Why is Making Money as a Consumer Web 2.0 Company So Hard?

Heather -- I believe the YouTubes and Twitters will eventually make a lot of money -- but working out the revenue model is tough and will take time. And the hundreds of others -- oy, who knows.

But if you sell Web 2.0 to corporations to accomplish real business goals, there's lot of potential. That's what our book Groundswell is all about, http://groundwell.forrester.com

This has to be the stupidest post I've ever read.
It just kept asking speculative questions with no facts of any kind except for the 180 million people.
And then it just ends with a reference to another post. This is how web 2.0 will die.

The writer takes no effort to speak to the "whys" -- much of the article is documenting what's not working -- which is common knowledge..

This (and many other terribly written blogs) probably explains why there are over 75 million blogs, but the average readership is just one (usually the writer)..!

Much successful consumer advertising is about community building. It’s communication that seeks to influence consumer norms. It’s part of the communal conversation that builds consensus coping norms.

You become part of the brand X community by using the brand. Using brand X, and thus being part of the brand X community, is a coping choice. Advertising seeks to convince the consumer that this is somehow an advantageous choice. Often this involves some mythologizing. Sometimes it involves product personification. Mostly it involves merchandising fundamentals like pricing, promotion, positioning, and so on.

Social networks on the Internet are competing tools for community building. They are tools for making choices. They are an alternative to mass commodity advertising in this sense. They are personal interaction mechanisms rather than pitch mechanisms. They are proactive rather than passive interaction mechanisms. They are specialized and sophisticated mechanisms. They are much more efficient and effective mechanisms.

So new kinds of adverting mechanisms are required. mass custom advertising, rather than mass commodity advertising is appropriate. Mechanisms like Google Ad Words is a mechanism of this sort, but still a very primitive one.

Mass custom advertising for social network sites needs inject itself interactively into dynamic communal consensus building. Mass custom social web advertising needs to provide consumer coping tools. It needs to coach and counsel consumers about very particular sorts of cares, concerns, and choices. It needs to narrowly target consumer subjective and substantial challenges. It needs to be smart, specialized, and sophisticated. It needs to be an integral part of the dynamics of the social dialectic. A snappy sales pitch just won’t do for this emerging Internet advertising medium.

Proofread, please.

Having worked with Web 2.0 projects, I can tell you exactly why it's so hard to make money with the Web 2.0 model.

The sites are based solely on providing a feature or service free of charge for as many people as possible. There is no plan for monetizing any of it and when you either ask people to pay for what they got free, or assault them with ads they're not there to see in the first place, of course they won't buy or click.

At the risk of sounding arrogantly harsh, those who are sure that the YouTubes and MySpaces of the world will become highly profitable and will find a business model within their current incarnations are simply unfamiliar with the online entertainment industry.

Just because social network sites are visited by millions of people every day does not automatically mean that advertiser's messages will be absorbed by tens of thousands of people. In fact, we are seeing that users of these sites are totally ignoring the ads and simply using the free site to talk to their friends. Advertisers may have gotten all hot and bothered by the numbers of people using the sites but the fact of the matter is that their money is being tossed into a furnace. People come to these sites because they're free and easy to use and they're also choosing to utterly ignore all advertising on them. The click through rates on the ads are a laugh and they're getting worse all the time. Once advertisers start to demand actual responses (pay per action versus pay per view) from users before they'll pony up any payment, then you'll see how bad this market actually is. Facebook and MySpace have completely snookered the advertisers into thinking that users equal exposure but the reality is that users equal nothing. I asked my nephew's wife (she is 28) if she ever looked at the ads on MySpace (she's an avid user) and her response was telling. She replied, "They are ads on MySpace?" Figure it out guys, users ignoring our ads are a waste of your money.

Why does everyone default to advertising as the only way of monetizing Web 2.0? The components of Web 2.0 provide ease of service or communication. It is a means to a larger end.

If YouTube and MySpace want to make money, they should use their networks to help their users make money. This is what Ebay does. If you think about it, this is also what Google does. Their ads allow small retailers (and large) to make money.

Well, I guess some of you got what I was hoping for with this post and some of you didn't. I was wondering what you thought. I've written about the problems with Youtueb and Myspace plenty of times and what advertising folks think are the problem.

I wanted to hear what you thought. I wanted your insight.

Nice to see a reality check. But key issue is that if value is created, it can be monetised somewhere, somehow...as in "If it is useful, it must be worth paying for" --I think most of the focus is on long tail of content, while the value lies in long tail of advertising. In other words, ads are a commodity -- like content. So revenue and business models must be built around that proposition, with proper pricing. Eventually, the bigger platforms will be acquired and monetised by consolidation.
Technology is evolving and so are business models. Google ran for 3/4 years before search became text ads.
http://mediascribbles.blogspot.com

I actually think the answer is deceptively simple. Why do text and banner ads work today? They're appropriate and in context. You're searching for something, you might want to buy something. Good place to put an ad. On social networks, you're *not* there to search for something but to engage. *Bad* placd to put these kinds of ads.

So what's the answer? What's the least trusted form of communications? Company-directed channels, including advertising. What's next best? Independent sources, like we industry analysts or you reporters. What's far and away the most trusted source? My peers. Ding ding ding. While Facebook's Beacon was perhaps a ham-handed approach to the monetization of social contacts, make no mistake that this is the path to monetization. Whether it's through an evolution of Beacon, a new take on affiliate marketing or another form, the successful monetization of social networks will occur within the context of how people use their social networks to parse content and acquire products. And it's not today's advertising vehicles.

I think a lot of the comments on here are overly harsh. Personally, I think the most successful companies in the "Web 2.0" space will help other companies use Web 2.0 concepts such as blogging to reach key audiences like potential customers. These companies have solid business models and are more about using what has been proven to work and less about whatever new tool is cool on any given day.