A recent project has directed my focus to Internet startups for the last couple of months. As a part of this, I have been looking into what business models that may be successful in the current online environment. What this has shown me is that the two major problems facing online businesses are distribution and revenue models.
In the late 90’s, everything suddenly went online. You could buy anything from pet food to virtual currencies online. The Internet was the Next Big Thing. Then things cooled down and many businesses ran out of money.
The dot-com bubble did however not kill Internet businesses. Today, 91% of Swedes between the ages of 16 and 75 use the Internet. This makes for a huge potential, but still there are no miraculous success stories, as envisioned by the pioneers in the 90’s. Why is that?
First of all, just because everyone can reach you on the Internet doesn’t mean that you can reach them. The promised convenience of online shopping is severely inhibited by poorly designed distribution systems. This is in some ways mitigated through the digitalization of goods (i.e. making CDs into MP3 files).
Digitalization does not come without downsides though. All of a sudden, customers realize that the companies have no (or at least considerably smaller) costs for producing and distributing products. Therefore, they require a cheaper price (read: free). For a case in point, take a look at the struggling news paper industry.
In the end, what has become clear to me is that going into the online world requires a lot of creativity coupled with an understanding of what people are willing to pay for. Important to note is what Ted Valentin pointed out: you have to be able to explain your idea in 5 seconds to the user, otherwise she will have found something more interesting.
Do you have a business model that is independent of ads?