October 26, 2010

It's Not Just About Eyeballs

Daniel Lyons reports on financial problems at Digg and offers a warning for Web 2.0 outfits:

Digg’s collapse has become a cautionary tale for so-called Web 2.0 companies in Silicon Valley, even the current crop of superstars, like Facebook and Twitter. The basic problem is that these new-media companies don’t really have customers; they have audiences. Starting a company like Digg is less like building a traditional tech company (think Apple or HP) and more like launching a TV show.

I think Lyons nails exactly what's been bothering me about Web 2.0 for some time. The game hasn't really changed since the early days of the Web: Aggregate as many eyeballs as you can and worry about how to monetize them later or just sell out to a bigger company. The problem is that, eventually, you have to create a viable business model. To be sustainable in the long run, you have to turn visitors into revenue and revenue into positive cash flow. Facebook appears to have succeeded by turning itself into a platform for games and other apps and skimming a big chunk of the developers' revenues. Many others, like Twitter, still seem to be searching for a way to make money despite having millions of active users.

No comments:

Post a Comment

All comments are moderated. Please make sure that your message is respectful, relevant, and moves the discussion forward. Comments that are blatantly promotional or that contain hateful or inappropriate language will be rejected.