Gil's question about Twitter's business model got me thinking.....how do internet companies & sites monetize their benefits? In other words, how do they make money? What is the business model?
This is a very timely discussion because this morning, as I was driving in to work, I was listening to NPR. I heard the news about Skype being purchased by Microsoft for $8.8 Billion Dollars. And apparently some investors are living large, because a group of investors had purchased Skype a few years ago for about $2 Billion. I have used the free video phone service a few times, and the thought struck me - how does Skype make money? Why did Microsoft spend a fortune acquiring Skype?
The answer to the first question I have to assume is international calls, so a version of the Freemium business model (Mashable.com reading). Basic calls are free, but international or possibly calls over a certain time limit cost extra. However, just because Skype hasn't found additional ways to monetize gains, doesn't mean Microsoft won't. Maybe I will have to watch a 30 second commercial before I Skype with my grandmother next time! The answer to the second question I have to assume has something to do with strategic defense. Microsoft purchased a viable internet brand to combat against Google's stronghold.
Now, back to Twitter. The WSJ article "the Economics of Giving it All Away" and a "taxonomy of internet commerce" allude to the fact that giving consumers more value and more product can be a bust for companies. Chris Anderson called the internet the "land of the free," and this doesn't seem to be subsiding. Twitter is one of the fastest growing internet companies, and Twitter uses very minimal advertising. In fact, Evan Williams on YouTube had a difficult time sharing his plans to increase revenue.
My recommendation would be for Twitter to offer a Freemium model or a Targeted Advertising Model, similar to Facebook. First, a Freemium model, where for a small amount per month, people can join Club Twitter. Here, they can post photos, in Tweets as an added service, receive special targeted deals from retailers (who also pay to access them), and access other Club only members. The key would be to get celebrities and political figures to join the Club Twitter. Then, others would want to join to be a part of the exclusive group. The benefit of this business model is that it doesn't involve direct, kitschy advertising on the home page - nor does it disclose too much information to advertisers.
The Targeted Advertising model, as discussed in Hal Varian's article on the 14 business models, is simple and one of the most basic business models on the internet today. However, this model can often be overlooked unless targeted & designed correctly. Google has come under some hot water for advertisements on searches that do not relate to the product for sale. Also, Facebook has been slammed in the press for invading users privacy by giving too much information to advertisers.
In conclusion, Twitter, as well as Skype, have an uphill battle to begin to extract revenue from their current operation. My recommendation to both companies would be a Freemium model to capitalize on different type of users within both sites. The more involved, cutting-edge users will pay for the service and cover the rest of the users.
Microsoft will have to find a quick way to build upon Skype's business model to accelerate the revenue stream, and compete against Google. What a challenge.....yet, what a brand.
Good post for the week! I am very encouraged at your stream of thoughts. Once again, it is totally consistent with our goals and objectives in designing this course--to spur thinking that is critical to someone pursuing an MBA degree.
ReplyDeleteThat said, I suspect Skype's business model may be even more difficult to discern than most. I sense that synergies are at the heart of the Skype acquisition. Microsoft is not viewing Skype in an independent role, but instead as part of a team effort. eBay had similar plans when they acquired Skype some time ago. Obviously their vision failed to materialize and they divested their Skype holdings.
I like your thoughts on Twitter. What is really stimulating to me is what seems to be a unique opportunity to watch the evolution of these events. They are playing out and we have front row seats. What better opportunity could there be for business professionals eager to learn!