to tap into that revenue stream and i think they will
Agree, virtual goods are very interesting and could be the next big business model on the web. For FB in particular, it's brought the "purchase" (actually usually more like someone take a SuperRewards survey) much closer to the ad.
Until then, like Vijaya Sagar comments above we continue to do what we love to do.
The situation is not helped by the presence of so much subsidized free stuff on the web. Subsidies can either be internal (eg Google) or external (eg VC money).
It's tough to compete with free.
There's another huge issue here and that's the digital acumen of people holding the bulk of the media dollars. In short they haven't a digital clue and the kind of advertising they do does not lend itself well to a user controlled medium. I'm not sure that gap will be bridged without radical innovation on both ends. A tall order.
I agree with Fred that some form of micropayments is probably the best bet, but I wonder if you can get Google scale from the virtual goods market.
FWIW, my guess is that the rate of totally new business creation online will slow down and in it's place will come those who improve upon things that are already done online. FB and Twitter are entirely new concepts - neither really had any parallel in the offline world or in the online world for that matter (though isn't FB just a Friendster whose software did not crash during it's hyper growth phase?).
In the offline world, Sephora did not invent cosmetics retailing but it refined it to great success. Target did not invent the idea of a big box discount retailer but it won away many customers from the likes of WalMart and others by improving on it. I expect that the next major phase of online innovation and profitability will come from upstarts who improve upon existing - profitable - concepts whose roots are in the late 90s or early part of this decade and who have failed to innovate and keep themselves fresh.
And to use your specific example of Google, it's a once in a generation event. Even Microsoft did not grow as rapidly or as singularly. No doubt, the OS monopoly gave Microsoft its start but to make Google money, Microsoft had to out execute again and again in many new businesses. I don't expect we'll see a business as profitable, singular, and as meteoric in growth as Google for a long time to come. Until someone makes a dramatically better search algorithm and does to Google what Google did to Altavista.
I'm thinking it relates to their perceived value - it's tough to justify a $1B+ valuation when you're only bringing in $20M in ad revenue.
"The optimistic view (which I tend to hold myself) says that where people spend time, money will follow. If people are spending all their time on Facebook and Twitter, the Proctor and Gamble’s of the world will eventually find an effective way to shift the bulk of their ad spending online."
This totally makes sense. For some companies like Google, their first break through product (search) leads to amazing and instantaneous revenue opportunities. They can then do R&D to figure out how to migrate those users to other potentially revenue yielding applications and experiment a bit (gmail/maps/voice/etc). Others consumer hits (Facebook/Twitter) may need to incrementally tweak features until they hit something that will yield high ROI on that feature/product. But does that mean that Facebook has no chance of being the next Google? (Taken from your tweet stream). In some ways, because Google found their cashcow so early, they have to, at least relatively, act more conservatively. Whereas a Facebook/Twitter has their primary assets in their users and will consistently try to incentivize third-party applications that enhance the value proposition to that asset.. paving the way for them to skim a bit off of others (as Fred Wilson mentioned) down the road, automatically diversifying their revenue streams in the process. Love to hear your thoughts.
That said, research shows that user reviews are highly influential to many purchase decisions, particularly when the review comes from the consumer's own network.
I'm an avid student of the intersection of Search and the Social Graph and can't help thinking the next generation of Search will probably come from this crossbreeding. Maybe the next generation of Google-caliber intent harvesting will follow?
Some of my recent thoughts on the topic:
Docs are Old School, We Need PageRank for People
http://bit.ly/128U9V
1. Do you have a reference for the statement?
2. Do you see the Internet as just another medium?
I believe we will continue to explore new ways to create, capture and monetize ideas the next 15 years. One thing to remember is that not all online businesses need to be Google or Facebook size. As the Internet increasingly enables business models with low cost structures, many profitable models will occur further down the tail, perhaps not showing up on the Google and Facebook radar.
Anders
The Business Model Database
agree. but while the money used to come at the expense of traditional advertising budgets, we are likely to start seeing one tech giant make money at the expense of another tech giant, rather than old media. afterall, that money that's following has to come from somewhere, not an infinite bucket of ad dollars :) fun times!!
Location: "where people spend time" as you mentioned. In many cases that is not on twitter's property, but rather 3rd party clients.
Intent: You have brought this up a few times recently and it is key. I go on google with an intent. Twitter runs in the background and I rarely have a transactional or monetizable intent there.
We should not confuse a big user base and activity with monetizable traction. I am sure they'll make money. Not sure they'll ever make GOOG size money. Nor am I sure that the revenue potential could justify the capital they have raised or the valuations they have received.
As allways, a pleasure reading you.
Let's put it this way: I'm an art student. In traditional critique language, is this post 2d (because it appears on a flat screen) or 4d (because there will be time delays with any response)?
Next, is this world a medium of images- there are lots of images here? Text- lots of text? Where does code fit in?
How fully realized are you, and how fully plastic are you here?
Where are individuals, particularly average non-techie webbie whatever individuals conception of home on the internet? How about work on the internet? Is there a difference? What if there isn't? What if there is? How do we perceive the tools we use to access it?
We've barely grappled with these questions. (I do my fare share of reading.) Once we start attacking at the idea of people and internet and space and how we intermix these ideas, we'll have a variety of new ways to rethink a whole lot of these models.
In the meantime- where is my front door on the internet?