mediajunk

I have a bold prediction: many (if not all) of the web services that we currently pay for will soon be offered free.

I often get clients (my company offers Internet consulting services) asking for help with their start-up. They tell me about their great idea for an online service, and how it will make money by asking people to sign-up and pay.

To which I advise: "Forget it. Make your web service free".

Why? Well, if you don't someone else will, eventually. Unlike many other types of business, it does not cost a lot of money to create a web-related venture today. (In the 1990s, start-up web companies burned through billions; today, much of the underlying technology for any web venture already exists and can be re-used at little or no cost.)

This means that barriers to entry are very low and, if you create a popular web service, it's easy for a competitor to copy your website, and offer the same service at a cheaper price.

Ultimately, in this hyper-competitive market (a true "bazaar"), one of your competitors will offer the same service for free. Instead of making their money through user subscriptions, they'll build their revenue model around advertising. True, they may not make as much profit as theirs competitors made with a subscription model, but so what? As long as they make a profit.

Across the web, I'm seeing free versions of services that, until recently, demanded a fee. And I'm not just talking about infrastructure services like web hosting and design. I'm talking about popular online activities such as dating, classified ads, etc. For example, take a look at plentyoffish.com. It's a fully-functional dating site that offers everything its competitors do. But plentyoffish.com is free, and makes its money through targetted, text-based advertising.

Now, this shift in the web's economy throws up two warnings:

1. Your website will need significant numbers of visitors before an advertising-based model becomes workable (i.e. profitable). So, while I advise clients to offer free services, I warn them to get serious about building scalable websites with high traffic volumes.

As Michael O'Leary predicted in the low cost airline game (which has emerged from similar business conditions), "there's going to be a bloodbath". Whatever web services niche you target, you've got to be "in it to win it". Every niche will be dominated by a handful of giants, while there will be many dwarves who find it difficult to make ends meet. I agree with Blogstring that some web 2.0 companies are already too dependent on advertising, without having the visitor numbers to match.

So how many visitors will you need? To break even on a shoestring budget, you will need at least 10,000 unique visitors a day. Depending on your business costs (which you should strive to keep as low as possible) you may soon need ten times this number, or more.

2. You have to build a brand, and fast. Ironically, this was one of the principles of the internet gold-rush of the late 1990s. However, the motto back then was to build a brand, fast, whatever the cost. I'm revising that last part to while keeping costs as low as humanly possible.

Why the emphasis on brand? Because brand is your only barrier to entry. Successful websites are easy to replicate. Successful brands, on the other hand, are harder to shift. People have emotional attachments to brands. Google Video arguably offered a better service than YouTube, but the latter's brand was already global when Google entered the space. In the end, Google had to buy YouTube. (If you can't beat 'em, buy 'em.)

Of course, it's important to remember that we are living in an age of temporary, ephemeral brands. Brands have always come and gone, but never at today's rate. Who heard of YouTube five years ago? Who heard of Google ten years ago? Will both of these brands still be around in ten, twenty years?

Let your users get attached to your brand ... but don't get too attached to it yourself. Always read the winds of change, in web businesses, just as in all business.

Tags: advertising, business, web 2.0