Business Models and Business Reality

Alsop on ContentContent is queen, not king.Technology is king. The one thing that VC depend on for evaluating new companies is intellectual property.Virtual magazines, or content businesses on the the Internet, use technology as a platform. If they close in on something proprietary, they come nearer to justifying a vcs investment of risk capital.Stewart Alsop, An Old Fogy Doesnt Get Web Content, Fortune, Nov. 6, 2000.

Definition: Business Modelto win a sustainable advantage in attracting, developing and holding customers

Business ModelDistinguish from:Revenue modelFunding modelOrganizational model

Indirect Revenue ModelsAdvertisingNiche vs GeneralBusiness vs. ConsumerLocal vs. NationalE-commerce Take percentage of sales for delivering qualified customers.SupportProvide more cost-effective means of delivering traditional business service.

Direct ModelsDirect Pay/ServiceSubscriptionPer pieceE-commerceUser buys directly from you.

Non-commercial ModelsPublic Radio/TVWill communities support online publications or services that serve them? Will government funding or community funding support services that cannot or should not be commercialized? Non-profit organizationsGrants

Funding ModelsSelf-fundedUse cash from business to fund growth.Advantages: retain control; gradual, adaptive growth.Disadvantages: under-capitalized means fewer resources; might miss window of opportunity. Sell all or part of company and give up equity.Companys future depends on successful IPO or acquisition (exit strategy).Advantage: more resources, rapid growth, upside.Disadvantages: loss of control; grow too fast; short-term.

What Do You Want?Build a Lasting BusinessGet Rich and Get OutSee Your Idea Realized(e) All of the Above

Organizational ModelWhat size and structure is appropriate for the idea?Startups vs. traditional businesses.Focus & CommitmentExpertiseResourcesEnvironment

How Big?Your business model integrates the revenue model, the funding model and the organization model.For example, to be the dominant player in an industry, you have to be growing at least as fast as the industry itself.

Internet Public Library The Quest for a Sustainable ModelInternet Public Library: http://www.ipl.org/Analysis: The Internet Public Library by Lorrie LeJeune in Journal of Electronic Publishing IPL Mission Statement

IPL Timeline: StartJanuary 5, 1995Project started at University of Michigan School of Information and Library Studies as part of a graduate seminar.Started by Joseph Janes, Associate Professor and 35 students in his class.

IPL Launch: March 1995 IPL Site opened (about 70 days from project start to launch)University provides server (Sparc 20) and an Internet connectionGood traffic and publicity.

IPL Summer 1995Receives $150K Grant: "We are pleased now to be supported by grants from the School of Information via its grant from the W. K. Kellogg Foundation, and the gifts of the Friends of the Library"Friends Sponsorship programIndividual -- $25-$100 to fund a review or a page.Corporate -- Sponsor development of an area

IPL: 1996In January, determines that School of Information will not continue to support it. Develops business plan to pursue additional funding. Establishes position to do outreach.In June, IPL awarded $200K from Andrew W. Mellon Foundation -- Press Release. This grant will "Fund the development of several projects aimed at ensuring the long-term viability of the Library by giving it a steady and sustainable revenue stream."Launchses "WebINK: Internet Newsletter for Kids and POTUS U.S. Presidents

IPL: 1997Summer, 1997Funds are beginning to run out. Staff members leave, anticipating that the project will be scaled back.August 1997Supplemental funding supports 2 administrative staff with funding through April 1998.

1998: Third AnniversaryIPL has served more than 5-7 million people in 2-3 years with a staff of six and a budget of less than $450,000."Where we are now is extraordinary, for a class project with no money, not even a server when we started," said IPL Director Joseph Janes.

Joe Janes:People think the public library is free, because they don't have to hand over any money whenever they use its services. But it didn't used to be that way; public libraries were actually subscription libraries. People paid a set fee for each service and that went on for several hundred years. In the late 1800s Andrew Carnegie stepped in, donated a lot of money for buildings, and got the government to support these new public libraries with tax revenues. And this system has been in place -- virtually unchanged -- since the 1920s. So now what happens is you have all these librarians saying that everything is free.

Views of IPLLejeune: The IPL made a tactical error in embracing the public-library model. Schelle Simcox, hired to do business development left in July 1997: "If you want to be an information provider you need to have someone on your team with the ability to bring in a steady source of income. That person should be a marketer who can sell your ideas to an audience that isn't quite ready for them; someone with the ability to pull people together, get them excited about ideas that are unproven, and convince them to offer financial support."

GNN: 1993-1995First Commercial Web Publishing VentureFirst PortalFirst Site to Sell Advertising

Developing GNNIn Feb. 1993, formed four-person "skunkworks" team and began planning for new product based on the demo. Internally, we had to advocate for the project and establish a separate identity and eventually a separate team and budget for development.

GNN: 1993

GNN: Launch of a PortalLaunched at InterOp in August. Announced that it would be supported by advertising.Consisted of a directory of links: The Whole Internet Catalog.Plus special-interest magazine-like sections.Difficult to sell advertising.

Internet in a BoxProduct developed by Spry and co-produced with OReillyIncluded Web browser that pointed to GNN.Announced at first Internet World, December 1993.

GNN: 1994Obtain a license to publish NCSA's What's New page, the most heavily trafficked site on the Net. We establish a publishing process for maintaining the resource.Advertisers begin knocking on our door.

GNN Staffing: 1994Team of TwelveProject ManagerSales and MarketingGraphic DesignerEditorial and ProductionTechnical Director

GNN: 1995GNN is perceived to be a "native" Internet brand.In spring, AOL offers to buy GNN. We believe it's necessary to scale up GNN. Staff is up to 23. Sale for $14 million in stock occurs in summer. First sale of an Internet intellectual property.

AOL and GNNAOL repositions GNN as an Internet service provider. Ignores content and directory services. December 1996AOL closes down GNN.

Three GNN DesignsClick here

Web Review1995 to PresentLaunched in August as general Web magazine. Sample article.Additional cover.

Web ReviewWe were stretching the magazine metaphor as far as we could go. In our first half-year, we had the resources to build fairly complex story layouts.CoversDigital Academy, October 13, 1995Mozilla, Dec. 8, 1995Webula, October 27, 1995Web95, December 22, 1995

Web Review BusinessAdvertising modelWas to have been linked up to AOL and GNN and they were to sell advertising.We had difficulty as a general magazine and began to target Web developers.After about a year, we announced a decision to close the magazine.

New PartnershipStruck a deal with Miller Freeman, a SF-based, diversified publisher to jointly produce Web Review.Wed produce the editorial product and theyd handle the sales and marketing.WR complemented a Web conference and a Web magazine.

Web Review Re-launchedResume publishing in Fall of 1996 focusing on Web designers and developers.New target audience plus maturity of Web products and advertising make the publication reasonably successful.

Web Review 1999About 450,000 pages views a week.About $100K/month advertising.About 25k email subscribers.

MFI Acquires Web ReviewMFI (now CMP) buys Web Review for $3 million.

FerndaleFerndaleAn Interactive entertainment produced by Tom ArriolaSample

LikemindsCollaborative filtering applied to moviesPatented technology applied first on kiosks in video stores.Songline prototyped Web demoSpun out Likeminds in 1997Acquired by Andromedia; Andromedia acquired by Macromedia.