Take the Merry-Go-Round
Allen Stern asks what ought to be a very basic question about Twitter: where's the beef?
Most of the heavy Twitter users use the service via the API and "offsite". I actually use the Web site and refresh the page every few minutes while I am at home. How can they monetize the API usage? If a Twitter user already paid $15 for a piece of software, would they then be willing to pay Twitter for their account? It's like paying for mIRC and then having to pay for the use of IRC itself.
The usual suspects - Dave Winer and Jason Calacanis - chime in with "what me worry?" posts, claiming that once Twitter is "up to scale", there will be plenty of business opportunity. Uh huh - that's pretty much what E-Bay thought when they bought Skype, and it didn't really pan out now, did it? If your service is free, and most people using it rarely visit your site, exactly how much value is there in the "massive scale" that Calacanis talks about? How valuable are Twitter tie in products when the API can be wrapped in minutes?
There's another thing about the "just monetize with ads" theory, too. The entire ad model - the one used by Google, by TV, and by radio - is mostly an agreed upon fiction. Advertisers pretend that "impressions" get them business, and owners cheerfully sell airtime. I'm not sure when the air will come out of the ad model tires - heck, maybe it never will. I'm not sure I'd want to bet my entire business on that shaky a foundation though.
Update: Speaking of lame theories: A VC has this take:
To me its really simple. You can't monetize web services very well until you have an audience of scale. Jason Calacanis suggests that 10mm monthly uniques is where you have scale. I think it can be less in some cases (highly targeted services) and more in some cases (social nets). But every ounce of time, energy, money, and brainpower you spend on thinking about how to monetize will take you away from the goal of getting to scale. Because if you don't get to scale, you don't have a business anyway.
Let me translate that from VC-ese into English: "By the time you get to scale, I'll have loaned you so much money that I'll own your business - which mostly sucks for you, but hey - it's great for me".
If you want some actual wisdom, check out Mathew Ingram. When the bubble dance ends, a whole ton of people are going to wish they'd read Ingram's post and understood it...
Technorati Tags: management, business model
Comments
AWS DevPay?
[Patrick Logan] January 2, 2008 19:06:33.201
I wonder how something like Amazon's DevPay could help in cases like this. If you build an attractive system that can be hosted in a scalable cloud with devpay-like ordering and billing then the cost of investment seems significantly lower for the service provider and the cost to kick the tires is low for the end user (probably start free while in "beta" and indicate there ultimately will be a small usage fee.) If the beta uptake is good, then use that word of mouth to try transitioning to an incremental small usage fee.
If you have an open protocol then you risk a competitor undercutting your usage fee, or funding it some other way for some other purpose, but nevertheless I think there is a new era emerging of funding *and* scaling things not unlike twitter.