The Economist – Internet

Most internet businesses I have seen think they are going to make money by selling advertising.  I’m not the only person who finds that disheartening.  It’s no wonder that financial journalists decry ever more iterations of investment bubbles into websites that will, in theory, make money.  Twitter has no customers and Facebook’s customers are advertisers, not you and me and all of the other time-wasting browsers.

The audio story above talks about some goods that are actually consumed on the Internet.  Here’s what the more down-to-earth non-American web companies are investing in:

  1. Gambling
  2. Games
  3. Porno
  4. Anything else?

Yet my American internet usage is dominated by Twitter, Facebook, Google, and now Tumblr and Reddit.  It’s a frothy world and very hard to understand — and very hard to predict what will get you rich.

Maybe the Internet isn’t so different than other media after all, though.  Malcolm Gladwell writes Blink and makes a fine dollar, but then he does speaking engagements and mints money.  Nobody knew before that they desperately needed a consultant who could tell them how to improve their snap judgments, but he convinced heads of corporations it would be worth paying him tens of thousands per hour to multiply the bottom line.

I guess there are really lots of situations where one product promotes another, like a loss leader that must be maintained but either loses money outright (like Gladwell maybe lost his time outright while writing his first book) or makes less than it “could”.

Now, one last tangential thought.  If I came into a new business with my MBA and my econometric tools and did a regression on the loss leader, I might find that the item should be cut.  Probably everybody knows not to do that — but there is a more general sense in which the whole is greater than the sum of the parts.  I have been cogitating on how models with no single variables — only interaction terms — might be used in more situations.  And that must wait for another time.

UPDATE: James Grahn and Troy Alexander pointed out more online businesses where customers can be convinced to pay:

  1. Storefronts (Amazon, Buy.com, iTunes, Steam, Impulse) —JG
  2. Server businesses:  hosting, registrars, mail (GoDaddy, BlueHost, Tucows / OpenSRS, Domai.nr) — JG
  3. Cloud computing — JG
  4. Netflix’s Watch Instantly — JG
  5. Dating (eHarmony, Gay.com, Chemistry.com) — TSA
  6. Craigslist — TSA
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