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“Got kitesurfing on the mind, mixed with some search & classification tech, and a dab of political ranting”

Perspectives and business models for Entrepreneurs

Posted by direwolff on January 18, 2006

Lately I have been spending a lot of time on the matter of perspectives and how they influence our thinking.  But more importantly perspectives also drive behavior.  Business process re-engineering consultants when considering ways of changing employees’ behavior know to consider how employees view the situation, otherwise said, “tell me how you’ll measure me and I’ll tell you how I’ll act”.

In that vein, I want to give an example of the impact of perspectives on business models.  I also want to end by suggesting that fee-based business models are far from dead on the Net, it’s just a matter of perspective.

Let’s consider a market that as of late has been fairly well understood and concentrate on two of its participants.  Blogging applications.  Today, one of the dominant players in providing end-users with blogs is Six Apart.  They offer three products, two of which were developed in-house, Movable-Type & Typepad, and the third came through a recent acquisition, LiveJournal.  Movable-Type is a software application which one installs on their own server and generally used by a more sophisticated user needing to better control their environment.  Typepad is a hosted solution, but with a number of very elegant capabilities which tends to be choice for those sophisticated bloggers interested in a high quality product but don’t want to deal with the hassle of managing a server.  Finally, LiveJournal comes in as a slightly lower-end hosted offering starting for free, but with an upsell option to paid accounts with enhanced features and capabilities.  It’s the perfect starter platform from which to grow into a more sophisticated environment as the blogger gets more comfortable that this is a worthwhile activity.  Some people never grow out of the free the service, but that’s OK too.  It also has some very nice family friendly privacy controls for who can view and access the blog content.

So what we see in Six Apart is a tools company.  They have focused on providing a quality product for content producers and are willing to lay out a clear value proposition that they believe people should pay for.  Even their lower end LiveJournal starter platform on the free side, is merely the hook to get people upgrading to their fee-based versions of this product.

Now let’s contrast this with Google and their Blogger product.  Blogger, like LiveJournal provides a free service that enables the lower end of the market to enter the blogging activity with little to no barriers.  It’s feature set is rich, but falls significantly short of those from Six Apart’s products.  However, for the masses that want to experiment or perhaps remain at an amateur level sharing primarily with their friends and family, their product is adequate.  As most of us understand today, Google is a media company, and their business model is derived from advertising.  Hence, for Google, Blogger presents yet another fertile environment on which to place advertisements.  They have been savvy enough to position this as a shared revenue proposition with those blogging, but the fact remains that the business model here is advertising.  The object of their game is to get as many people up and running and creating blogs on which they can place ads.

Does Google have to compete on the rich feature set needed for A-list (or even B & C-list) bloggers?  Not likely as it’s not catering to them.  Actually, Google is catering to a user that would not likely have ever paid to access a blogging platform because they weren’t making a business of it.  They’re catering to the masses and there’s nothing wrong with that.  However, the reasons for the value proposition differences between their platform and Six Apart’s also become clear.

Of course, in Google’s model it was easy for splogs (spam blogs) to find a home especially since it was in Google’s interest to have these emerge (more blogs with more ads).  It’s also easy not to find many must read blogs using that platform.  Whereas no self respecting A-list blogger would be caught dead using Blogger because it doesn’t meet their needs.

So where does that leave us?  Back to the idea of perspectives.  In other words, when evaluating Six Apart’s blogging offerings versus those of Google’s one has to consider that given their differing revenue models and the incentives and features are driven from these perspectives the two will head in very different directions.

Now from the perspective of a prospective customer, more specifically a dedicated blogger, artist, merchant, or professional content provider of any sort, Six Apart would have to be the primary choice even at the low-end.  Because regardless of the current feature set both companies offer, you would know that Six Apart is focused on providing high quality tools for content producers given this is the core of their proposition.  Google, would be more of a neat-o service for messing around or getting a few friends to share stuff, kinda like MySpace.  To quote the co-founder of Pyra Labs who developed Blogger who more recently co-founderd Odeo, Evan Williams, at a recent presentation, “it’s really the difference between the “Long Tail” of content (professional content providers) and “Personal Expression and Communication” (people sharing w/friends and family)”.  This is dead on what’s happening on MySpace as well.

What I like about the Six Apart perspective and corresponding business model is that they’ve shown that in a world where every one wants it free, and if asked will tell you they wouldn’t pay for it, providing a quality product that truly serves a need and solves somebody’s problem, can garner a fee.  All of the Six Apart customers I’ve spoken to, whether it be Movable-Type, Typepad or LiveJournal users, have all said they were very satisfied with the services they were receiving.  Can’t say the same for all Blogger customers.  This also means that Six Apart is not affected by cyclical trends or advertising industry recessions since they garner a stable monthly fee.  Even if their revenues were to stop growing, unless attrition out-paces growth, they’re not ever likely to receed.  Can’t say the same thing for Blogger (good thing they’re part of Google).

So for all you entrepreneurs out there exploring businesses in user-generated content, keep in mind that in applying perspectives, understand that the advertising model isn’t the only one out there…it’s just the one if you don’t think you have an offering valuable enough that any one would pay for it.  It may also be a good model if you have some magic formula for generating tens of millions of page views because at eCPM (effective cost per thousand) rates floating in the sub-$1 range off of AdSense you’ll need over one billion page views to generate $1M…yikes.  Note also, that when people don’t pay for it, the quality of the content can suffer and the advertising dollars are of commensurate low quality. Don’t forget, you can always introduce an advertising model to a highly valued product, but its not as easy to introduce fee service to a low valued product.

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