Nothing from money: how Web 2.0 is bleeding cash

Originally written for eVent! magazine [ep] on 03/30/06.

When Ricky Gervais, the creator of the English sitcom The Office, started his own podcast it was an immediate hit.  It quickly became the top downloaded podcast ever, and now it even has its own entry in the Guinness Book of World Records.  Its success convinced Gervais that the podcast could be used as a source of income, and after the originally planned twelve episodes he began to charge for new episodes.

Which brings me to the fact that the internet is still a tricky place for figuring out how to make money.  The success of Gervais’ podcast, what amounts to a downloadable radio show, created an incredible expense as the cost of bandwidth grows every time a file is downloaded.  So Gervais decided to start charging, and since his podcast is the most popular, the show has been able to make the switch to a paid version with little trouble.  Most podcasts however are done by amateurs making their own shows in their basement, and though some shows like the Dawn and Drew show might find a large audience, they’ve still not found a way to make money at it.

Which is an internet wide problem that has continued on from the dot-com bubble burst of the 1990s.  Services get popular, get a large user base and suddenly find themselves with extraordinary bandwidth costs and no way at all to make money from what they’re doing.

Take the very popular online photo album service Flickr (www.flickr.com).  The site that was started in Vancouver, built up a large user base by offering free online storage of photographs for users.  Flickr has become the most popular online photo site in the world, and as such attracted the attention of internet giant Yahoo, which bought the company and rolled it into its own large collection of online services. 

It seemed like a scenario that benefited everyone at the time.  Flickr and its founders got a ton of money and their worries about the rapidly increasing bandwidth costs disappeared as Daddy Yahoo was now footing the bill.  Yahoos got an online photo service without having to build it themselves and they got Flickr’s large existing user base.  The trouble is that Yahoo still have not found a way to make money from Flickr and the photo service is leeching cash away from its parent company at a rate that’s starting to concern insiders.

Attempts at monetizing Flickr included a small membership fee for advanced features and a new service that allows you to order physical copies of your digital photographs, even printing them on a t-shirt or coffee mug.  The trouble is that with photo printers so cheap these days most people just print their own copies.  The weekly total for orders into Flickr’s online photo printing service out of millions of users is about 80.

Flickr will survive, because Yahoo makes enough money elsewhere to cover its costs and at this point are still dedicated to finding someway to make money on it.  The trouble is though that the business model for a lot of new internet companies is to build a large user base and then get bought out by Yahoo or its competitor Google.  The fact that both Yahoo and Google are willing to spend such exorbitant amounts of money on online companies that don’t have a way to make money is the only thing that’s keeping this latest internet boom going.

Which is not to say we’re heading for another tech bubble burst per say.  A lot of internet companies do make money, and have become established.  People are now used to buying things online and a more realistic balance has been struck between what people actually want and what is provided.  Retailers have realized that while costumers might buy DVDs or books from Amazon or music from iTunes they’re not looking for new ways to buy groceries yet. 

Success on the internet comes with costs.  Whether it’s a popular half an hour downloadable radio show like Ricky Gervais’ podcast or a photo site like Flickr, while everyone wants listeners and users soon a way to pay for it is going to need to develop.