What is the business model for the next internet revolution? In this article, I review web monetization issues, especially that of web 2.0. I propose a monetization solution where any site with users, commercial items, and even visitors, can significantly increase its revenue and reduce marketing and advertising expenses. Our affinity targeting system monetizes itself in the process.
Traditionally, business models for web applications, communities, blogs, etc. are an afterthought. Apps and networking sites dream of reaching critical mass and then selling to Google, Microsoft, Yahoo, etc. Thus the revenue model is actually an exit strategy. This dream has been fueled by the observation that the purchase price for such sites is related to reach ("eyeballs", size of the audience). This is reminiscent of Metcalfe's Law. A more thorough analysis of the market value of social networks was recently posted in TechCrunch, by Michael Arrington.
A very few fortunate web startup founders do not need to consider a business model beyond their big exit, even in the current economic climate. The new owners, however, will be forced to monetize their sexy new purchase. For the vast majority of web startup founders the business model will be important and is often considered and tested from the very start.
The default monetization method is advertising, preferred by 58% of web startups (this figure includes affiliate marketing) according to Bizak. Of the strictly advertising sites, Google's AdSense is adopted by 54%. I imagine this number is higher for web 2.0 social sites. Nonetheless, AdSense earnings per visitor (EPV) are the lowest among the various monetization methods. As an example, Tom OKeefe writes about Mahalo's poor Google AdSense earnings, and Allen Stern predicts that affiliate revenue could surpass Google AdSense revenue for Mahalo in the long-term. Decrying AdSense as "worthless", Tom OKeefe asks "What's Next?".
Many of the hugely popular sites are struggling to better monetize. YouTube, for example, is struggling to justify its $1.65 billion purchase price. Also, Facebook faces a rough road ahead, with "only" $150 million in ad sales in 2007 and projections of $265 million in 2008, and Aidan Henry proposes solutions to the "perennial debate surrounding Twitter's revenue model", and the CEO of Mahalo, Jason Calacanis, even chimes in with his own Twitter business model suggestions.
This struggle may no longer be necessary. Our novel Affinity Targeting technology allows a user to be targeted to entities they are most likely to appreciate, in any domain of life. On-line communities and sites with users can increase their earnings by adding both their site and users into our system. Those users are then targeted to entities of interest (products, services, media, jobs, sites, other users, etc.). Targeting, leading to a commercial transaction, will result in affiliate revenue, part of which is shared with the originating site of the purchasing user. According to Bizak.com, affiliate earnings per visitor are 16 times greater than AdSense earnings. An affiliate model with highly specific user targeting should increase such earnings significantly.
The benefits don't end at monetizing eyeballs; sites and sellers can precisely target users to themselves and their items, thereby increasing sales and reducing costs. Communities, groups and fan clubs all seek to attract enthusiastic members. In our system, users will be targeted to the communities they are most likely to appreciate, leading to increased membership and customers. Also, sellers and providers benefit by precise targeting of users to products and services they are most likely to purchase. This will increase sales, and reduce dependence on marketing, advertising, SEO, etc. All sellers and providers are required to do is profile their products, services, jobs, etc. for the system (in the unique way we need the info) and agree to our affiliate model. There are no other costs to them.
The figure above (click to enlarge) depicts a solution to several critical needs: internet sites and sellers must increase their revenue, reduce expenses, and attract the most ideal new users or members. In our solution, sites and sellers add their existing users (no private information is required) and/or items into the system. Users are then targeted (via the targeting engine) to three different kinds of entities (circles): other users (if they are so inclined), groups (sellers, sites, communities, etc.), and items (products, services, media, jobs, etc.). When a user is targeted to a commercial item and makes a purchase, the seller provides an affiliate fee to the system, part of which is shared with the group that brought the user to the system. Also, if a group added an affiliate item into the system that they are not directly selling (for example, an Amazon.com book), part of any affiliate fee earned from that item is shared with that group. Follow the green arrows to see the flow of money. Note that sites and sellers may contribute users and/or items, and users and/or items may be entered independently of a site or seller.
Our plan is to grow the system organically by bootstrapping it on FaceBook and OpenSocial. We will do this in a way where critical mass never becomes a significant issue. At a certain point the affinity matrix of objects will be large enough to attract sites, communities, sellers and providers. At that point, we will offer our own API, customizable web interface, or client software, such that a site and its users can interact with the system the way the site sees fit. In the beginning we will use existing affiliate and payment processors, but eventually this will likely be done with our own systems. Our affinity engine and business model represents the ideal win-win solution for sites, sellers and users: better targeting, discovery, user satisfaction, monetization, reduced expenditures, etc. Ultimately, we see this targeting system attracting a significant fraction of on-line sites, communities and commercial entities.