Who Needs A Product
April 10, 2008 – 1:44 pm
It’s hard to find a company these days that’s in it for the product. It’s seems like online start-ups are the equivalent of commodities on an exchange; except instead of selling coffee, entrepreneurs are selling people, ideas, and very little of value. I can’t tell you how many companies I’ve met with that have great ideas but end of half baking them in pursuit of the almighty dollar. The web is saturated with organizations that seem to have a lot of potential but end up producing solutions that are short changed in exchange for having something that’s sellable to Google, Microsoft or Yahoo!.
There has to be a change on the horizon. It happened in 2000, and it can happen again. I can’t help but think we wouldn’t be in this place if people focused on big ideas; money making ideas that support investing in the product as a goal toward making money. There are plenty of companies that have focused on either a great product at the expense of revenue or on revenue at the expense of product.
Take for example Fox Interactive Media’s earnings announcement last week where they announced that selling ads on the social network is hard. Why? I think it’s obvious: because the product currently has no revenue model. The interface was built in a way to make advertising a difficult concept to implement, the content is not consumed in a fashion similar to other web ad offerings - fundamentally it’s difficult to package for advertisers. So if advertising doesn’t work on MySpace (or Facebook for that matter), what’s left? Who knows, perhaps they could become a data company? They could package/sell the user information to companies that can use it to build a better ad targeting model. Unfortunately because of the philosophy that went into building the site, I can imagine that if users got wind that their data was being sold you’d see a significant backlash/defection. That’s what comes from building products with no revenue model in mind. The product is cool, it is something that attracts users and it seems with the users came the assumption that it’s worth a lot of money, so the founders wait for acquisition so they can cash out before everyone realizes the product is hard to monetize. There’s plenty of examples across the web: Skype -> eBay, Flickr -> Yahoo!, MySpace -> Newscorp, and for you old timers out there Broadcast.com -> Yahoo!.
On the other hand there are the companies who build a product that can be monetized but end up having their value sapped from them because monetizing in a web environment is hard. Lets face it, developing a product in a web environment is difficult. Unlike real world products where you develop the product then produce it en masse under a fixed expense model, the Internet is a medium where the platform you’re building on is constantly changing. It’s like planting grass. You could plant some grass and let it grow wild, but to have the nicest lawn on the block it needs maintenance, it needs to be cut, fertilized and patched. The web has reinvented itself multiple times, and with each reinvention you see new companies come and old companies go. The one’s you see lasting are the ones built on constant innovation, Google, Apple, etc. The ones that don’t last and die a slow death are the companies that are profitable but not innovating their products. Those are the companies that are trying to follow the real world model, the “I just invested $10 million in a product, I’m not investing any more until I double that” companies. What those companies don’t realize is that the web is getting easier every day, the barriers to entry are dropping and most importantly, customers are fickle. When something new and cool comes along, I’m defecting in a heartbeat, particularly if it does what you do but better. This happens more than one could imagine on the B2B side of the business. Take a company like DoubleClick who is very successful and doing their best to try and innovate after years of rebuilding. Meanwhile, innovative products like Yahoo’s AMP product and the OpenX ad server are both platforms that have their sights set clearly on the big players. It happened in the email industry: Yahoo! and MSN had a lock on the market and were doing a tidy little business selling upgraded storage and services around email - then Google showed up. When GMail, an AJAX powered client, was launched with 1Gb of free storage, the model quickly changed and now we see AJAX all over Yahoo! and MSN’s email systems, not to mention free upgraded storage.
What the web needs are companies that come to the table with more than an audience, and more than a monetizable product. We need more innovators, folks who can come up with ideas that sell, ideas that turn their company into the next Google or Microsoft. Don’t be forced into playing catch-up, act like a leader and innovate. Invest in the right product, after all it’s what’s paying the bills.
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Tags: ad server, advertising, ajax, Atlas, business theory, business to business, DoubleClick, eBay, email systems, google, innovation, Microsoft, monetizable product, Newscorp, online business models, online products, online start-ups, real world products, Skype, social network, USD, web ad offerings, web environment, web needs, Yahoo!
