I was going to discuss some thoughts on Web 2.0 profitability, and I think some readers on this blog will be familiar with my disdain for “get the eyeballs, revenues will come” mindset (have been hurt once on that!). Am beginning to hear more and more of that again… Some entrepreneurs point to Adsense as the default business model, but thats probably not enough — do the math, the numbers are too small.

So what could be the model? One that I am beginning to develop some conviction for is towards experiences so far in monetizing high affinity communities. In an offline model, we already have experience in monetizing a Harley Davidson club, or Rotary, and so on. Some thoughts basis that:

1) The key to these communities is not the size (the key to “enabling technologies”, such as tagging, will be size), but sharpness.
2) Once you have sharpely focussed communities, what you sell on top of them has to be much higher value than adwords. Amazon’s expected “Productsense” model could be one, as also the ability to “click-to-talk” enabled by VoIP providers. Affinity driven products and services would be the key, and relevance will need to move far beyond adsense.
3) Think of this — if you had a community of Harley fans online, what would you sell to them? and how can you now take that example, and generalize the technology? I think seeds of those enabling technologies are beginning to emerge today.
4) Due to high concentration of value, the enabling businesses will not all be automated — especially, the part where “relevance” gets captured (the hosting part may be automated, as a contrast). Tagging is an example.
5) I still think there will be a mix of “interest-centric” and “user-centric” communities, and hence the ability to “follow a user” across interests could be another possibility — this is same as trying to derive user profile from content being browsed. The current intent-based-paradigm will get far sharper, and/or evolve into user-based-paradigm.
6) High affinity should imply lower customer acquisition costs, though that by itself might not be an exit driver.

So the problem to be solved is
a) What creates high affinity communities on the web (I do not think the early experiments in Web 2.0, such as myspace, are the answer)
b) How does one maximize value per member with sharpely focussed communities

I dont know whether I am catching up here, or crystal gazing 🙂 so any comments are welcome!

Alok

Alok Mittal

Alok is a first generation entrepreneur, now in the venture capital business. Alok heads up venture operations for Canaan Partners in India, with focus on internet, technology and BPO space. Alok is also a founding member of Indian Angel Network - an organization comprising successful entrepreneurs looking to invest in seed stage businesses. Prior to this, Alok cofounded JobsAhead.com, a leading job portal which was acquired by Monster.com. Alok is an active charter member of TiE Delhi. Alok is a computer science graduate from IIT Delhi and, postgraduate from UC, Berkeley.

The views expressed on this site are personal views of Alok, and do not constitute an offical opinion of any company or organization.

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