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Business Model 2.0?

Peter Rip, Managing Director of Leapfrog Ventures, has been writing pretty extensively about Web 2.0 on his blog, Early Stage VC.  One of the best posts, in my opinion, is Web 2.0 Needs Business Model 2.0. The big question is how do you monetize a mashup? He expertly dissects the problems with micropayments, shared value models, and new revenue networks.

Peter writes:

But there is a problem and both Google and Yahoo know it. Both restrict the use of their APIs to a small number of uses per day and strictly for non-commercial purposes. That is because the value driver is no longer the human action, at least not directly. Seeing crime rates for Chicago homes on a map in interesting, but if I am considering buying a home in Chicago, I want a map that shows homes below a crime threshold, below an affordability threshold, and with high scoring elementary schools, and less than 30 minutes from my office. That’s no longer a cute mashup of two sites. That’s an application using chicagocrime.org, realtor.com, and Illinois schools’ report cards. One action and multiple participants, some of whom I will never visit directly. The Web 1.0 business model doesn’t work in Web 2.0.

At the end of the day, mashups (really, experiments in data combination) become products owned by the companies which own the data.  If the data truly is the platform (as Tim O’Reilly contends), then the lions share of the profits ought to go to the platform owner.  In his example, the company owning the MLS listing is likely to pull publicly available data on crime, and schools, and combine that with a proprietary database.   All the value goes to the listing service.

I think that’s what Peter is saying when he writes:

My personal bet is that the YHOO, GOOG, and now ASKJ ad networks will solve this problem by bundling (1) contracts to police gaming and (2) payment settlement systems to enable the shared value model. If so, they will initially ‘host’ the mashups and extract the lion’s share of the value for aggregating the users and enabling the settlement. They will eventually syndicate this model to mashups all over the web, using the same settlement network model.

The problem with mashups is not how to share value, but rather determining which is the proprietary driver of value creation, and how to safeguard that value.

{ 5 comments… add one }

  • Frank Miller October 19, 2005, 9:09 am

    Just curious. Most people mash against Google Maps. However, based on this logic, its actually the the atlas and satellite imagery database provider that should garner all the revenue, not Google. It seems to me that they are actually the equivalent of the MLS database in this example.

  • Alec October 20, 2005, 2:00 am

    Good observation. It’s Google that is providing the public interface to the maps, though. What’s unknown is how much Google has to pay for those maps.

  • Frank Miller October 20, 2005, 9:36 am

    Wouldn’t it be great if we knew not only how much Google paid their database providers but also how much actual development cost was associated with the Google Maps software for both the front-end AND the backend server stuff? My suspicion is that it was quite a bit of real NRE, not to mention that it leverages the gigantic Google server infrastructure that was also available to the Maps developers after billions of dollars of investment.

  • Alec October 20, 2005, 2:18 pm

    Sure would. One of the lessons that O’Reilly had in his Web 2.0 piece was that you can be a value adder on top of the original data. He cites Amazon’s ASIN number, but the same thing could be true here as well. Collating the data is one valuable activity, but the other, as you point out, is providing access.

  • Vijay October 21, 2005, 3:05 am

    I was reading the transcript of a presentation given by Guy Kawasaki titled “The Art of the Start” (which is also the title of a book of his) the other day and he mentions that every successful business model that can be thought of already has been thought of and there is not much left. To quote from the transcript available at Brendon Wilson’s blog of the presentation (www.brendonwilson.com) “By the year 2004, pretty much all business models have been figured out.” I just find that statement absurd. It is my belief that as technology progresses, the value of services and things change. There might be a day when people will be willing to trade something (other than money) for something they want – just as Google uses their wifi network to do location based advertisement (but that’s just something we can relate to at the present. Who knows what will come up next) As they say, it’s all in the implementation and it’s without argument that there are a thousand ways to do something. I thought it is relevant to the topic of a new business model.

    It’s still a good read. You can find the entire transcript at: http://www.brendonwilson.com/projects/the-art-of-the-start/the-art-of-starting/

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