Eric Clemons of Wharton School has a post on TechCrunch on why Advertising on Internet is failing. He highlights three categories of virtual goods
- Selling content and information, from digital music to news and information. Some of these sites are funded by subscriptions, like Gartner Research; some are by direct micropayments for purchases, like iTunes; and some currently attempt to fund themselves through advertising, like Business Week or The New York Times, while still searching for a more effective business model.
- Selling experience and participation in a virtual community, including Second Life and World of Warcraft, Facebook and MySpace, Flickr and YouTube, or LinkedIn. Not all of these have found a way to charge for participation.
- Selling accessories for virtual communities, like completed homes and stores, furnishings, clothing, and pets in Second Life or characters and accessories that would be difficult to earn in World of Warcraft, although this behavior is generally despised by serious World of Warcraft players.
I think he misses a big category of online players who help users aggregate, consolidate and organise their content. Online Applications like Mint.com which helps users organise their bank accounts, Ebay which helps users organise their goods for sale, Salesforce which allows users to manage their sales leads, BaseCamp which allows users to manage their projects, job listing boards like monster, RSS readers, Google Apps etc. and in fact Flicker also has less to do do with participation in a virtual community and more a way to organise my photos with the added advantage of being able to share it.
I think the way the monetisation for these will happen will be by charging users subscription fees for helping them manage their content, there will be a mix of giving away some level of service free and then charging for exceeding a certain threshhold. This companies are usually clubbed as SaaS companies but in reality they could have also gone down the advertising road but they went down the charging a fee road.
As he himself points out that he continues to pay for FT, Economist and Foreign Affairs so obviously there is value in providing intelligent content which people will pay to consume.