Social Website Dysphoria

Llewelyn’s Law

Any company having a brilliant idea that will attract millions of users in (relatively) little time, but that won’t publish their business model nor their revenues, relying mostly on funding (from business angels or venture capital) to remain afloat until it gets bought by a megacorp, will disappear in 2-5 years and will be forgotten before that.

These are, unfortunately, the harsh facts. And as we have seen during the Web 1.0 days, only very, very few actually managed to get bought before they utterly disappeared. And even less than that managed to grow and become as big as, say, Google.

Why are we repeating the same mistakes again and again? Well, I would actually blame the media, but that’s unfair — the media looks at technology and publishes numbers of users, because in their minds, more users means more profit. What they constantly forget is that more free users means more costs, and unless the company has a model to cover those costs, well, more users is not necessarily a good thing.

So aren’t there any companies that actually do things the right way? Oh, sure there are, but — they’re not in the Web 2.0 bandwagon, which was for me quite surprising!

A typical example is lulu.com. In spite of the silly name, they’re not a social website, but a small press — a company that prints out books from self-published authors, e.g. “vanity press”. Again, their model is based on getting customers in touch with sellers, and get a share of the revenue of the books being sold. They’re good, easy to use, you set up an account for free, and if you promote your own books well, you’ll sell a lot — and lulu.com will love you for that, since they get a commission and the cost of the books. It’s a pure e-commerce site for the post-Web 1.0 generation, and it was founded in 2002 — yes, during the dot-com bubble euphoria — and they’re still around. You can take a look at how much they sell by looking at this page — and if you don’t believe their numbers, at least, with a lot of patience, you can count all the books they have for sale. Oh, and a suprise: lulu.com was founded by the same person who created Red Hat Linux, in itself a very successful venue, although it makes money out of — open source software.

I could obviously go on for another 2 pages of examples, but the big question is: well, sure, there might be a few good examples, but is there a “New Google”, in the sense of a start-up that suddenly became stupidly rich and powerful by launching a new service that nobody ever thought before?

Sure there is. It’s not a start-up, though. I’m obviously talking about Apple with iTunes first, and the AppStore for the iPhone later — who sold a billion applications in just a year. A billion! Even if on average they only cost just US$1 — even though many are free, a lot are quite expensive! — you cannot fail to think what Facebook would make in a year if they just had the same idea and charged US$1 for every application added on Facebook…

Isn’t it exactly the same model? To be an iPhone developer, you have to “invest” first US$100 — but if you sell just 100 copies of your US$1 application, you get an immediate return, and you’ll be happy you’ve invested those US$100. Everything above that is pure profit. Consumers get ultra-cheap applications delivered to their iPhones with free updates. And Apple just gets a share of all that money. Simple. Effective. Lucrative 🙂

Now imagine if Apple starts to build a social website on top of AppStore. Uh-oh…

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