revenue strategies for social businesses

Abhishek NayakChinmay KulkarniInterface2007

•Dotcom bubble burst in 2000-2001. Companies went bust due to lack of proper business models. •Flaw lied in:•Customer base was grown even at losses.•Exit strategy was to go public.•Business strategy aimed at monopolizing market sectors.•In experienced technologists lead companies and enterprises.

The few companies that survived the bust are today iconic and extremely wealthy internet companies. Ex: Google.com, Yahoo.com, AOL.com, Netscape, etc

•Life span was dependant on the burn-rate of Investor’s money.•Most companies never made a single penny in their life span

•Commonly called the Web 2.0“Web 2.0 is the business revolution in the computer industry caused by the move to the internet as platform, and an attempt to understand the rules for success on that new platform. Chief among those rules is this: Build applications that harness network effects to get better the more people use them.“ O’Rielly Media

Since 2003, internet is rising, fuelled by better technology and business models.

•Aims at tapping the networking-effects of each segment.•More responsive to user-feedback. Releases in Beta. Upgrades later.•Less dependent on invested capital. Bootstrapping. •Provides limited services for free, not at losses.•Run by experienced business teams, not technologists.•Competitors can co-exist peacefully.

Differences in Business model:

Soon to hit the 10% mark

Increased correspondingly

• There is no generic framework for understanding Web revenue models

• A lot of web entrepreneurs do not come from business backgrounds – no intuitive “feel for numbers”

• The Web is different (more to come)

• A generic framework to understand revenue models of Social Sharing sites on Web

• Generic

–Applicable to most Social Sharing sites

• Framework

–Empirical

–Modular

–Qualitative

• Social Sharing business: an online venture whose success is largely determined by the number of people using the service, and the total amount of resources (such as digital information, photos, etc) shared amongst these. Notable examples include Youtube, orkut.com etc.

• Empirical: So based on actual, live startups• Interviews

– Kavita Iyer, Minglebox.com– Prerna Gupta, yaari.com– Aaron Leevie, box.net– Eduardo Manchon, Panoramio.com– Gill Heiman, Collanos Collaboration Suite– Matt Flannery, Kiva.org– Samir Sood, Samir Sood, Principal – Corporate Development,

Google

– 300 minutes in all!

• Research

– Google Analytics: “Conversion University”

– HBR, Knowledge@Wharton

– IIM-B Management Review

– Other papers

• Analysis

– 50 websites analyzed over different

• Sectors

• Geographies

• Growth phases

• Step 1: Recognizing the Internet is different

– Trivially simple to find substitutes/competitors

– Communication between users and applications is effortless

– Development time (time-to-market) for Internet offerings is very low

– The population of users using the network and the information shared amongst these is increasing significantly

• Most users (around 92%) can effortlessly use search engines such as Google to find competitors of a particular offering. Search on Google typically takes less than 0.75 seconds

• Email and instant messaging have made communication between users trivial. Also Blogs and forums/discussion boards More recently, XML-RPC, RDF, JSON and RSS have made information sharing between websites trivial too. (mashups)

• The typical incubation period of an Internet startup in the US is around 6-8 months (SBA)

• The number of users growing. Year-on-year growth: 23% for the past 3 years The amount of data online is also rising exponentially.

• Pure strategies are those that cannot be described using each other, and a combination of whom can describe most other strategies.

• Very few companies employ only a pure strategy. Combinations are employed.

• Each strategy has its own merits and demerits.

Porter’s Forces Simplify

• Bargaining power of suppliers near zero: commodities: servers, bandwidth, design workstations

• Bargaining power of buyers zero: No “buyers” (usually a free service)

• Low incremental cost of providing service• Decreases user acquisition cost• Decreases billing cost• Increases referral sales

• Eliminates hassles of guarantees, money-back warranties

• Near standard model, known precedents; less risky

•Entry Barrier•Revenue Generation

•Sustainability

•Scalability•Risk

•Exit Barrier

•Del.icio.us

•Makemytrip.com

•Google.com

•LinkedIn.com

• Pure strategies seldom work in isolation• Two or more pure strategies MUST be

combined for best results. • Operations SHOULD be split among the

value-maturity matrix, and each part of the business COULD use a single optimal strategy.

•Created by Ludicorp in 2004.•Sold to Yahoo! Inc in 2005 March.•In May 2006, Beta status upgraded to ’Gamma’.

•Commonly described as the world’s best photosharing site.•4 Million plus registered users. Growing at 12% every month.•90 Million photos hosted.

•Features:•Free upload of photos and sharing. Upload limit of 100mb a month.•Premium account has no upload limit.•Tagging of photos and easy search of users and photos.•Communities of users.

•Revenue Sources:•Premium account holders.•Content relevant advertisements.•Printing services provided in collaboration with Target Supermarket Chain.•Collaboration with camera manufacturers.

• More quantitative

• More rigorous

• Apart from Revenue strategy, look at other areas of business too

• An attempt to simplify revenue strategies into four distinct types.

• Each strategy has its own shortcomings and advantages

• it is best that every manager studies and decides which combination of strategies best fit his business.

Questions?