Supernatural Agency: Online business tales

Do I really need to know when my close friends and not so close friends are ‘heading to an appointment’ or ‘eating a sub’? While, if I do, I can get them all to sign up for Twittter and we can share our non-earthshaking, mundane lives in excruciating detail by being constantly updated, wherever we are, on whatever device we’re connected to. Am I the only one who thinks this is an incredibly stupid concept?

Apparently, because they’ve raised an undisclosed (probably because the VCs might not want to explain the logic to their investors) amount of venture capital, estimated in the $1-5 million range. This, in spite of having no discernible business plan and no definable revenue model.

Now some of the investors in this are pretty smart cookies and this kind of money is chump change to them so I’m guessing it’s a bet- that maybe this thing expands beyond the Techcrunch crowd and the underpaid 20 somethings with too much time on their hands. Even if it does, the annoyance factor will become unbearable when they try to add advertising (ultimately the only practical monetization strategy I can see) to the messages:

“Heading out to my car -interrupt: Check out the new Scion, it rocks!- Dude, WTF was that?”

Ugh.

So I’d like to know what the dweebs who built this thing will do with their dough? Finally catch up on back pay? That doesn’t move the business forward. Buy nicer chairs and bigger monitors? I would but that doesn’t bring home the bacon either. Market it? I’m a marketing guy through and through and I can’t see the broad appeal beyond techies but I could be wrong…wait…brain is processing….ah…

The real deal: This is a domain play. Twitter is a one word, memorable domain whose value is skyrocketing because of a gimmick. Someone will buy it for its domain power and use it for something they can make money with.

It’s a brilliant monetization play from a domainer’s point of view even though I doubt anyone involved has thought it through that strategically. Should be interesting…

Say that five times. Yes, it’s a slightly ridiculous mouthful, but it’s what we’ve realized we’re really good at: Coming up with ways to monetize web properties that go beyond throwing some Adsense up or adding affiliate links to everything in sight. These things work fine (and they are certainly part of our bag of tricks) but to truly create an online business that can grow you need to go beyond a strictly ad-based model.

Here’s the problem with the ad-based model for online applications:

• Intent. Your user is using the service for something in particular that they need. This represents their intent. You must have the ability to divine their intent and serve up ads specific to that intent and you must be able to automate this. Google does it very well with Adwords for search and Adsense for publishers but they can only divine intent from text, not from web services.
• Relevance. If the ads are not relevant, they won’t get clicked, in fact they won’t even get seen due to our ability to selectively screen out non-relevant advertising. That’s the problem with Gmail’s ad model. They use the context of an incoming email message to determine what ads to serve next to the viewer pane. These are relevant to the intent of the sender, not the person receiving the message. I never even see them in my account. When I do look at them it’s because they’re laughably off topic.

So, you have to find a way to marry context, intent and relevance to make ads work. Blogs are perfect for this, applications are not.

So, how do you monetize a free service? You might tie the service into an activity that requires buying things. This means that your monetization strategy must drive your business model including the determination whether you are a business or not. You are not a business if you are building something cool and figuring out how to make money from it later.

You also need to think about repeat customers, preferably loyal repeat customers that have to come back over and over again for a reason beyond their control. This is why gas stations and grocery stores make money on very thin margins: We have to buy food and have transport so we’re back at the trough over and over.

So your business model starts to look like this:

1. A customer finds you and signs up because she has a need for what your application does.
2. Some part of the process leads to a purchase which your application makes easier.
3. The need is recurring and the system brings her back at each scheduled recurrence, automatically.
4. You are compensated somehow for each purchase she makes, over and over again.

Now you have a monetization strategy.

If there is no purchase as a part of the process of using your service then you have to charge for it, preferably on a subscription basis (recurring revenue is essential).

The perfect example of this is a site like WordTracker. Their keyword research tool is a huge labor-saver for anyone in the search engine marketing (SEM) business which is basically everyone in marketing, sooner or later. They could give it away for free (you can trial it for free which is essential) and try running ads but the ads would have relevance because the content in the service isn’t associated wwith buying needs of the person using it. So they have to charge for a sub. You pay $300 or so a year, gladly anteing up every twelve months because the service makes you money (in saved time). That’s a great monetization model: fully automated, recurring revenue, virtually no cost to maintain, no customer support and no tangible product. Cool with us…