What is the Right Business Model on the Internet?

What is the right business model on the Internet? For the most part, organizations are still trying to find the balance between how to create value for consumers and a sustainable business model.

In case you haven’t noticed, media scarcity has for all intents and purposes disappeared. The Internet is essentially a giant copy machine that makes distribution of content frictionless. So, when you think about the web in these terms, then it makes it easy to understand why pay walls on the Internet do not work.

For example, take The Times of London, which recently implemented a pay wall. Last week, The Guardian reported that since instituting the pay wall The Times had lost 90 percent of its online traffic. The fact is the news that they are reporting is no longer scarce. Readers can easily find something similar (or even identical) on another competing website, or better they can find it on Twitter or a blog. The Times has created a model based on metering access, and in the process has lost eyeballs, which will almost certainly result in lost ad revenue.

As distribution costs reach effectively zero, we believe that there is value to be derived not in just access, but in creating an experience for users. In the future rich media will not have to be held under a lock and key to make money, which could result in a very different business model.

So, creators and organizations that are serious about making a business work on the Internet are looking to alternative media models – many of which fall under an umbrella you might loosely label freemium. The fact is that even with the shift from physical to digital media, the simple Economics 101 notion that consumers will pay for what is valuable and scarce still rings true.

We are partnering with various creators from filmmakers to gamers to software vendors – to enable relationships that bring value to the consumer, but allow the creator to build a business that works. These business models are largely based on this concept of freemium, where they leverage consumer adoption of values freely given to drive an opportunity for value to be captured later. We are still early in this process, but early results look very promising.

If you are interested in learning more about how freemium can be used as part of a business, I will be participating in a webinar with Mike Masnick of the popular blog Techdirt and Phil Libin, CEO of Evernote tomorrow at 11 a.m. PT/2 p.m. ET on the topic. Get the details here.

– Simon –

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