Wednesday, May 23, 2012

Digital Media Business Models

MIT's Technology Review published a really good article this week in response to Facebook's IPO (who hasn't commented on this?). But the article, The Facebook Fallacy by Michael Wolff, offers a perspective I hadn't seen addressed. Wolff uncovers the inherent problem of Facebook's reliance on ad-revenue as their business model. Believing such a model is doomed, he predicts,
"the fallacy of the Web as a profitable ad medium can no longer be overlooked. The crash will come. And Facebook—that putative transformer of worlds, which is, in reality, only an ad-driven site—will fall with everybody else."
I worked for a website that relied on ad-revenue and witnessed the resulting cyclical ups and downs. I'm not convinced it is doomed, but the long-term viability is definitely unclear.

When I present or talk to people about location-based services or geosocial networking apps, I often get asked about their business models and their likelihood of financial success. People like the apps or websites, but aren't clear how they make money, why the ads are so prevalent (or annoying as I frequently hear), and whether or not they'll be able to stick around.

I'm not an MBA-type, but here are the ways, I've encountered for digital media to make money:
  1. Advertising & marketing - sell ads or run campaigns on your digital service (although noting how flawed Wolff believes this to be and I'll add that in months my Google ads on this blog have made me under $2)
  2. Sell user data - this is going hand-in-hand with advertising, but how companies will pay to learn more about your customers and their habits (e.g. foursquare, I believe)
  3. User fees - charge for use either upfront (per apps), per use, or by subscription
  4. Bundled package - offer digital services for free to sweeten the pot of items that you can charge for (e.g. WebKinz)
  5. e-commerce - sell things or charge a commission for selling, or helping to sell, (such as referrals) other people's things
  6. Ancillary sales - offer free services and hope users will buy your related products or services (e.g. photo hosting sites and Amazon with user reviews & lists)
  7. Teaser - similar to above, offer a free version and try to up-sell to a paid version (e.g. SurveyMonkey)
  8. Brand awareness & loyalty - don't make money directly on digital efforts, but hope by creating a positive, branded experience it'll inspire people to purchase your other products (e.g. Disney or blogs promoting one's expertise to draw consulting gigs)
  9. Donations - ask users/members for financial support or rely on endowments (e.g. per Wikipedia or the Cancer Society)
  10. Subsidies - consumers get the service, or a portion thereof, for free, while someone else pays for it and subsidizes it, (e.g. Craigslist & LinkedIn)
  11. Taxation & grants - rely on the government for funding, either directly or through granting agencies (e.g. arts-based, special projects) (e.g. CBC)
  12. Start-up funding - don't make money, receive funding through venture capital, rich parents, student loans, second mortgages, etc.
  13. Altruism - don't worry about money as a side gig pays the bills (e.g. blogs, open access journals) or just keep on doing it for some sense of a larger purpose/compulsion
I'm sure I'm missing several ways, so let me know.

1 comment:

Open Access Journals said...

Thanks for this useful information. But i heard that some of other tasks like digitalization and digital marketing also called as digital media. It is one of the part of Optimazation.