Startup Companies Making Money From Free

I have been thinking about the comment left on my post about Blog Talk Radio and their attempt at monetizing their application.  Then I read today over at HipMojo the article about why companies that are basing themselves on ad revenue will fail.  It helped me formulate my own opinion about how companies in the tech world are struggling with making money.  It is a dance that seems hard to learn.

The game plan seems to be along these syllogistic lines.

  • Come up with an application that fills a need.
  • Develop the application.
  • Launch it and see if it scales, get user feedback and adjust its use accordingly.
  • Begin to build your user base until you reach some determined tipping point number. (This is probably the most difficult step in the overall business plan.)

These are the initial outlines I have seen.  During this period you may have an angel investment or a small first round to get to the tipping point number.  The next step is where it gets tricky.  Now that we are at our initial goal, how do we make it profitable?

Companies have built the trust and admiration of their users by providing a great application that is free and useful.  The users are making it an integral part of their lives.  The company has developed and gathered this large community.  They must leverage that into real money.  As I see it, they have but two choices, advertise or begin charging for the service they once before gave away for free.  A blend of these two would be a third choice.

Advertisers want eyeballs and reach.  The users are what they seek, and the more the better.  It’s all about the page views and the numbers generated from people.  Fewer users, the less they pay for your real estate.  Increasing page views and users increases revenue.  This is a hard fact as CEO’s try to guide the company to profitability.  If an application has 100,000 users it is worth more to an advertiser than 10,000 users.  Companies sell to advertisers and tell them, “We have 100,000 users at X amount of page views.”  The media buyers line up for those numbers.  Problem is, companies such as Blog Talk Radio have to sell based on those numbers, but then they must get the customer or users to get behind the plan. If they ask the users permission perhaps they only have 50,000 of the 100,000 users that will allow ads.  Now their property is worth 50% less to advertisers, and they don’t make money at that level.

Their second choice.  They begin charging the users for using the service.  Or as I indicated above the third choice, charging those that elect not to have advertising on the application a premium. The third choice allowing both opt in and opt out income.  This is risky as you may chase off users that were really sold on the application that was free, but not so warm to paying a fee for the service, or having advertisements show up on a usually clean page. 

It’s a chess match played by advertisers and CEO’s and ultimately users.  How can they all be happy?  I’m not sure that is entirely possible but their must be a compromise somewhere.  Companies are struggling to be profitable, advertisers are cutting their spend to increase their return on their own investment, and meanwhile, the user holds the power of being part of the community and whether the user wants to sell their eyeballs.

I have been touting 2008 as “The Year of The User.”  Companies have been building their user base.  The power the users hold with their attention and their eyeballs and presence make the other parties to the dance want to court them.  I’m not sure the answer, but I think ultimately it will raise the cost of advertising, and may force a new metric not based upon the number of eyeballs and page views.  Who flinches first has not been determined.

Blog Talk Radio Learns Monetization and Forces Endorsements

btrlogo I am a really big fan of Blog Talk Radio and have met Alan Levy, John Havens, Lisa Padilla, their newest addition, Kris Smith, and have spoken to others in their organization.  They are a bunch of great people.  They have a super application that is easy to use, is free for its users, and overall they have allowed me to have a radio/podcast show where I otherwise would not have had the ability or technology.  I can use something I am familiar with using, my computer and my phone.  I have done numerous shows on Social Mediasphere Radio and on Blog World Expo Radio and have praised them at every step.

This is why it will be difficult for me to shell out some harsh criticism now.  It is more than a small matter to me.  The have moved to their next level of “monetization” of their application.  After all, companies must make money and this is new territory still and companies are working hard to figure ways to get into the black.  I know first hand of companies that are making this a priority for 2008.  There has yet to be a surefire way for people to do this besides the obvious, advertising.  Blog Talk Radio is no different.

I received this email from Frank Neill, Director of Advertising, today that indicates that they are moving into this next phase of monetizing their application.

Dear Host,

Thank you for being such an important part of  BlogTalkRadio. BlogTalkRadio just recently passed 52,000 shows since we launched the company in the fall of 2006. We have created a community of thousands of hosts and millions of listeners. And, through the RevShare program, we are all in this together!

Obviously I am not the only one that loves the program and their system.

In January 2008, we launched a RevShare program where our hosts have an opportunity to participate in the revenues earned from advertisers. If you have not yet joined our RevShare program, you can do so by completing the RevShare form located at [link omitted].

I am always happy to earn money from my efforts and if a company is using my content and my participation to earn that revenue, I think it is actually only fair that they offer me a piece of the pie.  But this is where the email turns south for me.

RevShare hosts will earn 35% of all revenue for advertising from their shows, and they can earn 50% of revenue from their sponsors that they bring to BlogTalkRadio. With our RevShare program in place, participating hosts will earn money for downloads and page impressions they generate. Keep in mind that BlogTalkRadio will serve ads on your show even if you have not opted in to the RevShare program. [emphasis added]

Big scratching noise across the LP for that last sentence.  If I’m to understand that paragraph, I can opt in to be paid for my content on Blog Talk Radio and they cay earn money and I can earn money, but if I don’t opt in to the rev share, they are going to put ads on my content whether I like it or not.  Huh?  What if I don’t endorse the product that is being advertised on my content?  Perhaps I have a religious, political, or moral reasons I don’t want to have a certain company using my content for their gain.  The tone behind it is one that is difficult to swallow as well.  “We’ll do it whether you like it or not.”  I know that was not the company intent.  A conversation with John Havens confirms it was in no way the company’s position.

The email goes on to say how they will be paying out for the revenue earned, and then talks about some ads already in place for “Run In Network” ads that run on all shows.  Examples given are “LifeLock, AccuQuote, Rosetta Stone and Internet Speedway.”

What if I don’t want Internet Speedway showing up on my content.  What happens if I am a direct competitor of theirs?  I have no control over their being splashed across my Social Mediasphere show?  I don’t endorse or approve of their business, but I am now forced to accept that forced endorsement?

To me as a business owner it is unacceptable.  Would I pay for ads not to appear on my shows or would I pay for a “pro” account” to control my own ads?  I probably would given the benefits I am receiving, but to put an add on my show that I do not endorse or don’t want is madness.  John made mention that this may be an offering that will later be put into place.  Yes, growing pains are just that, painful.

I have spoken to John Havens at Blog Talk Radio for comment about this and as always he is the very professional and asked that I speak directly to Frank Neill the advertising director. I will certainly post a follow up to that conversation.  I’m also about to scour the terms of service as it may reveal something I have missed.  I guess I don’t often rant about things here so this is new ground for me, but I guess I should ask, “Am I making a mountain out of a molehill?”  How about suggestions for the team at Blog Talk Radio?

UPDATE:  If anyone had any doubts about how cool the team is at BTR, check out their response from Frank Neill in the comments here.  I also want to reprimand myself for forgetting to change the title here after I spoke the first time to John Havens.  I changed the content but forgot the title.  I wont change it now but I think more appropriate title should be more like “Blog Talk Radio Enters Monetization and Learns How Hard It Can Be To Make A Buck.”  My hat is off to them as they give away the cow and try to sell the milk to their users.  I think a new post is now forming as well.  Are we too used to getting things for free?

A New Fox In The Yahoo Hen House

Silicon Alley Insider is discussing the fact that Fox News Corp. is trying to make a back door deal with Yahoo. In the words of my friend Dave Taylor, “so what?”  Apparently, Yahoo will do anything not to fall into the hands of Microsoft or do they actually realize this is inevitable and they are trying to make Microsoft hurt a little when they raise the stakes.

Mike Arrington goes into a little more detail about what the deal may entail as it relates to what money or assets would trade hands or at least be a part of the deal.

According to our source, the deal structure would spin off Fox Interactive Media (the primary asset is MySpace, but IGN, Scout Media, Photobucket, Fox Sports, AmericanIdol.com, Flektor, Ksolo; plus investments in Hulu, Simply Hired and Snocap are also assets of FIM) into Yahoo, along with a big cash injection from News Corp. and an unnamed private equity fund. The total investment would be valued at around $15 billion.

I’m really failing to see what the benefits are to the shareholders of Yahoo.  They after all are the decision makers here.  Besides a big dose of cash what are the shareholders really gaining as it values their stock?  MySpace may be a nice carrot, but not something Yahoo really needs.  I doubt Myspace has the momentum to pull Yahoo from its current slide.

My thought is that this is a deal that is really just going to make Microsoft really hurt when they write that check.  Yahoo wants a competing offer to make sure that Microsoft must raise its own offer.  I think that Yahoo sees the writing on the wall but is doing what they can to make sure they go out in blaze of glory.  Of course at this point with all of those 1,000 employees now looking outside Yahoo for jobs, glory is a relative term.

We Live In A Google World

I have been preaching to people as long as I remember that “We live in a Google World.  I happened upon a post today by Owen Thomas (no I’m not a Valleywag reader, I thank Techmeme) about Google and its global market share.  He refers to a chart done by Efficient Frontier Insights showing the market share of the search engines across the globe.

globalsem

Obviously as the chart shows, Google is enjoying the lion share of search marketing.  Some say it is because they are more targeted with their technology.  Others say it is because they have more advertisers and more publishers.  I think it is because they do search better than any other company.  It will be interesting to see if Microsoft is able to capture a little more piece of the pie and if they can put a dent in the market share owned by Google.  When I hear that Yahoo is thinking of outsourcing  its search to Google, it does not give me much confidence that Microsoft is getting the best in search from Yahoo, and obviously its search engine at MSN is not making much of a race of search in its own right.

UPDATE:  For a deeper analysis check out HipMojo.com

New York Times Must Adapt or Die?

As I looked over some of my feeds in my RSS reader today I cam across a piece written by Marc Andreessen about the deathwatch of the New York Times.  His sarcasm in the piece makes it a fun read in spite of the message.  His take as I read it is that unless changes are made in the way they are doing business, they will soon be out of business.  I tend to agree with Mark Evans piece that the New York Times must change the way they do business or perhaps the deathwatch will be a credible idea.  We have already experienced the death of a newspaper after 126 years in business. 

As traditional advertising takes a turn in its direction, older traditional media will have to adapt to go where the money is and change their business models to keep revenues that they are losing to online media.

Too Many Social Networks Causes Headaches

I’ve been hearing of many people getting to the point of overload on the number of social networks they belong to and the number of networks they are following.  I have a handle on the feeling and have experienced the same headaches that many suffer from as a result.facebooklogo

I spent Sunday actually building my community of social networks.  I try to make sure that I always know how to use the tools available and to be knowledgeable about the use of the latest of the networks out there.  The first social network I tackled was Facebook.  This seems to be one of the largest growing social networks lately and I decided I better get on that  bandwagon.  I added friends I knew and some I actually didn’t know personally.  My apologies if I sent you an invite to be my twitterfriend as I ran the easy to ask application that spams all your email files. 

I have been an early adopter of the Twitter social network and have really enjoyed Twitter as a way to follow along with my friends, clients, and peers.  I have spent a long time growing the number of friends and the number of followers to my Twitter page.  This does cause problems when you ever want to switch to another social network that might be very similar or the next generation.  Such a thing happened when I decided to check out the Twitterish type of application in Jaiku.images

Jaiku was the next type of Twitter type social network that offered a different user interface and some other features.  I was not very enamored with the service and barely stayed long enough to see if it was worth my time.  It was not the most favorite of networks following the Twitter explosion, and was launched to close to the same time.  This was not the same with the latest of networks to launch.

pownce_logo The next network I decided to try was Pownce.  This network in my opinion launched at just the right time.  They took the best attributes or the other networks, expanded them somewhat and made it very nice to look at as well as operate.  I was able to grow this community much faster than I was when Twitter first came on and it could be because I promoted the building of my Pownce page and community through the use of Twitter, which in itself is an irony.

www.STADTAUS.com_btn3910742 Tomorrow is our scheduled radio show at Blog Talk Radio.   We will be discussing this new onslaught of social networks and we will talk about the headaches others are having as a result of trying to keep up with the the madness.  We are always going to be able to tell our clients about these applications and how best to keep up with them.  Our most beneficial service is actually providing a social media manager or community watcher for companies. 

UPDATE:  [7-3-07]  Thanks to BL Ochman through Twitter, she points us to an article by Mashable about Mini Blogging, where they compare 8 different applications.

 

Another Mediasphere Radio … we must be gluttons for punishment

Did ya miss us?  I was camping last week so … you didn’t get to hear Jim and I wax poetic, or is that pathetic, about the goings on in social media.

All kidding aside, Jim and I have been doing a lot of thinking about blogging vs writing.  What makes blogging something more than content?

We’re going to tackle that one on the next show which will be tomorrow (Wednesday the 20th) at noon PDT.  Remember you can call in at (646) 478-5023 or Skype us or … Gtalk…MSN …

Catch you tomorrow!

Update: I got the web chat working! Launch the Userplane Webchat.  Jim and I will be hanging out there before, during, and maybe a little after, they show.

Mediasphere Radio: Beginning Blogging 101

Tris and I had a great time talking about how a business or individuals can get into blogging. We talk about the very basics and things to think about and tips on how to get your company up and blogging.

You can go and listen to the show!

Tags: , Bloggers For Hire, , , Hiring Bloggers, , Mediasphere Radio, One By One Media, Professional Bloggers, , , Tris Hussey