There is a major problem with the approach of many internet based companies. Don’t get me wrong, I’m as much a fan of them as anybody, but if they want to survive they need to get smart. And fast.
Very simply, the majority of internet based companies are not self-sufficient. Without massive injections of cash from their investors/founders they would not survive their first year in business. This is due to their inability to raise any revenue from their user base.
Let’s have a look at Twitter, the media’s web application of the moment. In the three years since the application was created they have only managed to survive through their very generous investors which have pumped a massive $55 million into the company. And the best bit? They still haven’t made any money and don’t appear to have any idea of how to go about changing the status quo.
But it doesn’t stop there. According to a recent report by Credit Suisse, YouTube is on track to lose it’s parent company Google roughly $470 million in 2009 alone. By anyone’s books that is a bitter pill to swallow. And then of course there is the social network Facebook that has plumetted in value from $12 billion in 2008 to only $4 billion today.
There is a very obvious conclusion to draw from these statistics - that free, advertising supported services simply do not work in their current guise. Of course, many companies are now adopting a freemium business model with mixed success but, after all, you just can’t beat a company that is offering a similar product for free.
Therefore, I suggest that companies try to re-educate people about the true value of the price tag. It isn’t simply a way to part people from their hard earned cash - it’s a sign of company confidence in a truly great product.