Internet companies & the difficulty of monetization

While reading an article from The Wall Street Journal titled “The Internet Is Dead (As An Investment)” By James Altucher. I could not help but write a note on it.

Funny how the author in a respected publications stated “From 6 a.m. until 10 p.m. every day I can spend on the Internet and it would be a day well spent”. He raises some important and valid points. But what about the Internet Service Providers (ISPs)? If there were no content and innovation free or otherwise on the Internet, would the author’s day be well spent?

What drives these services in providing the platforms required in making your day well spent? Server cost, domain name registration etc. An entire Eco system called the World Wide Web. But I take it he is really referring to least risk investment into Internet companies with hope of high returns from a portfolio perspective versus traditional companies. From that stand point he may very well be correct. As how does Twitter and Facebook expect to made serious profit? Now an economist would argue let the market decide, after all many websites are profitable.

A radical question would be what if all the Social networks and search engines teamed up to shut down their services unless ISPs pay a percentage of the subscriber base fee to them? The alert entrepreneur would find a way to pimp the system in the opposite direction, but still would find the same problems, as the would be renegades in the long run. Thus website owners need to charge the ISPs industry as they are simply prostituting them in my opinion.

Can you imagine, you pay for your domain name, you pay for hosting, you pay to put up content, and you obtain mad traffic and stickiness? All the ISPs do is benefit from your content in obtaining revenue via subscribers having a lot of web properties to visit in the first place on the Internet. Can you imagine cable operators not paying a dime for content over their platform from Hollywood studios while charging a monthly subscription fee to access Hollywood content?

Now you may argue that the two are completely different and that there can be absolutely no comparison. I would disagree strongly of course. You may also argue that money can be made from advertising & also subscription on the Internet. Google is the poster boy for revenue earnings derived from advertising from this industry. Today any serious investor will tell you that if advertising is what your Internet start-up business model is based on, good luck.

The common theme is production of content, content owners, distribution, access of content, the value of such content to people who desire to continue to access the Internet for such content, and the benefits ISPs derive from this current business model.

It is very hard to gain traffic on a website, and once gained it cost very much to deal with the high traffic with or without a revenue stream. Just look at Facebook which according to Michael Arrington of Techcrunch “The company has earmarked $100 million to buy 50,000 servers this year and next”

Without content the Internet is dead. Thus content owners need to find a way to solve this problem along with advertisers as the current model was obviously engineered to serve only one type of Internet business model.

Having stated this, just how much is your website really valued? What role in traffic does it play in your city or town? Could you be owner of a rock star website and not be cashing in on its power and value? What if majority of all websites remove their domain names from Google search engine? What would Google be valued now?

What if Google, Yahoo, Bing, Facebook, Twitter, Myspace the NY Times, and all major web properties were to band together and charge the ISP industry? Would they be a better economic position then? Would it be legal? Would it be justified? Would be anti capitalism and anti free market?

Such a move in its purest form most likely would never take place in the states. Web content property owners simply would be told that they can charge for their content and or compete for ad dollars as ISPs are simply providing a service to access the WWW. But what if there are no meaningful content to prompt a person to obtain Internet access in the first place? Thus back to square one and my point. What about the role of the ISPs? Now do not get me wrong, money is made in advertising & pay to access website and a lot of it too. But the point is looking at it from the content owner’s perspective.

Think about it. You are at home no Internet, you hear your friends talk about Twitter, Facebook, and the latest news from NYTimes.com. You see it on Opera, CNN, almost everywhere you hear bout these cool Internet websites. The thought occurs to you, “I need to get Internet, but not just any Internet but Broadband Internet access. I want to be apart of this cool social web revolution”. The ISPs could argue, without my platform there can be no buzz, no hype, no way to enjoy these cool websites thus one exist for the other. As such I would argue the financial rewards cannot be in one direction either.

But what if the major web property owners were to make it in such a way that they can choose which ISP is allowed to access their content? Would this not change the balance of the equation? Thus a website averaging 100 million repeat visitors per month in the USA market charging the ISP US$0.10 per ISP subscriber per month would see 100,000,000 x US$0.10 = US$10,000,000 per month = US$120 million per year in revenue. Of course any company obtaining such numbers in respect to repeat visitors would most likely charge more than US$0.10 per ISP subscriber.

At some point there would be a limit as to how many sites would qualify and a limit as to how much an ISP would be willing to give up in order to maintain market share.

This of course would depend on if such markets allow consumers the option of ISPs without a drop in service or a significant increase in price. Having said that, the ISPs could pretty much pass on this cost unto the consumer and still not miss a beat in revenue. The ISPs could create a package in addition to their basic package where the new or existing customer could choose to sign up at an additional cost the website of their choice. The latter would see the ISPs still benefiting most from such a outcome, but would be an alternative solution none the less. Such a deal would be signed only with the best content providers. Public spaces, schools, would most likely not bee included such a scenario. Could it work?

Charging ISPs in my view is the best possible method and not where the ISPs passes the cost unto the consumer. This would be a win-win situation for major content owners & players in the Internet industry.

From a content owner’s perspective, especially in a small market such as Jamaica where the content market leaders have excellent customer base and traction, such a model would be excellent. A full market research by the major stakeholders would be required in determining if such an idea & possibility is worth it.

I can see it now, “The Hollywood Studios of The Internet”.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s