When people talk about how building a Web 2.0 business has changed, much of the focus is on the business model and on the technology expenses. As I talked about in the last post, the business model change is huge. Technology expenses have changed a lot also. Cogmap runs on Media Temple’s grid server and that does not cost a lot. (Is there a place I should host it to make it run faster? Let me know.) It’s LAMP all the way and that is all free, so that’s good. My first Internet start-up had to pay more for bandwidth in a month then I will spend in a year on Cogmap. We had Oracle databases running on Sun boxes. That means you have to spend a lot of money on hardware and software to get going.
But I don’t think those are the biggest changes in how to run a Web 2.0 business.
Marketing and sales used to be expensive also. I tell everyone I know that I think it is one of the most widely under-reported phenomenons of Web 2.0.
Marketing a new web site is crazy cheap today. Think about how tough it used to be to educate a million people about your company. You had to advertise. You hired a PR firm. You did marketing. You got trade show booths. You dropped a million dollars on the launch. And that was perfectly justified because you had just spent five million dollars hiring editors.
Today you send one email to Michael Arrington and a million people come play with your toys. Pretty inexpensive! The growth of the blogging community and the ability to reach out to them to introduce new web services has made marketing Web 2.0 products cost almost nothing. People like Del.icio.us or even Google (Ads by Goooooooooooogle – the biggest unpaid advertising campaign in the world) can essentially spend nothing on marketing. And let’s be clear: This is not viral. I don’t use Del.icio.us because my friends do. In fact, I am not sure if my friends do or not. This is just really cheap marketing thanks to word of blog.
Sales is expensive too. In Web 1.0, after you hire your fifty editors, you hired a sales force. They would go close some launch advertisers and try to sell your inventory. Of course, the sell through rate is low, ROS inventory was inexpensive, the online advertising market was small, so budgets were tiny. The result was that ends didn’t frequently meet (certainly not early on) so people resorted to subscription models. As The Penny Gap discusses, this kills traffic.
Today, every impression can be monetized by Google and you can defer the cost of hiring a sales force until traffic volumes and advertiser demand justify the head. Google will happily let you outsource all that work to them and pay decent CPMs along the way. Don’t like Google? Dozens of companies will give you tools to let you liquidate your inventory in a few hours a month – Advertising.com, YPN, ValueClick, Blue Lithium, Casale, Right Media, etc.
Free marketing and free sales forces take a lot of friction out of the system.
Magazines lose money for years when they start-up as they pay editors, marketing and sales people while they wait for traffic and traction. Now people build Web 2.0 companies for nothing and don’t pay any of those people a dime.
The irony of much of this is clear: VCs and bloggers have discussed ad nauseum how funding requirements for start-ups have gone down as a result. But what is equally interesting is how they are no longer interested if all you have done is market to a million people, because everyone knows that is easy!