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Monetizing the Net:Creating Profits throughAnything but Advertising!

Eric K. Clemonsclemons@wharton.upenn.edu

Information Strategy & EconomicsThe Wharton School

17 June 2008Eric K. Clemons © June 2008

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ContextWhy must all content be free?Why must all revenue from the ‘net bebased on advertising?

“Planet of the Advertisers”And the extinction of the Irish Red Elk

The search for alternative revenuemodelsAnd the challenges this will pose tostrategy, management, and systems

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ContextAll this hype:

Will we still need advertising?Will social networks replace email?Will social networks replace our stores? Oursales and service agents? Our markets orexchanges or EDI or ... ?Will social networks replace our lives ... as inThe Matrix Reloaded?Should we be in the web business instead ofwhat we do now? Will everything be virtual?Or is all of this just silly?

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Overview — what?Trying to force-fit the new into the oldOld Media:

BroadcastBundled — free content, subsidized byadvertisingMonopoly / captive audience

In contrast, ‘Net as a milieu, not a mediumA medieval fair, not a movie theaterParticipatoryVoluntary, and easy to exit

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Overview — and why?Old media’s need to replacetraditional advertisingGrabbing on to the netMaking the obvious mistakesAnd yet ... real possibilities,and not so real possibilities,exist

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Advertising and the NetSurely not a marriagemade in heaven

Traditional medialosing their viewersTraditionaladvertising losing itscloutP&G neededsomethingNews Corp neededanything

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Advertising and the NetMore like ashotgun wedding

Traditional mediaowners startingbuying into webtechnologiesAnd traditionaladvertisers lookedfor something …anything … thatmight work

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Sources of Value from NetNumerous possible sources of valuePerhaps these can be monetized?(1) Learning about preferences, individual or

emerging societal preferences(2) Actually selling actual stuff(3) Actually selling virtual stuff(4) Revenues from content, games and

experiences(5) Selling referrals from social network friends(6) Selling referrals from snooping(7) Selling referrals to mobile users

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(1) Value from ObservingPossibility One: Information about thingsfrom watching what we do on the net

Appearance represents choice andrepresents investment of time, money, or bothTherefore chosen appearance informs us

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(1) Pretty TraditionalBut what are we learning that teaches about meatspace?From traditional to perfect, they paid to look this way!What surprises do we have here?

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(1) What have we learned?All other things being equal, in virtual worlds:

Large secondary sexual cues get attentionPerfect bodily symmetry gets attentionPerfect skin and perfect teeth get attentionHot tubbing and sailing confer statusCasual sex is a good way to pass timeWhen nothing else works, add wings and animalears, symmetrical of courseAnd if that does not help, take off your clothes,expose your large secondary sexual cues

And this is somehow new or useful?

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(1) What have we learned?Mini-disclaimer

I’m actually using YouTube toassess emerging trends in viewerpreferencesWe may all need to start payingmore attention

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(2) Value from Selling?Possibility 2 —Everybody knows we cansell actual stuff online

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(2) Value from Selling?Possibility 2 —

Everybody knows we can sellactual stuff onlineAnd it works especially wellfor long tail itemsSo ... in case you need towind two self-winding watcheswhile you wear your third... or you need to wind yourmechanical watch by machinewhen you’re wearing boththose automatics ...But no surprises ...

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(2) Value from Selling?Can we sell actual stuff in a virtualstore? Why even ask the question?

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(3) Value from Selling?Can we sell virtual stuff ina virtual store?

Virtual clothes for avatars?Colored virtual bubblesinstead of Coke?But this is not big business!

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(4) Value from theVirtual Experience

Possibility 4 — direct revenues from the gameitself (without the virtual store?)

This can be a meet place outside meat space!Hot party … and they are actually dancing together!

Subscriptions, rent and real estate sales, add-ons

Finding photos got almost voyeuristically addictive

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(4) Value from theVirtual Experience

Can you charge for content orrelationships?

New York Times, Wall Street JournalNeed for new revenue models!

Jaron Lanier“Pay me for my content”And death threats

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(5) Referrals and Value fromSocial Content

Social content can have great valuePiggybacking referrals

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(5) Referrals and Value fromSocial Content

Some companieshave found a way tomonetize this

But tripadvisorhad a uniquerelationshipwith hotels.com

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(5) Referrals and Value fromSocial Content

Most attempts tomonetizereferrals havebeen a disaster

Invasions ofprivacySpamAnd we are nolonger captiveviewers

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(5) Referrals and Value fromSocial Content

This will be done correctly eventuallySocial Search — Search engine inconjunction with a social network

Where do my friends like to stay inChicago, or like to eat in Montreal?Not invasions of privacy — friends,not a friendNot spam — when I ask for it, notwhen advertiser wants to pay for it

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(6) Referrals and Value fromSnooping?

Google ads stuck into Google mailBased on the content of the emailBased on the content of the attachment

How will that look in the future?How will that look to an employerHow naïve can you look?

“Hire me and our attachments will bescanned by Google”“Yeah, that sounds creepy, but at leastit’s free”

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(7) Referrals and Value fromMobile Networking?

The Great Unknown of mobilecomputing

Are mobile network ads the most expensiveform of spam?Are mobile ads the only ads we’ll ever reallywant?You’re in New York and Clark Terry is not soldout at the Blue Note tonight at 8! ... Great!Mido in Ardmore has a sale all week on stinkytofu and preserved durian ... Not so much ...

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(7) Referrals and Value fromMobile Networking?

The Big Three of MobileComputing

Relevant — I care, becauseof who I am and where I amTime sensitive — I care nowActionable — I can dosomething with this now

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(7) Referrals and Value fromMobile Networking?

The Great Generational Divide:“I get and answer 30 emails on Saturday night from theguys, even while dating”

vs.“The only thing I wanted to hear on a Saturday night wasnot from the guys...”“I forwarded like 90 text messages when Heath Ledgerdied”

vs.“Forwarded text is spam”“Like, Cone Day at Ben & Jerry. I texted all my friends”

vs.“Forwarded commercial text is worse than spam”

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ConclusionsAll that great new technology

It would be a pity to pretend it’s no more thana new way to deliver television, newspapers,or one-to-one messagesOr to think it’s just about ads

It is going to enable online communitiesVoluntary, participatoryAnd with all the behavioral norms of acommunity

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ConclusionsWatch for ...

Monetizing the experienceMonetizing community contentMonetizing social searchMobile adsAugmented reality

Beware of investments in ...Invasion of privacy, tailored spamAnd the monetization of snooping in general

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ConclusionsBuild for observing ...

Online behavioral trendsOnline reviewsBehavior that correlates with reviewsRelationship between reviews andrevenues

Beware of...Managing the content instead ofmanaging the customers’ experience