April 19, 2009

Business models for consumer web sites

Very nice summary of the three main revenue models for consumer web sites and what drives each model. Each model is pretty hard to do well, not only the third.

Laserlike: Microeconomics of the Consumer Web. "If you are working on a revenue model for an online business, you either need to:

(1) have a very high quality segmented audience that fits traditional brand advertising buying patterns; this usually requires cultivating content, which is hard to scale but is a known quantity by ad buyers

(2) develop the capacity to generate massive quantities of leads at a very low cost; the "next Google" will likely fit this model

(3) charge customers directly through subscriptions or virtual transactions; this is very hard to do as consumers so easily substitute one product for another (leading to a very steep demand curve in most markets)"

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