Business Models vs Internet Business “Concepts”, part 1

Immersive technology and virtual worlds presents new opportunities and challenges to the traditional sense of the profitable business model. “Discontinuous change”, according to Gary Hamel of Strategos, is the make up of today’s and tomorrow’s successful business models. Discontinuous change includes not thinking of a new business model itself, but a new business concept. It is almost like saying, there aren’t any new business models to create, so we must recreate what a business model looks like–to be discontinuous. Social networking sites are perhaps the epitome of these new business concepts. Unfortunately, these pioneers of social media have forgotten one very important part of business, and that is evidenced in the many discussions of how these sites intend to “monetize” their creations “after” the start of the business.

The traditional business model goes something like this: identify an issue or problem needing to be solved, figure out how much it’s going to cost your business to provide a solution, determine the price you need to sell your product for to be profitable, discover if this value proposition is in line with what customers are willing to spend.

Here’s what social networking and Web 2.0 business “concepts” look like: identify a new way to use technology to connect people together, immediately seek funding, use other popular social networking platforms to generate buzz, hire business professionals to find a way to “monetize” this concept.

The new business concept places the work of figuring out the business model at the end of the process. This is the sort of innovation to business models by the technically-gifted that got us in trouble during the dot com bubble. The talent behind the software being created, and their dedication is by no means being downplayed. They are very creative and intelligent people in what they do. The problem with this  business concept is once again, it is being supported and found to have acceptable risk, by investment firms and VCs. It’s been almost 10 years since the dot com crash, I guess it’s time again soon.

Our “new economy”, based now not only on information and communication technology, but new financial instruments, appears to me that bubbles and crashes are going to be happening at alarming rates.

Is this the best we can do? Ready, shoot, aim. The race to be first on the Internet doesn’t guarantee instant success and first-mover advantages. Amazon took what, five years to make its first dollar of profit. Where’s Netscape now? Yeah, Netscape, the guys that launched the world wide web, that’s right. Twitter and FaceBook, money pits. MySpace is part of Fox Interactive, which in 2007 made a meager $10M in profit, and that was largely due to its deal with Google to “monetize” search results. There’s that word again. Before that, MySpace (and parent company News Corp.) had no idea how they were going to make money off the concept.

The “diffusion” of technology, especially Internet technology, virtually guarantees that its costs to consumers eventually, and rather quickly reaches zero. Adoption and imitation are the two main drivers of this phenomenon. In many cases, the cost of new technology to consumers is set at zero from the outset. Social networking sites are free! This leaves the challenge to making an Internet business profitable, well, quite challenging. Let software programmers keep on programming, but let the innovation of business models occur by people with some semblance of business savvy. I’m just saying… *shrug* The business concept of social networking sites is turning into the hippie movement of the 60’s where things should be free man, we’ll find some way to make money later. The “suits” are trying to keep us down, man. Ok, I wasn’t a hippie in the 60’s, I wasn’t even alive. But aren’t the suits still the ones coming in to save your hippie, free software loving butts? I love my G0ogle, but even Eric and Sergey stepped aside to let a suit come in and give it a monetary direction.

In part two of this episode, I will attempt to create pretty tables to categorize, describe, and explore some of the more relevant business mode…I mean concepts, found on the Internet today. Let’s see if we can guess which models are here to stay or a passing fad that might just lead us into the next tech bubble bursting.