Skype COO Sten Tamkivi tells Shel Israel that his company's future growth will be fueled by non-telephony revenue streams. He says VoIP start-ups such as Rebtel and Jajah are "positioned to follow" and don't represent a real threat. Instead, Skype's biggest challenge comes from the fact that pay-by-the-minute phone calls are obsolete.
MarketWatch's Bambi Francisco makes a similar point about search. Dotcom-era search engines monetized their traffic through display ads, which generated 34x more revenue ($3.8 billion) than paid search ($109 million) back in 2000. Then Google came along and narrowed what Bambi calls the audience/revenue gap. Much of Google's $7.3 billion revenue this year has come from search. Bambi says social networks and video sharing sites currently face the same gap.
Social networks are estimated to attract $280 million in ad dollars this year, according to eMarketer. Online video-sharing sites are estimated to attract about $385 million. EMarketer estimates that $15.9 billion will be spent in online advertisements in the U.S. this year. That means social networks and video-sharing sites only attract about 1.8% to 2.5% of total online ad spending.
But the gap won't last; someone will find a better way to monetize this audience. Even Microsoft's Steve Ballmer agrees. He recently told BusinessWeek:
Take Facebook. If you knew for sure that you were going to have the kind of minutes of eyeball time on the percentage of college students that Facebook has today, for the next 15 years, it's an easy billion-dollar check to write, even though it doesn't have a business model that establishes it.
In other words, in this Economy of Abundance, there's more to long term profitability than extracting immediate revenue from a narrowly defined product set - which will inevitably be supplanted by new technologies and business models. Instead, the key to success is to first build a user base, then close the audience/revenue by shaping products (such Adwords) around consumption patterns (such as search).
Comments