Light Bulb Dept: Web 2.0 Dolts Discover What Dot Com Era Failures Already Knew

[mandy]

Web 2.0 Dolts Discover What Dot Com Era Failures Already Knew...a business model based on giving away free content and relying on ad revenues as your sole revenue stream doesn't work.

Did the average Web 2.0 founder sleep through the Dot Com implosion?

In today’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small companies could succeed at a small scale and grow. But it is very hard to charge when your competition is free.

The economic problem with advertising businesses is that advertising businesses do not work without really significant scale. In the past, a good product or service could address a niche and succeed without being a home run. Today, a home run is required because if you do not reach a massive scale, advertisers are uninterested. And even if advertisers could be attracted, CPMs are so low that the revenue would be inconsequential. Small Internet businesses don’t work...

full article: http://www.alleyinsider.com/2008/4/_free...me_the_vcs