Monday, August 25, 2008

Local Motors and Web 2.0 (Part I of the Series) – “Monetizing a Network”:

Over the past week I read a series of articles from Wired magazine and Technology Review (a magazine edited by Jason Pontin, erstwhile editor of the basically defunct Red Herring) both of which were reviewing the roots, status, and future of Web 2.0. In response to that series, this post is the beginning of a mini-series blog on the state of Web 2.0 with intermittent discussions on where Local Motors finds itself.

“Monetizing a Network”

In the past, I have referenced the intention of Local Motors to cross the digital-chemical divide by delivering real product into the hands of paying customers - Product that they can feel, that they can desire, and which can provide real utility in their lives. No change in this intention, in fact only progress and more intense desire.

In contrast, I want to reflect on the current angst in the Social Networking business about the questionable revenue potential in the space. Social Networking, the elephant in the Web 2.0 space, is the process of using the web (and telephony, by extension) to connect users in a social setting, allow them to share interests, to connect to friends, to provide advice, to criticize others, etc.













(http://blog.larrybodine.com/cocktail.jpg)


Social Networking’s growth has been astounding (so much so that many think of it as synonymous with Web 2.0) and its leading champions are the likes of Facebook, MySpace, Bebo, LinkedIn, Twitter, and all of the other service businesses that enable their creation (less well-known but important building blocks, KickApps, 37 Signals, Brightcove, Stylefeeder, etc.) In fact, the very space has created new English phrases such as “poke someone”, “throw something up on your wall”, “check my LinkedIn”, etc.

So, to put a fine point on it, the issue is that many folks are wringing their hands over whether or not Social Networking businesses can monetize their popularity. Can they? Well….

What is “monetization” anyway? Basically, it is that pesky phrase governing the conversion of a good or service into money received. Without it, a business is not really a business at all, at least not in the sustainable, free-market, Keynesian definition.

So if the “Service” is connecting people in a social setting, how can/should a Service charge for itself?

Before answering that quesiton, I would like to tantalize you with another burning question. Is a Social Network a service at all? Is it really? Does it really make a difference in our daily lives and our work? I know the quick reaction of Mark Zuckerberg (CEO of Facebook) or Tom Anderson (ubiquitous President of MySpace). But let’s look deeper for ourselves. Is it like a plumber? When water is ruining your hardwood floor, or better yet, when you need to drink to survive, a plumber is a SERVICE worth paying for. Is it like a travel agent? When you need to get to college, hug your children, or attend to a death in the family, a travel agent or website is a SERVICE worth paying for. Where does “poking your friends” lie on the spectrum of services worth paying for?

It is hard to say that there is no service being performed in a Social Network, but the examples above question the depth of the value.

So how do these networks Monetize???

a) Fee for entry? Unlikely, as switching costs are so low, and the very idea of charging for social connection is odious to its footloose members

b) Fee for value added-service? Maybe, depends how good. Finding lost friends, connecting for a job, vetting people for a job,…these are value added services but bump into privacy concerns

c) Fee for advertising? This is certainly the most attractive option as the payers are not “the users” but rather “the businesses” who want to reach and to understand the users.

And what is really happening here? In effect, the people who actually make products and services, which all those social networkers can feel, desire, and use, are paying the Social Network itself to get in front of their clients.

Story sounds like the very history of advertising itself, only in this case, there are a couple of twists. Because of user generated content (i.e. because users can share opinions in a very public and potentially-viral setting) the advertising of a product or service can be turbo-charged or turbo-slammed depending on its audience’s impressions. Further, because of the nature of customers connecting to the web, more can be known about the individual customer himself. This targeted info can naturally be helpful to advertisers, but when you are a collector of personal info masquerading as a social network…. there come those troubling privacy issues again.

Therefore, with caveats, this sounds basically like the advertising route might work for monetization, More on that tomorrow.

Before we give up the discussion too fast, however, there may be yet another revenue opportunity….

d) Fee for Product? Now there’s a thought. Why sell the info on your customer? You took it from them, they gave it to you, why not use it? Perhaps Facebook should install plumbing or book travel? Sound crazy? maybe, but maybe not….already MySpace is selling music that it promotes and enables…and that is kiddy-soccer compared to what could be achieved if these networks really got to work making something. Ponoko.com makes jewelry, Threadless makes T-shirts, Cameesa makes T-shirts and even allows users to invest in them, and yes, Local Motors makes cars.

Some strategists may say, stick to your knitting and do what you do best, if you run a good social network, then socialize…if you run a car company, then turn a wrench. Really? I beg to differ. We ALL beg to differ at Local Motors. We build cars, but we also talk to our future customers every day on our site, why pay someone else to tell us what they want. Certainly not a Social Network.

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