31 posts tagged “community”
Viral marketing will be the key word for marketing in the Web 2.0 time.
[+]The history of SNS
Last month, AOL's purchasd Bebo, the largest social networking site in Britain, for USD 850 million in cash. That once again highlighted the value of SNS (Social Networking Service). In the United States, Bebo is the No.3 social networking site, behind MySpace and Facebook, with more than 40 million users around the world.
Further back, News Corp acquired MySpace with USD 580 million in 2005; Microsoft paid USD 240 million for merely 1.6% stakes in Facebook. The first deal seems to be too hasty for MySpace and too juicy for News Corp. What, indeed, is the most attractive aspect about SNS to investors?
SNS is really a confusing concept when mentioned together with dating sites, community sites or Blog. Even SNS operators do not view themselves as dating sites, community sites or Blog sites. While those sites have been in place since the Web 1.0 time, or at least the end of that time, SNS focuses on inter-personal relations, and therefore is a mixture of all above.
Finally, it seems that only ambiguous terms such as "personal space" could differentiate SNS from those traditional concepts. In terms of functionality, SNS enables blog, photo album, friends, community (or group) as basic functions. With the intentional guide of the operators, users could visit the blogs and photo albums of others, eventually activating the social networking function.
In terms of social networking behavior, SNS depends on the migration of offline personal relations to online platforms to combine with those of others to build a larger relation network. While using the service primarily to interact with acquaintances, users might meet strangers for deeper communication intentionally or unintentionally, resulting in larger social communities. Hence, interpersonal relations could be maintained by paying attention to the activities of each other.
[+]How to convert page views into revenue
With more than 40 million users around the world, Bebo is worth USD 850 million. In China, the largest social networking sites, e.g., Tecent Q Zone and 51.com, have more than 100 million users, yet none is deemed to be worth that much. What, indeed, is the commercial value of the social networking sites? At the present time, it seems, the value lies primarily in being purchased.
Thanks to the high interactivity among its users, social networking sites have far more page views than conventional portals. What's more, each user would keep an eye on the presence of his/her friends, resulting in a much longer average online time. Many SNS users log onto the site as soon as they get off work/class, and remain connected until they go to sleep. How to convert the addiction into revenue?
There are 3 possible ways: 1) through Internet advertising; 2) by providing users with fee-based value-added services; 3) by offering e-commerce services in the communities and collecting commissions from transactions. In the foreseeable future, any social networking site is expected to reap revenue through all of these 3 approaches. The only difference lies in the revenue proportion because of different primary users of each SNS site
One of the most distinct features of SNS is its distribution by word-of-mouth. An article by a common person on MySpace or Facebook would get widely spread through his friends, or friends of friends. Such effect is what advertisers have been dreaming for, as distribution by word-of-mouth is the most cost-effective approach.
In the Web 1.0 time, however, this kind of viral marketing was only a result of sheer luck, rather than deliberate planning. Without a platform to operate on, most advertisers had to pay for the views of their ads, allowing their budgets to be washed away by the visit traffic of the portals. While the focus of Internet advertising in Web 1.0 time was target advertising, it would be viral advertising enabled by SNS in the Web 2.0 time.
At the 2008 Annual Conference for the New Economy hosted by iResearch, I gave a speech titled "The Key Word for Marketing in Web 2.0: Viral marketing". You can find and watch the video at: http://v.iresearch.cn/data/20080425/79812.shtml
[+]Impacting the traditional Internet advertising model
However, the business model has trouble facing advertisers, who generally accept it as a cost-effective approach. For example, one million clicks at a portal or one million users' interaction at a social networking platform, which one do you prefer? For online advertisers, the answer is the latter. The question is, however, how do you charge them for the one million users' interaction?
Currently, SNS is still not able to compete with portals by means of CPM or CPC. With surprisingly good results but no billing method available for SNS, there has appeared a weird phenomenon of "free interaction for ad exposure or clicks purchased". Unable to generate income from its most valuable part, SNS is not yet ready to compete with portals for users by means of CPC.
For advertisers, word-of-mouth-based distribution is the most cost-effective marketing method, as well as one of the reasons for them to move their budgets from portals to SNS. In addition, there's not yet a unified standard in the industry for billing by results. An event might have one million participants, however the extent of involvement varies substantially. There is not a simple and intuitive measurement like CPM or CPC.
Currently, advertisers are still testing SNS marketing, while SNS operators are exploring new billing methods. Therefore, there's a huge potential. Eventually, it becomes a process of negotiation between sales reps and advertisers, and the final result depends on who is going to convince whom. The criteria for advertising effect in the Web 1.0 time is no longer able to keep up with the market changes, but the Web 2.0 criteria are yet to be developed.
Viral marketing will be the key word for marketing in the Web 2.0 time, as SNS will become a platform enabling word-of-mouth-based distribution among advertisers. Share and recommendation by friends would enable higher market awareness and better marketing effect. What we don't have yet is a set of criteria to measure the marketing result, as CPM and CPC, which derived from traditional media, are obviously out-of-date.
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Prev : Initial Experience of Widget's Profit Model
- Today in History
Glimpse into Profit Model of SNS-based Advertising - 2008/05/11
3G Time Comes (8) Who Are First Users of 3G? - 2003/05/18
A gradual blending of old and new.
[+] Web 2.0 is direct marketing
In the traditional business world, it may not be difficult for start-ups to innovate or produce good products, but it surely takes much more efforts for them to channel products to end-users. Finding a channel may not be very hard, but it would cost you dearly. Capitalist who own channels are tough guys to deal with.
Ten years ago the emergence of the Internet brought some changes for the first time. For Internet start-ups, their products are websites, and their services can reach end users directly. They don't need other channels. This was how the advantage of the capital-intensive newspaper industry, which controlled the distribution channel, gradually dissolved. The Web 1.0 world has taken its place.
This new channel of the Internet has impacted on traditional media, traditional business models and also traditional communications. Generally, in the Web 1.0 era, there are a lot of people with only a small capital starting their businesses. They can do so because they've found a low-cost marketing channel to break the blockade set by traditional capitalists.
Yet after 10 years, some startups, such as Yahoo!, have become new capitalists. They control the distribution channels and suffocate the chances of new Internet startups, which have to buy expensive advertisements from "traditional" channels - Web 1.0 websites - to draw visitors to their websites.
Many years ago in the traditional business world, there was a new channel called direct marketing. It was about bypassing the traditional distribution channel by marketing through social networks. Today with so many tycoons in the Internet, how can we avoid them and do business in a low cost way?
The answer lies in social networks. Web 2.0 startups make ingenious use of social networks or interpersonal relationship to do low-cost marketing. To market through social networks is a very smart strategy. Without this, we won't see significant growth in these new websites' user-base and traffic.
[+] Back to the basics is the key to growth
Many people have the experience of buying products via direct marketing, but they don't have much confidence in it. People who participate in the direct marketing system constantly come and go, making it not very stable. Web 2.0 services attract new users through interpersonal relationship in a similar way. Moreover, a brilliant marketing strategy still cannot solve the inherent problems of products.
The first article of this series talks about two problems of Web 2.0 websites. The first is high user churn rate, and the second is that once users decide to leave, they won't turn to other competitors but will quit all websites/services of similar kind for good.
For a website operator, this has two implications. Firstly, users who leave your competing websites won't go to yours, which means you have to target at first-timers. Think about those users who are still new to the market, and they are the ones your products should be designed for.
Secondly, users will leave sooner or later, so most importantly you should strive to capture heavy users. Only heavy users would migrate among Web 2.0 websites of similar kind or try new websites. An important step for your website to succeed is to seize this group of users.
Once a website can control a certain group of heavy users, it can then start to think about how to either make profits or stay small and survive gracefully, like all successful community websites. However, is there any way to expand the user-base by drawing in less-active users?
My suggestion is, get rid of the strong community atmosphere and cultural ambiance! They are incompatible with things that can meet people's basic needs, such as storage, tools and content.
These things, simply put, are products of Web 1.0.
[+] Next step: storage, tools and content
The founder of Facebook Mark Zuckerbery once said that Facebook is not a social network but a social tool. His words are often interpreted as "Facebook as an operating system or platform," and Facebook's open API implies such possibilities.
His words are impressive because he points out concisely that the key to get big is to serve as a "platform." My understanding of his words is that platforms and tools are things that have little to do with culture. They can be used by anyone and don't require users to change their habits.
You use Gmail to write emails and MSN to send messages very easily. These tools don't have much to do with culture (at least not as much as online community websites.) Operators who have been focused on developing a vibrant online community to retain active users need to think about what are the tools that are not so hot but can be used by all.
Instant messaging (IM), a tool that is highly related to social activities, is one example. For the past ten years, the IM market has been very stable. If a social networking service (SNS) provider with several hundred million users launches a new IM tool, it may have the potential to change the market dynamics.
In addition, people get tired of social activities once in a while. Maybe a user just needs a space to store their photos, documents and bookmarks. S/he doesn't want anyone to know the URL of his/her homepage or to bother her/him with status alerts. Is it possible that a SNS website can provide such functions?
Storage is one of such basic needs. Some active users may be happily busy with various social activities all day long, but there are still more people who need only basic services. What will make a user to keep on visiting a website once s/he gets tired of online social activities? Maybe s/he just needs a space to store pictures.
Active users visit a website because they need the social network there; other users do so simply because this is where they store their stuff.
[+] Web 2.0 evolution is about to complete
The third thing is content. This is easier to understand, and many Web 2.0 websites are doing it. For those who are not keen on social activities, let's give them some content. Using tags to aggregate content is a common method.
So at the end you'll find that Web 2.0 is still about the four pillars of the Internet, which I mentioned years ago: content, community, communication, and commerce.
In Web 1.0, a website operator would start from providing content and then functions of online community, communications and commerce. In Web 2.0, an operator would start from developing communities and then content and communications tools and lastly commerce.
We finally get a clear picture of Web 2.0 in the context of our time. It's about a grand evolution of websites all over the world. The result will not be about replacing old websites with new ones, but a gradual blending of old and new.
Whatever it is in Web x.0, it is all to be used by people. And the humanity of people do not change.
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Prev : Web 2.0 Finale (2) Websites With a Specific Culture Can't Grow Big
- Today in History
Web 2.0 Finale (3) Finally blended in Web 1.0 - 2008/01/06
The Fourth Generation of Internet Marketing (3) IM Marketing - 2007/01/07
The user-base size of a Web 2.0 website is determined by the social class it targets at.
[+] The social class a website targets at determines its size
The take-off of Web 2.0 has drawn in a huge number of startups; however, the prospects no longer look so rosy. Lots of websites are on the verge of closing down and are struggling to survive and make a profit. It becomes more difficult to get funding because venture capital in Asia is losing interest in this business.
The market situation has generally settled. In China, websites with over ten million users can expect to get funding in the third round, but they are also facing the challenge brought by major Web 1.0 websites interested in the Web 2.0 market. For those with only several million users, it's unrealistic to expect fast user growth; operators must strive to make profits.
In Taiwan, the no. 1 portal in the market, Yahoo! Taiwan, is playing a very powerful role, making it difficult to survive and prosper for small Web 2.0 websites in the already cramped market. Yet, at the same time, there are some established online community websites that are successful and making good profits.
Why is it so? I mentioned before that the rationale of Web 2.0 development is based on sociology. As such, the size of a Web 2.0 website's user-base is very much determined by the social (or cultural) class it targets at.
Web 2.0 websites grow along with the expansion of user's social networks. Users bring in other people whom they meet in their daily life, including strangers or acquaintances. As more and more people of the same class gather at the website, it will become more difficult for those who belong to other classes to join.
Once the initial user-base is formed, a website operator would study these users' way thinking and social behaviors more carefully so as to retain and encourage them to bring more new users. This consequently reinforces its focus on a specific cultural ambiance or social class, and the cycle then goes on and on.
[+] The management team's social class determines the size of user-base
To observe the development of a Web 2.0 website, one needs only to look at its initial user-base. Google's social networking service (SNS) website Orkut has got very popular in Brazil unexpectedly and this has made it difficult for users from other countries to join. Look around and you can hardly find anyone using Orkut, even though we are all Google users.
The biggest online community website in Korea, Cyworld, attempts to enter the US market. Its initial target users are white Americans; however, it turns out that the website is more appealing to young Asians. The reason is simple: the design of the website's interface, including functions and the overall feel, is more friendly and attractive to Asian users.
Another example is Friendster, a SNS website, which is very popular among Philippine users. Again, users from countries outside the Philippines would find it not easy to become a part of the community. You can call it cultural barrier. Look closer and you'll find that although transnational Web 2.0 website can reach users all over the world, it is always those who share something in common would flock together.
In China, 51.com, a Web 2.0 website, started from Internet cafes in provincial cities to build its user-base, and now it is struggling to draw in white-collar users in major cities. On the other hand, other Web 2.0 websites also meet difficulties in entering provincial cities. The above cases illustrate the effects of cultural ambiance and social classes in the real world on the user composition of Web 2.0 websites.
Those Web 2.0 websites targeting at the "upper classes" (the white collars) are sure to have limitations 0n user growth. Particularly in China, white collars, mostly living in coastal areas, make up only a fraction of the population. It would be a tough challenge for Web 2.0 websites aimed at this particular group of people to grab more than ten million users.
In Taiwan, two leading social bookmarking websites, HEMiDEMi and funP, have very different user communities in terms of their cultural ambiance. While the former is more attractive to elites, the latter is more proletarian. Yet both websites are focused on the class of white collars, and their performance is not as good as established grassroots online community websites in terms of traffic and profits.
If you move a step forward, you'll find that by looking at the founders of a Web 2.0 website, you can almost tell what the website will be like. Founders will naturally apply their way of thinking, which is surely conditioned to the social class they belong to, to developing online communities.
[+] Cultural products are for niche markets that never grow too big
Instead of aiming at a specific social class, some Web 2.0 websites would target at a group of people who share the same interests. There are online communities devoted to subjects of comics, sports, literature, book reviews, or food and restaurants.
These communities will definitely be conditioned by the size and scope of these social groups. For example, how many comic fans can you find in China? How many people in Taiwan love good food? What about the market prospects? In China, it may be feasible for website operators to cater for a specific niche market, but it may not be sustainable in Taiwan.
Why are there growth limits on Web 2.0 or online community websites? In addition to the conditioning of social classes, cultural products are for niche markets instead of for mass markets. A website that has specific cultural ambiance can never grow too big.
Does it mean that only websites that have "no particular culture" can grow big? By "no particular culture" I mean that there are no specific cultural features that can be attached to the websites. It is not about high culture versus vulgar popular culture. What I am trying to say is, as long as a website can be linked to a specific culture, there will surely be people who don't like it. You cannot please all and, as a result, the website will never be able to grow too big.
This is such a dilemma: an online community is always formed by people who are attracted to its cultural ambiance and who share similar interests. These people gather and stay and naturally develop a certain culture. Consequently, people who don't like its cultural ambiance go away. Many established online community websites remains the way they have always been for years without much change.
Surprisingly, you may find the solution in Web 1.0.
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Prev : Web 2.0 Finale (1) An Inherent Problem Unsolved
Next : Web 2.0 Finale (3) Finally blended in Web 1.0
- Today in History
Web 2.0 Finale (2) Websites With a Specific Culture Can't Grow Big - 2007/12/30
Why the user churn rate of Web 2.0 websites is so high?
[+] Users' typical Web 2.0 experience
Mr. X is an ordinary white-collar worker. He uses the Internet to search information and contact customers at work, and after work he may spend some time on the Internet for leisure. The Internet is a medium he uses frequently in his daily life, but it is not particularly important in his life. At least he is not a person who hangs on the Internet everyday.
Recently though he has been getting emails with subjects like "you have been added to somebody's friend list" and the like. Clicking the hyperlink he found that it's by a friend on MSN. How could you decline a friend's invitation? So he signed up that social networking service.
By this way, Mr. X has joined Facebook, MySpace, Friendster, LinkedIn and a bunch of local Chinese language websites. Registering at these websites is a lot of pains. Every website asked him to fill in his profile, upload photos and even contribute his MSN contact list.
At first he was worried that if these friends would visit his personal blog, and it would be impolite if he didn't call at theirs in return. Such relationship pressure was such that he spent two hours after work to reply these messages online for a period of time.
(Interestingly, he didn't know that his friends were tied up on the Internet for the same reason.)
First it was acquaintances, then a bunch of strangers, who added him to their friends list. In the beginning it was fun and nice to socialize with these people online, checking out their newly updated blogs and photos and leaving messages to each other.
After about three months, Mr. X started to get bored socializing with these people online. As the number of friends kept growing, he could not but spend more time on the Internet visiting these websites. At the end two hours a day was not even enough.
He finally decided to quit such Internet services that he had been addicted to when he had almost reached the verge of breakdown. What was the meaning to spend so much time on this stuff? Life should not be like this, and he had to get things back under control.
[+] Typical experience of Web 2.0 website operators
All Web 2.0 websites operators are asking why the user churn rate is so high, and there is seemingly no way to remedy this problem as if it is inherent in Web 2.0 websites. New businesses planning to ride on the force of social networking, which continues to wane, are declining.
These Web 2.0 websites are like a big sieve, trying to capture a large number of users at a time; yet after three months, it always turns out that only half of them remain as effective users, and the rest simply disappear. The size of users may seem big but it is not substantial at all.
For a Web 2.0 website to enjoy growth, its social networking expansion needs to be faster than its user churn, so that, overall, its scale would be increasing. Yet what about when the growth of user numbers slow down?
Social networking websites MySpace and Facebook have shown strong performance and they are yet to hit the growth ceiling with the whole world as their market. (MySpace should reach its growth limit sooner than Facebook as the former has more users.) Therefore, seeking to expand foreign markets seems to be a solution to sustain growth.
Nevertheless, an inherent problem remains unsolved.
Another amazing effect of Web 2.0 websites is that, heavy users are very committed. They are very active and they remain so for a very long period. They visit the websites and stay there everyday.
From registered users to effective users to active users, the number of users continues to get smaller. Is it normal? I would say yes. In terms of online community, it's just the way it is. Just as I mentioned years ago, online communities are where "people of similar attributes gather to warm each other. And these people are the so-called "heavy users," such as active bloggers.
The characteristic of Web 2.0 is high interactivity, which means highly demanding for users. Those who are willing to interact with others and write blog articles are not normal people. They have stronger achievement motive and desire to express themselves, and they find their stage at some community website and feel a sense of belonging.
The question is, while these heavy users are having fun, what are the ordinary netizens doing?
[+] People can get sick of Web 2.0
As to those who quit some Web 2.0 website, do they turn to similar services of competing websites? Some of them (well, the heavy users) do, but for most people who leave, they just won't touch such kind of services and they leave forever.
Only a few people who, after quitting Facebook, would turn to MySpace. Most people would just quit social networking services (SNS) for good. It's the same for blogging. Only a limited number of people would migrate from one blog service provider to another and continue writing. Most would simply stop blogging.
Quitting a website is totally different from quitting a kind of service. For example, we know very clearly the difference between "turning to sohu.com from sina.com because of getting tired of the latter" and "quitting new websites for good."
Woops! It turns out that people can lose interest in Web 2.0 services.
Woops! So what's next when all netizens have become users of my Web 2.0 website?
If market development is like a chess game, then Web 2.0 websites that have been so popular for the past couple of years are entering the endgame phase. These websites operators may appear successful, but in fact they are getting uneasy. How to get away from the doomed path of Web 2.0 websites is an inevitable challenge.
Surprisingly, you may find the solution in Web 1.0.
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Prev : Mobile TV Market (3) Terminal Manufacturers & Content Providers Next : Web 2.0 Finale (2) Websites With a Specific Culture Can't Grow Big
- Today in History
Web 2.0 Finale (1) An Inherent Problem Unsolved - 2007/12/23
The Fourth Generation of Internet Marketing (2) RSS Tracking - 2006/12/24
Dream of "Digital Furniture" Store - 2003/12/28
If you begin to think about expenses right after your income prospect, congratulations, your idea is one step closer to real business.
[+] Pageview-based advertising income
As a matter of fact, your income and cost are known as soon as you get the most critical information: user number. With regard to income, the most important thing is the business mode: are you choosing advertising-based or subscription fee-based (e.g., VIP subscription fees or virtual items sales income) revenue model, or both?
The fact is, in some sectors, charging your users (e.g. white collars), would be very hard, while in other sectors, your users (e.g., blue collars) would be of high value in terms of fee charging, but little appeal to advertisers. It is hardly possible to develop both, particularly for highly sector-specific Web 2.0 sites.
What's more, there are often conflicts between catering for your users and your advertisers. Obviously, the later prefer large-size, eye-catching ads, while the former hate the disturbance of such ads. If you decide to cater for your advertisers, the possibility of charging your users would diminish, or vice versus.
Therefore, instead of rough estimation of the proportions of income from both modes, we might better start the process from the very beginning. First of all, we need to estimate the average pageviews per user each month. Then we could multiply it by the average user number to get the total pageviews of your website of the month.
For example, your website has 100,000 users as of April 30 and 140,000 as of May 31 (obviously, you get 40,000 new users in May), and you have 20 pageviews per user, then your total pageviews in May would be:
[ ( 100,000 + 140,000 ) / 2 ] x 20 = 2.4 million pageviews
If 80% of your webpages are used as the ads inventory of Google Adsense, or if you have a known click-through rate of 0.1%, you could easily get the total number of clicks each month. As the price of each click is no secret in the industry, you can easily get an estimate of your advertising income.
[+] Estimating the proportion of fee-based subscribers in total users
This advertising income is just a bottom line. If you are an Internet startup, and you do not have the budget to hire an ad sales person at this stage of business, or you have too few users to attract large advertisers, you have at least this amount of income. You could expect to launch ads at higher prices later when you grow big enough.
The key is: how to estimate pageviews per user per month? Similarly, it depends on whether your website is a tool site, or a content site, or a community site. Data for these sites are no secret in the Internet industry.
The total pageviews of different types of websites might be close, but they do have different meanings. A user might view only 2 web pages on a search engine, e.g., Google, but would come back a lot of times each day. For a community site, however, it is just the opposite.
Now let's discuss the possibility of charging your users. The simplest way is to divide your features into free ones and fee-based ones. For the later, you can offer different grades, such as platinum subscribers and diamond subscribers and charge them at different rates.
In this case, what you need to estimate is "the proportion of subscribers in total users". Generally, you should be satisfied with 3%. Then you should estimate "how much each subscriber spends per month". Multiply the two and you will be able to get your income from the subscribers each month.
As an Internet business operator, you would then begin to weigh how much resource you need to invest in your subscribers? Is it feasible to offer free contents and bet your income completely on ads? Why not increase your income by securing more users, since the proportion of subscribers is fixed? However, securing more users means more costs?
[+] The estimation of marketing and expenses
If you begin to think about expenses right after your income prospect, congratulations, your idea is one step closer to real business. In fact, the expenses of an Internet company usually include a few parts: marketing, bandwidth and others (including personnel and office expenses, which are beyond the scope of discussion here).
One cost-effective marketing approach might be to purchase ads from Google Adwords or some other ad networks. The best modes for startups are to charge by clicks or by results. Multiply your clicks by your conversion rate, and you would get your user number, and then a clear picture of how much you need to spend each month.
As to the bandwidth cost, the first thing you need to figure out is the total data volume your users would consume each month. Multiply the known pageviews per user per month by the average Kbytes per page, and then by the number of users per month, and the result is here (should be in GB).
ISPs offer two types of bandwidth prices. Perhaps we can explain them better with a comparison to water pipes and water volumes. You can either limit the total volume of water each month, e.g. to 120GBytes, or limit the diameter of the water pipe, e.g., to 1M Bits. The thinner your pipe is, the slower the speed.
How thick does your water pipe need to be? Let's make an example. Assuming that your total data volume is 120GB per month, of which, 45% take place in 10 given days, while 50% of the volume each day happen in 8 given hours. To be able to handle the peak volumes, you need an instant bandwidth of 0.768M Bits per second.
{ [ ( 120 x 45% / 10 ) x 50% ] / (8 x 60 x 60 ) } x 1024 x 8
The above estimation is for general HTML web pages. If you offer upload/download of a lot of photos or movies, that's another case. The method is still to calculate the data volume of average photo/movie upload/download per user. However, if you are not able to get particularly favorable prices from your ISP, it is highly possible that your business end up in failure.
[+] The development of strategies - right in these calculations
So much estimation, would that work? As a matter of fact, hardly any winner in the Internet community relies on such estimation for his/her business success. Sometimes, what's behind a successful business is sheer guts, which might be what's appealing to adventurers.
However, if you intend to mortgage your house or your car to start your business, instead of just giving your ideas or comments on your Blog, thinking about it a little more will do you no harm. Yes, you are a hero if you burn your money and succeed. What if you burn your money and end up in failure? (It depends on whose money it really is….uhm).
The Internet is a semi-traditional industry. Using the experience of others to do the calculation and to improve your chance of winning is, after all, rewarding. Just think more about the way to reduce your bandwidth cost, or stunning viral marketing skills to save cost, or raise more money in the initial stage for advertising. The development of strategies lies in these calculations.
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Prev : From Idea to Business (1) How to Estimate Your User Number? Next : The Spirit of Web 2.0 New Media Lies in "Inter-personal Communication"
- Today in History
From Idea to Business (2) How to Estimate Your Income and Cost? - 2007/07/22
New Era of Online Advertising (2) from Exposure to Deal - 2006/07/23
Ultimate Mobile Device (5) Universal User Experience - 2005/07/24
A user's activities in a Web 2.0 website has to be able to turn into assets.
[+] Desire of the humankind to establish relations
A Web 2.0 website, whatever type it may be, is founded on the basis of communities, or small societies. For communities to develop, operators must pay attention to improving and regulating interpersonal interaction, so that the chain of relations among users can be formed. Otherwise, users won't stay for long.
Take social networking services: the offering of Blog and relevant services cover only the first two layers of the psychologist Maslow's "Hierarchy of Needs," referring to people's basic needs to exist.
Everyone in the society has different needs. Some are happy as long as their basic needs are satisfied without caring too much for developing complex relations with others. Social networking service providers can meet the needs of these people by offering basic tools and functions and large storage space.
Yet people, after all, have the need to associate with others, and service operators have to be able to guide users to do so. Otherwise, users will leave even if they have to desert the places they have created because they can find no one to share.
This is a major difference between Web 2.0 and 1.0, yet people rarely notice it. While Web 1.0 addresses the instrumental needs people may have, Web 2.0 focuses on the psychological needs which are invisible yet no less real.
[+] More attention to everyone
People choose to keep their diaries online while they can do it with their PCs; people would rather store bookmarks online than offline in their browsers. Let's face it - people like to be known, and such urge is overwhelming and has been clearly observed during the past few years.
Bloggers will lose their impetus to continue writing if no one cares. Enthusiastic responses will encourage Bloggers to keep on writing. If you are a Blog service provider, it is very critical that you know the driving force behind the scene.
Some Blog service providers would feature certain Bloggers by means of "editor's picks" or the like, yet such method can only help about 5% of Bloggers. Therefore we've seen self-help services such as MyBlogLog emerge to allow Blogs to forge links with each other so as to increase their exposure.
It is the responsibility of the service providers to raise the chances for Bloggers to visit each other. Quite a few Blog service providers have introduced the feature like "add this person to my favorites," so that users will be notified of any updates in the Blogs they subscribed, which significantly increases the visits to users' Blogs.
Here we have to admire the vision of operators of 51.com and Mixi in Japan and the like. They've started doing so since two years ago and have succeeded in letting users feel that "they are not alone." It is the sense of belonging they've fostered among users that leads these websites to success.
[+] Virtual assets as a criterion for self-assessment
Yet getting attention is only the first step. People in any society would have the desire to climb up the social ladder and seek self-realization, the highest layer in Maslow's "Hierarchy of Needs." Despite that only 5% of the people will succeed, yet everyone wants to be among the 5%.
How do you know if you are successful? This is another important point in Web 2.0: you need to accumulate results of your efforts to reach success. Such results have to be quantified and displayed to make known. This is parallel to the concept of "private property," which can be divided into visible and invisible assets.
The Blogs you write and pictures your uploaded are visible assets and invisible assets are something like "credit," or the degree of recognition by the society. For example, the ranking system employed by community websites for years can be seen as a kind of credit rating system accepted by community members.
Activities of a user in a Web 2.0 website need to be turned into assets to be accumulated with time so that s/he will be tied up by these virtual assets, in addition to the chain of relations developed here. In other words, moving away becomes not so easy.
Yet very often the ranking system is not being executed properly, and scores or rankings become irrelevant. Operators somehow fail to notice that the existence of "the poor guy" and "class inequality" is a key to stimulate the progress of community websites. This is also true in our real society.
[+] Class inequality drives the society to move forward
The ranking system has created the distinction between "the rich" and "the poor." The point is to make sure that these two groups of people appear in the same place so that the difference in their strength is clearly shown and perceived by each other.
"The poor" can thus be mustered to work harder as long as they would not have the feeling that "it's impossible to become one of the rich." Many more affluent people engage in charities because they see there are so many poor people in the world. The contrast between the rich and the poor is what prompts the behaviors mentioned above.
Why not aim to create an equal society? We should know that the idea of "equality" means more of "less variation", instead of "no difference," in wealth." While a huge gap between different groups may discourage "the poor" to strive for improvement, moderate degree of difference can stimulate the development of Web 2.0 websites.
In other words, if "the poor" see only the people as poor as they are, they would not feel inferior and hence no achievement motives. But if they can see "the rich" everywhere, they would feel being marginalized.
The management of such contrast is an art. If you are good at it, you can make good money just like some community service operators. The Avatar service, which has proved a huge success in Korea and China but suffered a setback in Taiwan, is a good example that shows how it works.
[+] The key is also "class inequality"
As is commonly known, the Avatar service enables users to decide how her/his virtual image should look like - the head shape, hair style, eyes, nose and costume and even including pets. These objects are for sale. Those who don't want to spend money would have a "fig leaf," a default setting by the system.
For Avatar service to succeed, the operator needs to give users the stage to show off. They spend on their Avatars, and they want to display the results. There would not be many people spending money on this service. When most users are wearing a fig leaf only, no one would feel embarrassing and have any desire to buy an Avatar clothes.
The critical success factor of Avatar services is the ability to properly expose the difference between the rich (who buy the virtual items) and the poor (who don't buy). The disparity between the two groups should be vivid enough so as to make the poor feel stimulated to buy one, but not to the extent that the poor would instead be discouraged because the gap between the two groups is too wide to cross.
The above explains why QQ Show (qq.com) running by Tencent in China makes good money, while the Avatar service introduced by Yahoo! Taiwan from Korea would end up closing down. The key to success is to present class inequality between "the poor" and "the rich" in an community in front of users with an appropriate way.
[+] Human nature prevails in the real society as well as in virtual communities.
In fact, we have seen similar practices in the case of online games, which are miniature virtual communities. In the beginning, users would need to purchase credits or pay monthly fee to play games; gradually, the rule has become that all players (the poor) can play for free, but if they (the rich) want to equip themselves with virtual items, they need to pay. The logic of the former is equal footing, and the latter is those who are able and willing to pay for virtual items can enjoy a higher status.
Paradoxically, class inequality does not drive users away - the number of concurrent online users of free games has been reaching new heights - and the money online game operators have made from virtual items is more than the monthly subscriptions they have let go. How well operators can manipulate class inequality between the poor and the rich determines how successful they can become.
Generally, for entertainment communities like online games or Avatars, paying users are about 5% and the rest are non-paying ones. Yet can we drive these 95% of users away?
Remember, the 5% users spend money are paying to consume the 95% non-paying users; the existence of the latter is necessary for revealing the affluence and status of the former in the virtual society! This is all about human nature.
You may think online games and Web 2.0 are two separate things, yet my experience is that: human nature prevails in the real society as well as in virtual communities. You may deplore the dark side of human nature, or you may wonder how human nature prompts the society to move forward.
[+] Web 2.0 is a business driven by human nature
The last one important point about virtual property is that it has to be consumable. There is no way that credits can get increased and rankings enhanced endlessly. The fortune you have can only be real to you when you have to make great efforts to accumulate it or when you can feel the excitement to throw away a big chunk of it. It is this sense of reality that makes users stick to your communities.
What operators should do is to define the virtual fortune, both tangible and intangible, your users can have in your communities. Should it be based on how active you are, how many chains of relations you're involved or how many references you get? How credits should be accumulated and rankings promoted?
Moreover, how credits and rankings should be presented or consumed so that users can feel the value of credits and rankings created in the process and the reality of class inequality? How to present this inequality appropriately so that it can turn into a driving force to prompt the communities to move upward and enter into a virtuous circle?
If Web 2.0 businesses are to make money, the key is to realize the working of human nature. It is absolutely helpful to have close observation of our society in the real life and human nature. The Web 2.0 business is driven by human nature.
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Prev : Web 2.0 Think Again (3) A Reason to "accost" Someone Online Next : Web 2.0 Think Again (5) Unearth the Value of "People"
- Today in History
Web 2.0 Think Again (4) "Private Property" and "Class Inequality" - 2007/06/10
Ultimate Mobile Device (1) Age of Hybrid Handset - 2005/06/19
Pricing is a Handful for Internet Business - 2005/06/11
Think again on how relations are built and maintained.
[+] Challenges for social networking websites
The only thing that matters in Web 2.0 is relations and the build-up and maintenance of relations. However, to expect that relations will happen just by giving users relation-building tools is going to cause troubles. We need to have good understanding of human nature.
The most striking examples are some social networking (or business networking) websites like Linkist or OpenBC (currently Xing.com). These services, based on the well-known Six Degrees of Separation, are aimed to fulfill the needs of business people to extend their networking.
I know you and you know your friends, and these friends have their own friends. So by following these relation chains, I should need six intermediaries at most to get to know anyone in the world, according to the theory of Six Degrees of Separation.
People who have tried such services may be excited about their ability to help you get in touch with a huge number of strangers, who are your friends' friends, within a short time. However, when the number of people on my contact list of one of these services exceeded 200, I quit it.
A year or so passed, I found that there were only two or three names on my list remained active, and most of them rarely used the service. Undoubtedly, social networking is in great demand for business people. There must be some reason why these people became indifferent to the service.
[+] Think again on how "relations" are built and maintained
Think about your daily business life. You should see that "social networks" are build upon interests, which would normally exist where there are business relations. Take a look at your business cards holder or address book: those you contact most often should very likely be your clients or partners because you have common interests with these people.
Think about the various kinds of business gatherings you've been to. How many business cards you've got there are of any use to you in making business contacts? Some people would spend time and efforts to scan and file business cards (the so-called digital business network management), but at the end of the day the only thing they can do was forward jokes to these people once in a while.
Let's face the reality! When the relations between two persons would not last if they can find no business to do with the other. When accosting somebody, you would need a reason. The biggest problem for social networking websites is users can't find good reasons to start a talk and maintain relations with others.
Business people are very pragmatic. They will not spend time in building connections that are meaningless to them. The people you meet in social networking websites are practically total stranger who do not have any business to do with you, so your relations are doomed to be short-lived. Frankly, business people are already too busy managing their social networks in their off-line life.
Some social networking websites discover that their users have become lukewarm, so they develop tools like social bookmarking, which allows users to submit and digg news articles or videos for others to view and make recommendation. It indeed brings pleasure to some people during their boring working hours, but how much it can help establish relations is a question.
[+] Contact methods, a sure way to relationships?
10 years ago I was as a well-known "social butterfly" flitting from one industry gathering to another exchanging business cards. Now when I attend this kind of event, I would just sit quietly in some corner and leave unnoticed when it's over.
It is of no use even if you get 100 business cards in such circumstances because you don't have any business to do with them. Even if you keep these business cards very carefully and you do make a phone call to one of these names, s/he may never remember where or when s/he has met you. Is this the kind of relations you need?
If you want to meet certain people, you can always find someone to introduce you instead of attempting to meet them in public occasions. On the other hand, those who want to do business with you can always find some way to find you. The only thing that matters is whether there is any business to do or not.
There is also a scenario in such gatherings: you can always see some unimportant people busy exchanging business cards with big shots. Do you know how important people deal with the business cards stuffing into their hands? No, you don't want to know.
What will you do with the business cards of these big shots? Will you forward jokes to them? No. Will you talk about business opportunity worth of some thousand US dollars? No. Will you call him/her for some chitchat? No. Add him/her to your MSN, but are you sure it's not his/her secretary who is replying your message?
[+] Business networking: no business, no relations!
Same things happen on social networking websites where there are people busy in collecting business cards and knowing big shots. To a certain extent, social networking websites are very much like virtual business cards holders - though you may have as many as 700 contacts, none of them is in good use.
The variety of users on the Internet is practically the representation of the scenario you'll bump into in any typical public events in the business world. The kind of social contacts happening in such public occasions are not very helpful in establishing and maintaining relations if there are no business opportunities involved.
Yes, it is a bleak truth. Technology evolves but human nature remains the same. Web 2.0 entrepreneurs may create perfect websites sometimes, but they tend to forget that "Web 2.0 business is driven by human nature,' and all functions need to address to the wants and needs of the humanity.
Presently, social networking websites allow users to categorize and manage their connections, enable them to get in contact with certain persons by means of search functions or though common acquaintances and provide online forums for exchange of opinions. The point is this is never the way business people establish and maintain their relations.
If social networking websites cannot assist users to "establish" and "maintain" relations, and they are but virtual business cards holders with no storage limits. Such contacts are not connections. Our observation is that, for the very pragmatic business people, "no business, no relations!"
[+] Bottlenecks of friends making services
Social networking services can be divided into the following categories - business networking, friends making, interests communities and dating websites. Among these friends making websites may be familiar to you for such websites have existed since the time of Web 1.0.
Typically these websites would have a search engine for users to enter criteria such as gender, age, locations and so on, along with advanced search functions to filter results based on specific terms like education, personal interests and hobbies. They are to provide friends making service with very specific targets.
Yet as we all know, friends making websites are constantly faced with the problem of retaining their users, so they need to budget for "buying" new users by means of advertisements. Website operators are very clear how much they need to spend to acquire a new user.
This is the destiny of friends making websites. Singles come to these websites to look for their Mr./Miss right and leave when they get the contact methods. There are even more people who invest two months leave disappointedly with no gain.
Typically, a user would first register at these friends making websites, enter their personal information such as interests, occupation or even income level, search for someone "with photos uploaded to the websites" and then attempt to start a talk. How likely can s/he succeed in building up relations in this way?
[+] Sharing common feelings is the first step to build up relations
When you search for a female aged 25-30 in the bustling downtown area, you would have some idea about what kind of figure and look she should have in your mind. When you finally find one, you may just come forward and ask to make friends with her. Yet this is not a very effective approach and you are very likely to be rejected.
Yet a tougher situation may be what you should do if you get a green light from her. Many men are hesitant to accost women not because they are afraid of being turned down but because they don't know "what to do next if they succeed." This is the problem friends making websites need to work out.
You need a reason to accost a stranger. Advanced search engines may provide users with specific results from, but at the end they still need to know "what they should do to make the first move." It does not promise a happy ending when accosting someone simply because you know what she looks like, her birthday, age, interests and occupation and so on.
This is why many friends making websites are thinking about providing Blog services. These operators find that matching service won't work by just relying on external criteria, which alone are not enough for developing relations.
In fact, personality may be a stronger factor when in comes to relations building. The key is how to present the personality of each user. Blog services may be a good idea - let users share their diaries online! You may be able to find something in common to start a talk with others by reading their blogs.
"Sharing common feelings" is the first step for users to build relations with each other and a good way to maintain relations.
[+] The issue of relations building for traditional online services
A friend who's running an online learning website for years asked me about Web 2.0 the other day. He sensed that this should be a trend and he was thinking to introduce online community features to his website. In addition, friends in the e-commerce business also wrote me about the same issue.
Still, we need to look at "relations!" What kinds of relations are there between the shoppers on a B2C shopping websites? Is it necessary to build up relations? What would lead to the first contact between them? What kind of relations would there be? Can such relations last for long?
"Relations" are the key that demands our attention when talking about Web 2.0, including online learning websites. As a matter of fact, online learning service providers may think it a good idea to build up online learning communities for their websites. Yet we are yet to see successful examples for such communities.
Similarly, we need to ask is there any need for students attending to the same class to establish relations? On what circumstances do they feel the need to do so? What about forming relations with lecturers? How long can the relations last? Only when the linkage between these questions is found can we expect the emergence of online communities.
The same logic can be applied to many other scenarios. For example, do the people looking for similar kind of jobs on job search websites have the need to establish relations? Do those who watch the same video online feel the desire to form relations? How can they do so and how the relations can be maintained?
Not all Web 2.0 services will have to provide social networking features, yet it is true that the establishment and maintenance of relations are the basis of Web 2.0. At the end of the day, it is surely helpful to spend more efforts in figuring out how relations come into being and what lies behind relations.
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Prev : Web 2.0 Think Again (2) Upper-class Society and Lower-class Society Next : Web 2.0 Think Again (4) "Private Property" and "Class Inequality"
- Today in History
Web 2.0 Think Again (3) A Reason to "accost" Someone Online - 2007/06/03
How the two classes represented in Web 2.0 websites determines the websites' business model.
[+] Class barrier in the brick-and-mortar world
As the core of Web 2.0 is community, which is a topic related to sociology, we may need to talk about the concept of upper-class and lower-class societies. It is an important concept because how the two classes are reflected in Web 2.0 websites would determine how websites should shape their business models.
The two classes mentioned above can be associated with "white-collar" and "blue-collar" classes according to the nature of work, or "non youth (particularly those at work)" and "youth (those at school)" with respect to age.
Please pardon me if such definition appears a bit too rough. I do not intend to work out an exact definition, as it does not make much sense here. The distinction mentioned above may be imperfect but is easy to understand and practical for observation.
In the real world, the blue-collar and the white-collar classes do not usually mingle with each other. They do not belong to each other's social networks. In particular, young people are often seen as a special group. They do not care about mortgage or car loans as adults do, and they have their unique consumption behaviors.
Social classes determine our social networks, because our daily life decides the topics we would be interested in, and these topics are critical in our social network. The patterns are attached to us and have direct influence on what class of people we would share sympathetic responses with on Web 2.0 websites.
To put it simply, is there any social networking website similar to MySpace that can attract people of every class in the society? Moreover, since the ultimate goal of Web 2.0 is to build up the connections among people, then is it possible to break the class barrier in the real world so that exchanges between different classes can become possible in virtual world?
[+] Virtual communities are where people with similar attributes get together and share feelings
A magazine editor, a 35 female with a son, has just started to Blog on a social networking website. It is not easy for her to find people on SNS website at her age. She feels uncomfortable about the photos of young and beautiful people appearing on the homepage of the site.
She is not sure who are reading her baby-nursing diary. Are the visitors really interested or they just drop in by chance? Once she got a request to add her to the Friend List, and she found out it was sent by an 18 year-old guy. She has no idea what to talk about with him.
I believe that many people have similar experience of bumping into some gathering place of a unique group or class of people without staying for too long. Web 2.0 communities have their own characteristics. As I said many years ago: communities are where people with similar attributes get together and share feelings.
Despite that there are few exchanges between upper and lower classes, still they belong to the same society. The challenge for Web 2.0 operators is to first attract different classes of people and then distinguish them through proper guidance, so that they can form their respective communities they should belong to.
However it is so difficult that many Web 2.0 operators consciously or subconsciously choose to focus on a specific class in their operation. This has great impact on the websites' style and business model. I illustrate the characteristics of the two classes of netizens below:
For example, social networking websites like Linkist are targeted at white-collar class. Such websites do not attempt to charge their users as they are reluctant to pay, even though they are better off. Affordability is one thing, and the willingness to pay is another. Fortunately, advertisers are interested in this group of users.
[+] Impact of social classes on business model
I suppose you, my dear reader, access the Internet from home or office rather than from an Internet cafe, and live in some big city like Beijing or Taipei. You actually have no idea about how people away from big cities get onto the Internet.
People of different social classes are used to their specific ways of thinking. Therefore we can find a certain niche market for a certain class. If you look into Alexa's website traffic ranking in Taiwan, you'll find ek21.com outdoing many well-known websites.
This website provides the so-called Avatar services, including chat-rooms, voice chatting, personal web-pages, personal web space and icons and so on, which are all potentially profitable services. If you look closer, you will find out that active users on this website are mostly those you don't usually associate with, such as waiters, drivers, part-timers, and people living outside metropolitan cities.
Before the emergence of Web 2.0 website startups, ek21.com has been making money for years by charging users. Of course most of its users do not pay, but still it has enough paying users to sustain itself very well.
Hard to imagine, isn't it? Because you are a white-collar worker unwilling to pay, it is difficult for you to understand the behaviors of the lower-class people. These people spend money out of impulse. As long as your offering is attractive and does not cost much, you can siphon money from their pockets. However, advertisers are not interested in these people.
The population of the lower-class society is huge, and it is even more so in China. There are some very profitable Internet companies thrive on providing service to the lower-class people, such as qq.com. This company has more than 400 million accounts, and their major revenue source is user charges.
[+] Consumption behaviors of the lower class
If your Web 2.0 website is targeted at lower-class (ex. students or younger people), but you are putting efforts on advertising sales, then I have to tell you that you have missed an important revenue stream: user charges.
What services can you charge users for? Look at qq.com and ek21.com, and you'll find easy answers. The point is to sell virtual items rather than sell real world products electronically. The latter is against the nature of Web 2.0. In Web 2.0, it is interpersonal interaction that can help you make money.
If you want to know more about the other class, try online games. A few years ago, through playing a then very popular online game "legend," I got to know truck drivers, beetle nut girls, housewives and gangsters - people I would never have the chance to know otherwise.
Many of these people do not have an email account; they access the Internet at an Internet cafe, have few ideas about what Google is, and never use MSN. Their favorite online activities are playing games and chatting. This is a blue-collar market, which is beyond your imagination.
Similarly in China, young people, students, laborers and residents in towns and small cities consist of the biggest group of users in the market. These people log on the Internet at the Internet cafes where they can play games or chat at just RMB 1 per hour.
In small cities where there is little entertainment, online games and chatting can serve as some kind of affordable leisure activities. Any Web 2.0 website which can seize the mass lower-class population is sure to succeed. Even though these people do not make much money, they tend to spend money out of impulses and they are quick payers.
[+] Break the class barrier
Web 2.0 entrepreneurs are often constrained by the barrier of their class background. When developing online communities, very often they can only base on the life style of the class they are familiar with. Most people cannot do business targeted at a different class of people who live a different life.
Yet, many Web 2.0 entrepreneurs confined themselves within an even smaller circle. I once told a startup entrepreneur that it did no good to maintain the elite atmosphere in his website. My suggestion to him was to develop a product that is aimed to be very popular in the market but disgusted by famous Bloggers.
In the US where there are over 100 million online users, it takes as few as 100 recommendations to digg a bookmark onto the front-page of the famous social bookmark website del.icio.us. This is pseudo democracy, which is an exclusive game within a bunch of elites.
Things like RSS, Tag, Trackback, Wiki, Widget are nonsense created by elites in the upper-class society. When I first saw Web 2.0 technical documents, I thought these things should all go to the trashcan because they were too perplexing for the public.
They may not be the root cause for class barriers in the virtual society, but they are surely responsible for making them more difficult to cross. They keep the elites within a wall from the general public, which may lead to restrictions on business.
These techniques are still too primitive to be generally accepted by either upper or lower class societies. To make Web 2.0 more accessible, we may need to hide these things or package them in a more friendly way.
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Prev : Web 2.0 Think Again (1) It's All about Relationships Next : Web 2.0 Think Again (3) A Reason to "accost" Someone Online
- Today in History
Web 2.0 Think Again (2) Upper-class Society and Lower-class Society - 2007/05/27
Web 2.0 Think Again (1) It's All about Relationships - 2007/05/20
Brief Study at Portable Multimedia Player (PMP) - 2005/05/29
WiMax will eventually engage with 3G in the field of voice communication.
[+] The declining communication revenue
Imagine this: you will be able to make mobile phone calls for unlimited minutes so long as you pay a fixed amount of money each month; if you want to watch a movie or download music or use other value-added services, you pay additional charges, but there's no such costs as communication fee or transmission fee any more.
For telecom operators, this is a nightmare. No more are the good days of waiting for subscribers to make phone calls and printing phone bills calculated on talking minutes. They now have to earn their meals by providing sufficient contents. But that is too troublesome and not the specialty for operators. Worst of all, they will have to share money with content providers.
This is what's happening to your phone line at home. For an ADSL line, the telecom operator is able to charge only two types of fee: the lease for the line (including voice and data services) and the Internet access fee. Both are almost fixed each month.
If, instead of dialing traditional phone calls, you use the line only to dial Skype VoIP calls, you will be able to use both the Internet and the voice services with that amount of monthly payment. Eventually, telecom operators will have to sell IPTV to you to look forward to earning more through contents.
Yes, wireless bandwidth resources are limited and incomparable with the cable broadband. But who can say that some kind of a novel technology will not appear in the future to change all this? After all, consumer demands are always there and the amount of bandwidth that a consumer can buy with each dollar has been on the rise over the past years.
[+] The unpredictable future of WiMax
In the field of 4G, a concept which is not even clearly defined so far, players are already fighting for the ability to set the standards. Thanks to the promotion of Intel, WiMax has got the support of many telecom equipment suppliers and handset manufacturers, and is now the hottest bidder for the 4G technology.
Intel is going to embed WiMax into its notebook computers, in a hope to get the popularity that WiFi once had. Despite the slower-than-expectation progress, the ambition of the giant should never be ignored. In addition, Nokia has also got into the line of supporters, announcing its plan of introducing WiMax handsets.
However, in view of the current status of 3G services around the world, WiMax, which claims to be 10 times faster than 3G, is really in an awkward position. As 3G has been in commercial use for only a few years, mobile operators who are yet to retrieve the return of their investments are really hesitating about making additional investments in WiMax.
A more possible solution is to issue licenses to fixed-line telecom operators or emerging mobile operators and allow them to build WiMax APs. As a matter of fact, struggling to stem the multi-year decline in revenue, fixed-line operators have been longing for accessing the mobile market for many years. For them, WiMax could be an opportunity.
When mobile operators have little interest in WiMax, a fallacy has appeared in the market, holding that WiMax is a complementary service, instead of substitute of 3G. This has rendered wider imagination for WiMax, particularly in the China market, where 3G has not been launched yet.
[+] 3G and WiMax: foes, not friends
The two services are considered by some to be complementary because the priority of 3G is the mobile voice communication, while WiMax, with its advantages in data transmission, can provide notebooks with the Internet access. In this regard, mobile operators could build two types of network to separate the services: "3G serves people on feet, and WiMax serves people on seats."
In Korea, dual-mode handsets supporting both 3G and WiMax are already available in the market. It seems possible for both to co-exist peacefully? However, we see now that the two technologies are born to fight each other to death and there could never be such a thing as complementation for each other in the real market.
First of all, if fixed-line operators get the WiMax license, they will use the data transmission capability of WiMax to provide wireless VoIP services, which is bound to dig a portion of subscribers away from mobile operators. With so many world-leading suppliers involved in the development of WiMax handsets, the supply of terminal devices will not be a problem sooner or later.
It is reported that the data transmission cost of WiMax is only one tenth of that of 3G. Maybe the WiMax community led by Intel is too optimistic. But if it were true, the fee rate of WiMax-based VioP could be as low as one tenth of that of 3G too.
If the operators that have got the license forget the fact that the number of mobile phone subscribers is far larger than that of notebook users, and only plan to provide Internet services to notebook or PDA users with WiMax, then they must be crazy. WiMax will definitely engage with 3G in the field of the voice communication.
[+] Mobile phone flat rate with unlimited minutes
Were WiMax to appear a little bit later, the follow-on versions of 3G might have the chance to provide larger bandwidth and a more comprehensive IP environment; or, in plain words, a 4G network environment upgraded from 3G might be able to provide the VoIP service, thus render WiMax unnecessary?
Could VoIP all-you-can-eat monthly flat rate become a reality in the 4G time? It will have to depend on how low the transmission cost is. Even if it is low enough, the 4G-based VoIP service might still be charged by minutes in the initial stage. Operators will not withdraw to the bottom line of monthly flat rate at once, so long as the fee rate is acceptable to consumers.
Yet for 4G Internet accessing for notebooks, which does not go through a phone number, operators might consider to offer monthly flat rate. Although 4G is a comprehensive IP environment, operators might still want to separate the Internet access from the voice communication after taking into consideration the reality in the marketplace.
However, there's one thing uncertain here. Today, WiFi handsets with embedded Yahoo! Messenger or Skype are already available. Such handsets will be supported in the 4G wireless network too. With such handset and access to the 4G network of an operator, consumers would be able to make phone calls free by only paying the monthly fee.
Such handset might not have their own phone numbers, or would have to go through troublesome procedures (e.g. SkypeIn) for the numbers, or might encounter the containment from telecom operators. But anyhow, the competition is there and operators have no way to pass it by. It will eventually drive 4G VoIP toward the destiny of monthly flat rate.
The trick is that if 4G really offers monthly flat rate, it will deprive Skype of its room of survival on the mobile terminal. How could Skype, a service that depends on consumers' hunger for lower fee rates, expect to survive any longer once the mobile phone service is as cheap as what monthly flat rate offer?
To be able to make free phone calls has been the dream of mankind, and unintentionally become the driver for the evolvement of the communication technology. Telecom operators who depend solely on the switching of phone calls or transmission of data for their income would face severe challenges sooner or later. They will have to transform into service providers with diversified abilities.
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- Today in History
Great Future of Wireless Broadband (4) WiMax, 3G and 4G - 2006/12/03
Internet and Books (1) Dilemma of Online Publishing - 2005/12/04
VoIP (2) Who Depends on Whom - 2004/12/05
VoIP Gives out the First Cry - 2003/12/07
The rule of the game in the media business is monopolization, yet it is impossible to monopolize the Internet.
[+] The diluted advertising revenue
In February 1999, I wrote the first article to point out that portals could not survive only on advertising revenue (, which was contrary to the mainstream opinion at that time and has been proved true for the next five years until Google created a new model). My view was based on the following formula.
I guess you will agree with me that the growth rate of the denominator in the equation "Total Pageview" is much higher than that of the numerator "Total Ads Revenue". So you should be very clear about what is total advertising revenue divided by the number of web pages worldwide.
The conclusion is that the selling unit price of online advertising will continue to fall! When buyers' advertisement budget, which is usually fixed, is allocated to web pages around the world, each page can only get a slim portion of the money. This is exactly what the Internet is – a distributed network.
The cost of online advertisement is calculated on a CPM (cost per thousand impressions) basis, which is derived from the traditional media industry standard. In fact, the figure of CPM has been declining since 1999.
When is average unit price of online advertisement worldwide keeps falling, it becomes very dubious whether a website can survive solely on advertising revenue or not - especially when each of the websites continues to produce a vast amount of web pages to dilute the advertising revenue.
[+] The rule of the game in the media industry is monopolization
Gradually, the increasingly dire conditions start to press hard upon the portals. Judging from the above equation, there are only two ways to survive. One is to snatch the limited online advertising budget of the buyers and starve the competitors:
That is why we see major players take the initiative to lower their price. The formula shows that when the selling unit price drops, the websites with fewer visits will not be able to generate sufficient revenue to support their operation. In fact since 2000, there have been quite a few similar cases in which major operators voluntarily reduced their prices, causing smaller players to exit the market.
The second tactic is to attract all online users around the world to my website so as to maximize the number of pageviews. As long as the number of total pageviews is high, even the advertisement unit price is low, the total revenue accumulated can be phenomenal as well:
Either of the two methods points out one substantial fact that, only a monopoly or oligopoly on the global Internet pageviews will likely be able to survive solely on online advertisements. Yet, is it possible to concentrate all the pageviews in one single website?
This is what the media business is like. For all traditional media from newspapers to television, only a monopoly or at least an oligopoly will have a chance to enjoy profits. However, when the cost of storage and bandwidth on the Internet keeps falling, and the number of webpages globally continues to grow in an explosive rate, it is unrealistic to talk about monopoly.
[+] Low click rate and high cost of online advertising by community services
In addition to the above mentioned conflict between the characteristic of the Internet and that of the media business, there are also quite a few problems in the aspect of operation. Traditional media start to charge for the news content borrowed by Internet media to fill in the space. Traditional newspapers are not happy about the declining circulation and revenue. They now ask the users to pay for the content and to share the cost of content production, which is after all reasonable.
Another reason for the decline of the online advertising unit price is that the CTR continues to fall. Ten years ago, there were about 50 out of 1000 visitors who would click on the advertisements; now the figure is less than one out of 1000. The effect of online advertising has been weakening, which inevitably drives buyers to bargain on the price. You can imagine what the situation has become now after these ten years.
Furthermore, the quality of the content of online community services, such as chatrooms and forums, produced by users during their interaction, as well as the volume of traffic generated, does not live up to common expectation. There are junk content or deserted forums everywhere on the Net.
On the other hand, when users concentrate on their discussions and exchanges, they will not click on the advertisements. As such, the CTR of advertisements provided by online community services is naturally low. What is worse, services characterized by user interaction normally consume more bandwidth, which would result in higher operational cost.
As regards the free personal homepage services, they were very popular at the initial phase of Internet development – GeoCity was among the first and most famous providers. Yet from 2000 on, Yahoo! started to restrict the maximum traffic allowed for personal homepages. Once the number of pageviews exceeds the cap, unless users pay for the service, additional accesses to the webpages will be denied as as way to control bandwidth cost.
[+] A rule overthrown
The high bandwidth cost which characterizes online community services was indeed a problem in the Web 1.0 era. At the end of 2004, Yahoo! announced the termination of its chatroom service for these chatrooms were flooded with porn or junk content. Insiders knew very well that this was all about closing down a costly but profitless service.
Services such as free email accounts and free online calendars all have similar difficulties. For example, there are few people who would bother to click advertisements when reading emails. Yet such services are so important that no portals dare to call them off.
Since operators can't rely on advertising revenue alone, it then becomes necessary for portals, which accommodate a huge number of services, to create income streams other than online advertising. Such a strategic imperative has gained very high priority among portals since 2001, and Yahoo!, one of the most determined, has endeavored to raise the percentage of non-advertising revenue. To this point, my prediction has come true.
By 2003, these operators had developed multiple sources of income. For those which had survived the chilling winter, it was expected that the Internet business would move on with these portals leading the way. To everyone's surprise, there came Google coming up with a brand new rule. We should not have made light of the Internet at all.
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Prev : The Web 2.0 Revolution (2) the Emergence of New Media Next : The Web 2.0 Revolution (4) the Google Paradigm
- Today in History
The Web 2.0 Revolution (4) the Google Paradigm - 2006/09/17
The Web 2.0 Revolution (3) Advertising Revenue is Not Enough - 2006/09/10
Envisioning China's 3G Market (3) Systems & Markets - 2005/09/11
Three Musts of Digital Content Biz (2) Stop Selling "Containers" - 2004/09/19
Three Musts of Digital Content Biz (1) Content is Cheap - 2004/09/12
