One of the key ways to destroy a business is to change the revenue model for a business as it gains popularity. Although most Internet businesses are launched with no revenue model in mind, I think this is a huge mistake. Twitter is a great example of this – they have gained huge popularity, yet they have no revenue model in mind, and I have heard their CEO talk about the current lack of need for this. They have the funding to develop a revenue model as they move forward, but few start-up businesses have this luxury.
I mentioned earlier how Friendster adopted a fee-based system that alienated most of their members. The key failure here is that their revenue model changed their business model. Members were getting services for free and then this changed. They could have easily adopted a revenue model that didn’t change their business model, by incorporating ad sales as their revenue model instead. MySpace did this with great success – they too had no revenue model until Rupert Murdoch joined them in 2005 and found a very effective way to add a revenue model without affecting the existing business model.
Craigslist.org is a very well known free classified advertising site that has built a huge following over the last ten years. In 2009, they changed their business model where people now have to pay for job ads. Even though their traffic has continued to grow, the effectiveness of their advertising has significantly decreased. A potentially related side effect is that the site is known for its use around the world for housing prostitution solicitations, and this is hurting their brand and making it less attractive for companies that might normally run job ads on the site.
As of this writing, the company has less than 30 employees selling job ads on the site. Craigslist could have focused on a few high-end advertisers and large sales instead of the low-end job advertisers that represent very small sales amounts (less than $100 per ad) and a large amount of advertisers. Logistically, this would have been a much simpler revenue model to implement with 30 people and it wouldn’t have changed the business model.
FaceBook is having the same type of problem in that they are going for large amounts of low-end sales – small sales amounts to large numbers of people. This is a fairly recent development and they could have taken a lesson from MySpace, which went for the high-priced sales from a small number of advertisers. Although FaceBook didn’t affect its business model with its newly adopted revenue model, which is a good thing, it has fallen way behind in developing a very lucrative business.
From Teo's book:
Social Media Marketing and Syndication
The Evolution of Advertising
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Last Updated Jul 4, 2010
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