Monetization 2.0

31 08 2007

Technorati teaches:

A four year old startup is pressured to answer how investors will make money. Is it going to be an acquisition or maybe even an IPO? And if neither is the case, then is there reasonable revenue to hope for in the future? It is very likely that these questions caused Technorati to start making changes that ultimately got the company to its current state.

So how does a site like Technorati make money? A simple and fashionable answer is: advertising. But maybe it’s not so simple. Firstly, Technorati could not use straight Google ads. That would not look good and would not fit with the spirit of the company. Banner ads are an alternative, but it is harder to make them relevant. When you are showing people popularity rankings and news stories, banners may be out of place. Technorati ended up using generic banner ads , but how effective these are is unclear.

What Technorati also tried to do, it seems, is refocus on things like books, music and movies. This refocus could allow the company to monetize popular content via affiliate programs. This a straightforward play, but the problem is that people do not come to Technorati for that. The users are there for popular stories, hot blogs and trends. You do not exactly think of Technorati when you are thinking about buying a book. For that you go straight to Amazon.

Monetization is a big issue that cannot be ignored. After all, just having a cool service that makes no money is impossible. There must be revenue and so if the current products do not generate revenue, they need to be replaced with ones that do.

The process of revamping the service on the fly, while it is being used by millions of people, is difficult and error prone. Obviously the company had to make some tough choices – which now, retrospectively, look like mistakes. Instead of focusing on refining the core product, the company was pressured to invent new, tangential spins that did not make much sense – and did not make users happy.

Last, but certainly not least, all of these infrastructural changes caused the site to become painfully slow. In this day and age no one has patience for slow sites. Slow means you are out and eyeballs are headed somewhere else. So in a way, the new services that Technorati tried to push did not even have a chance, because the the site was unbearably slow.

‘How do we make money?’ is the question that is hanging like an axe over entrepreneurs heads. What Technorati tried to do was change what it does, to get to the answer. But perhaps the answer was simple: ask bloggers for a fee?. When someone claims a blog, ask them some money. Why wouldn’t this work? Technorati is a great service, loved by bloggers – I suspect many people would not think twice about paying a nominal fee for it.

But in this day and age, asking users for money is considered out of fashion. The thinking is these days: build the audience and the money will come. Perhaps this is flawed thinking. Not all businesses are advertising businesses. There are hundreds and thousands of services that still charge consumers fees.

Maybe thinking about monetization from day one is not a bad idea as thinking that Google cannot provide money for a real good business (except their).

Read about at www.readwriteweb.com

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