MappingTheWeb //

Every successful start-up needs a revenue model. Some choose one early in the game, while others choose to wait. The latter strategy sounds very familiar in the web 2.0 world. These start-ups prefer to build their user base before settling on a revenue model. Not only does this tactic affect short-term cash flows, but also the long-term perception of service quality.

Quality? How so? Well, if a start-up chooses to provide a free service from the get-go, suspicions around the quality may arise. This may not seem obvious or apparent at first. Some people might even find this statement offending. But subconsciously, people may initially judge the service to be inferior simply based on the perceived monetary value. In other words, even though the service may be of high quality, the free price tag may signal low quality to some observers.

For obvious reasons, a given service needs to be tested, analyzed, and compared to other similar competitor offerings to determine the actual level of quality.

The downfall of charging for a service from the start is purchasing dissonance on behalf of the user. This creates a barrier to entry for service adoption. Subsequently, there is likely a longer path to critical mass. Having said that, revenues are being generated from Day 1. Furthermore, the perceived quality of the service will likely exceed that of a free offering. This strategy seems quite rare in the web 2.0 world, as start-ups are afraid to introduce initial barriers. Instead they try to build a user base as quick as possible, ignore monetization, then try to sell to a bigger company (AKA the web 2.0 revenue model). Failing that, they slap on Google AdWords and pray that they can generate enough page views to cover costs until the next round of financing - definitely not a sustainable model for about 98% of start-ups.

The “free-mium” model offers the lack of commitment and security of a free product, as well as the option to upgrade to a premium offering with added functionality. Many popular web 2.0 companies, such as Flickr and LinkedIn, offer this tiered system. 37signals is also very well-known for its suite of free-mium web applications. By offering a tiered system, a given start-up is able to project an image of quality and confidence. These two characteristics radiate from a company that can offer a free service, but is confident enough that the premium offering will sell itself.

Try and say that ten times fast. Tongue-twisters aside, the topic has spurred endless debates and countless discussions. Though a successful business requires more than just a great idea, the idea itself plays a key role in the vision and evolution of company. Perseverance, determination, and dedication are all critical to any new venture, but the basis for any new company must start with the core offering. This leads us to the original question: do the most successful start-ups stem from the identification of a market need and/or inefficiency, or from a simple problem-solving exercise that happens to bring about an unlikely business opportunity?

Science

Some believe it is more of a science. These entrepreneurs start by identifying a potential market inefficiency or flaw. Research and due diligence is then conducted. If the idea is validated and a significant opportunity presents itself, then a business venture is launched.

This systematic approach usually follows a more traditional path, which includes the likes of an incorporation, financing, and strategic business plan. Specific goals and milestones are set forth and board meetings ensure that these targets are being met.

The key to this approach is tactical planning and pinpoint execution. If the idea is good and the implementation is smooth, then success is probable.

Serendipity

Often times, serendipity plays a role in the business creation process. An average citizen, likely with little business knowledge or expertise, attempts to solve a nagging problem. In doing so, he/she stumbles across an ingenious solution which may help others with the same problem. This discovery stage leads to a entrepreneurial stage when a business is created.

A more sporadic, less formalized business direction is usually followed. This dynamic form of business bodes well for flexiblity and change, but lacks in terms of guidance. Nevertheless, such an unplanned strategy has worked successfully for many in the past. Craigslist is a great example of this. Initially, Craig Newmark launched a simple, regional list of current events. His idea eventually blossomed into the world’s largest online classified ads site.

Conclusion

What can we all learn from this? Successful start-ups can stem from either origin. Essentially, this means that we haven’t learned anything at all, other than the fact that a great business idea can be conceived at any time, under any circumstances.

In order to gauge the success rate of both approaches, comprehensive research would need to be conducted. Even then, a case-by-case analysis is the only way to truly extract any reasonable conclusions. Therefore, an idea should be judged based on innovation and opportunity, not origin.

What’s your take on successful start-ups? A science? Serendipity? A combination of both? Neither?

Web 2.0 is an echo-chamber - let’s face it. Many deny the fact, but it’s true. Ask anyone on the street about RSS, widgets, APIs, or wikis and you’ll get a blank face. Chances are they’ll think you’re speaking another language. Even fairly tech savvy Internet users frown upon such terms and phrases. As much as we’d like to think web 2.0 is mainstream, it isn’t.

Those who live in this echo-chamber glorify the trends and technologies, as their value and potential is recognizable. This bleeding-edge Internet group wants the world to learn about these technologies, but the fact of the matter is that they are very daunting and intimidating to the average user. In other words, web 2.0 needs to be humanized before it can ever be adopted by the mainstream.

Who is leading the pack when it comes to humanizing web 2.0? Facebook. Here is proof: ask any Facebook user if they know what RSS is or if they’ve ever used it? Chances are they have no idea what it is and they’ll admit to never using it. Little do they know, the Facebook ‘News Feed’ is essentially a rebranded RSS reader. Instead of pulling blog posts and news articles, the reader aggregates updates from your friends’ profiles.

This brings me to the most important point of all: Facebook is educating the masses about web 2.0 without them even knowing. In other words, Facebook IS bringing web 2.0 mainstream.

How is Facebook accomplishing such an improbable feat? By rebranding the terms and phrases that seem so daunting and sophisticated. This facilitates the education process and reduces the learning curve, making it easier for regular folk to adopt these technologies.

The term “social network” is synonymous with web 2.0. Though the nature of the term may be rather self-explanatory, people understand it. Sites such as MySpace, hi5, and Friendster have helped to provide clarity around its meaning. This education process is exactly what is happening at Facebook as we speak.

Let’s explore some of the web 2.0 technologies that Facebook has rebranded as internal features:

Wikis - By definition, a wiki is a collaborative space that can be edited by anyone with access to the site. This notion of participation and cooperation creates a more productive, usable information portal for all affiliated members.

Facebook has rebranded this concept as ‘Groups’. Within a given group, you are able to start a conversation (with a message), add photos, and provide simple commentary. Furthermore, administrators and officers have added control and functionality.

Blogs - When a user writes a ‘Note’ on Facebook, they are expressing their thoughts or opinions in a given manner. A collection of these notes, in reverse chronological order, can be classified as a ‘weblog’ or blog.

The offline concept of a diary has been around for centuries. It doesn’t take a huge leap of faith to consider a jump into the online world.

User-Generated Content (UGC) - Once again, the term may seem rather self-explanatory, but it does need some clarification. UGC is content created by the user - it is not production quality. Examples include photos, videos, and audio clips.

Not only does Facebook upload an astonishing amount of photos each day, but they also provide a simple, yet powerful video experience. Simply put, users are constantly interacting with user-generated content. They just don’t know it.  

API - An API is an Application Programming Interface. In other words, it is a way to let others integrate with your service by tapping into your data. This is what Facebook has done with their new ‘F8 Platform’. They’re allowing others the ability to tap into Facebook’s database and create applications which can then be added to the system and adopted by users.

Micro-blogging - This new phenomenon is essentially a mini-form of blogging. Recently made popular by companies such as Twitter and Tumblr, micro-blogging is a way to provide a short message (usually less than 200 characters) about your life, mood, or current state via the web, e-mail, text, or IM. To meet demand in this area, Facebook launched ‘Status Updates’, which is simply another way of labelling micro-blogging.

Widgets - Though the comparison may be a bit rough, it is still worth acknowledging. A widget is an embedded device that provides some level of value to the publisher. This is somewhat akin to what Facebook has done with their ‘F8 Platform’, and more notably ‘Applications’. Once a user adds a given ‘Application’, it appears on their profile page, where other users can see it and interact with it (or even add it themselves).

RSS - The concept of the ‘News Feed’ acting as an RSS reader was outlined above. Having said that, Facebook has started to integrate actual RSS protocol within the site as well. Anyone now has the ability to subscribe (via RSS) to another user’s ‘Notes’, in many cases. I’m sure RSS is being used in other places within the site, but I have just failed to notice them. In any case, I expect the adoption of RSS within the Facebook community to be slow, but steady.

On top of all these obvious examples, Facebook also makes extensive use of AJAX (Asynchronous JavaScript and XML) throughout the site. This creates a more intuitive, enjoyable user experience.

I could probably go on and on and outline further examples, but I think we can all get a grasp of the situation that is unfolding. What can we learn from all this? Facebook is a rebranding machine. The ability to provide such advanced technologies in a simple manner is truly remarkable. The day that excites me the most is the day that people realize that they understand what all these web 2.0 technologies are. That will be the day that web 2.0 goes mainstream - and I have a funny feeling that that day is coming sooner than we imagine.

After taking a look at widget marketing, widget fever, and the monetization of widgets, I have come to one conclusion: widgets are NOT a business model. They are a marketing tool. There needs to be an underlying product or service behind all of this embedding. This made me wonder, “What are widgets comparable to in the offline world? What’s a good metaphor for the world of widgets?” Then it hit me - flyers.

Flyer Analysis

Flyers are created by a given store, then distributed to potential customers. The flyers themselves are worthless. They are a tool to entice customers into the store. Only at that point can revenues be generated.

Flyers can easily be moved from one location to another. They can also be easily disposed of. Furthermore, their very presence can catalyze word-of-mouth marketing and provide much needed brand exposure.

Widget Analysis

The widget world works much in the same way as flyers. A given widget is fabricated by a company with the intention of widespread distribution on the Internet. This embedded marvel provides value to the destination site, but can easily be removed if the publisher so desires. The widget itself is relatively useless to the company when it comes to revenue generation. Widgets are meant to drive traffic back to the parent property, which can then monetize the user via advertising or a subscription model, perhaps. Finally, as is the case with flyers, widgets can also create general brand exposure and awareness.

Obviously this isn’t the perfect metaphor - the biggest difference being that flyers cost money to print and distribute, while widgets cost nothing other than the cost of human labour. Having said that, I still think the metaphor helps to provide clarity when thinking about the purpose of widgets. It is also a great way to explain widgets to a non-techie or Internet user with little knowledge of web 2.0 world.

Hope for a buy-out? Maximize on-site page views?

To be completely honest, I have no answer for this question. I don’t think that the terms ‘widget’ and ‘profitability’ were destined to be together. Any thoughts on this?