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.
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.