March 21, 2009 – 9:10 pm
There are a lot of people who are attracted to the Internet as a good start-up oppurtunity for a number of reasons - It has relatively low barriers to entry, setting up a basic site does not take a lot of money, it’s an exciting newish medium to be part of, and there are lot’s of big brands that are online businesses, which attract many people.
Because of some of these reasons, there is a tendency to think that starting and running a successful internet business is relatively “easy” - However, there is no free lunch out there - Starting an internet business has as many challenges, if not more, compared to a regular offline business. The reason is that setting up a website is only the first step, even getting (or buying) traffic is relatively accesible - however, converting the traffic into rupees takes a lot of innovation and trial and error. Also, because of the low barriers to entry, there tends to be a lot more competition, hence it becomes harder to differentiate yourself. There is a big learning curve in this industry, even after years, we still learn new things every day, and gaining that knowledge gives us a real advantage more and more as we go along. Now, if you’re an early mover in a new concept which solves a real need, you have a great shot to build a good business, if you execute well - But chances are, going in, you will have no idea how to generate the all important revenue to build a successful company. Hence, you’re going to have to experiment with multiple revenue models, some of which will be very successful, and some will fall flat, and most would not be viable. This is also a reason, Internet start-ups can lose a lot of money in the beginning.
There are very few pure play highly successful internet businesses in India - Most of the big ones tend to be a mix of online and offline - The offline component is usually sales, where there is a physical transaction. Hence, running a purely online “clean” business may not always be possible - at some point, the business would have to get it’s hand dirty and go “offline”
So what are some of the revenue models out there online? All models can be broken down into four -
- Advertising
- Lead Generation
- Subscription
- E-Commerce
That’s it! If you look at any site out there which is serious about making revenue, the revenue would come from one of the above - Examples,
Advertising - This is what most people assume to be the primary business model online - Truth is that unless a site generates 15,000 or more people traffic every day, it is very hard to generate sizable revenue from Advertising. Also, you have to factor in the cost of generating the traffic (overall) - The stickier your site, the lower this would be - The more organic traffic you get through search engines, the lower this would be. Unlike offline print or television advertising, there is no premium or fixed rate for advertising online - Since all advertising is measurable online (such as clicks, impressions, lead generated as a result), the rates tend to be very close to the value derived from it by an advertiser, making it hard to make a lot of money from advertising unless you get tons of traffic at little or no cost.
Lead Generation - Lead Generation online works - The Online medium is the perfect way to generate interests in a product or a service - And usually you can generate these leads at a cost that would deliver a good ROI for you. Most Advertising online tends to be related to Lead Generation. Most online sites are about lead generation, a matrimonial site generates leads for people who post their profiles online - a job site generates leads for a person who is applying for a job, and for companies looking to hire for a particular profile - an auto site generates leads of people looking at purchasing a new or a used car - a real estate portal generates leads for properties or builders - even a content site monetizing through advertising is ultimately generating leads for their advertisers.
There are two ways to look at leads from a publisher point of view - you can either sell these leads to someone who derives value from them - But here the model is not in your control, they could stop buying leads any time - Usually, if the volumes and need for such leads is large, then ultimately things work out to be stable in terms of revenue flow. The other way to try and convert these leads yourself, which usually means learning a completely new kind of business (if at all possible), but this tends to be more stable and in your direct control (i.e. you are not dependent on others for your revnue)
Subscription - Matrimonial sites are a good example of this (and another very successful genre which i will let you guess) - Usually works when there is a very high and instant need for the subscription service being offered - In the case of Matrimonial, it is usually an instant need to connect with someone that you like the basics of. This is a good model to be in, however, you need to identify a very strong need here since people are not willing to pay for content online, unless it is highly differentiated, since similar content is offered for free by someone else online. Also, subscription works if there is no real free version of the same model, at the same quality of service.
E-Commerce - We have all heard of Amazon.com, Ebay.com, and other online shopping portals. How many have you heard of / use in India? Chances are maybe 1 or 2, if at all. E-Commerce has not taken off in India, except in the field of travel - However, in the case of travel you are not purchasing a physical good - and travel online works because if you need to travel, you need to travel - booking is easy, you get your ticket instantaneously, you don’t have to talk to anyone, and you can easily and effectively compare rates from different airlines. There are various theories of why people don’t like to purchase goods online, and how this would shape up in the futurue - For now, I would be very cautious entering this area in a big way.
Posted in Advertising, Business, Content, Internet | 2 Comments »
