Friday, October 2nd, 2009...1:32 am

Making Money Digitally

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I fell in love with the internet for the same reasons I love college basketball, literature, travel and New York City. They are all vast, endless worlds in which you can seemingly discover something new every single time you visit. It’s almost impossible to get bored. A new website/book/city/bar or ESPN Big Monday night match-up will leave me in jaw-dropping awe of a new and uncharted experience. It’s a chance for me to discover something that until that very moment I didn’t even know existed.

I have a few distinct memories of experiences with the World Wide Web that have made a lasting impression with me. They all happened in college. This makes sense as I really dug deep into the power of the web my freshman year of college when I first encountered high speed Ethernet in Mary Markley Hall. Before that I had to put up with the slowness of dial up and the wackness of the damn AOL busy signal.

I decided to create my very own website called in 2002. It was a college basketball website in which I voiced my opinions to the world and picked games. It was a glorified blog before there was such thing as blogs. Therefore, everything took lots more time to setup as I figured out how to code, host, design and manage the site on the fly. But it was all worth it because I loved the feeling of being able to broadcast my message to the world. All of a sudden, I had a soapbox to stand on that was high enough for anybody who wanted to watch. It boggled my mind that what I wrote in my basement apartment could instantly be shared with the world.

Another web memory I had during college was reselling Michigan vs. Ohio State football game tickets my junior year. The game fell on Thanksgiving that year and I realized that many out-of-state students would be going home for the holiday. I worked with my friend Dick B. to collect about 75 tickets and then went about selling them through eBay, craigslist and even a local website called Orange Sorbet. At one point we were selling $15 tickets for $150 each (then damn MSU and TJ Duckett upset Michigan on a phantom second). I would check on the auctions and my email every hour in amazement on how easy it was to sell the tickets and generate revenue. One day, Rich and I met up with a woman in an Ypsilanti restaurant who gave us $1000 in cash for a handful of tickets. I was scrambling to get rid of the final few tickets before I left town myself that weekend and actually somehow set up a meeting for my friend Kraz to meet a dude on the side of the highway to exchange two tickets for an XBOX (impossible to get at the time).

Finally, the third digital memory I have from college is creating a website for Robert and his nephew Robert who ran Champion’s – a local laundrymat/keg market/convenience store down the block from our house in Ann Arbor. Colby, Brodsky and I somehow came up with the idea to convince a teacher to let us do this as an independent study project (easy way to get a guaranteed A). We had fun with it. Posted a bunch of goofy photos, threw up some coupons and beer specials and Ben surely towed the line of indecency with his wily copy. We then “borrowed” some ridiculously large email list and sent an email blast out to every student in greek life (you could still do things like that back in the digtal stone ages). Instantly, the Robert’s saw an effect in sales from the website and email and they quickly realized the value of the website. Unfortunately, soon after Robert and Robert and us had an unfortunate falling out that included racial slurs and death threats.

All three are great memories on how I discovered the power of the web. While I enjoyed creating Littyhoops, I realized that the economics of that website sucked. I would need to increase my traffic by literally 500x to begin to sniff similar revenues as the other two projects. I was most captivated how I could make money from the Internet. It seemed magical. It still does.

So that was basically my long, over the top introduction to what I’ve been thinking about these days — digital business models. The common belief is that there are three ways to generate revenue online.

1) E-commerce
2) Advertising
3) Subscription

One of the very first things I realized at CSTV (and this probably holds true for any big media company) was that if I wanted to get anything new accomplished it better have some advertising dollars attached to it. (Incidently, his is why media companies got into a pickle by giving away all their content for free – they believed the best way to monetize was to grow audience and sell advertising around that aggregated audience.) When you work in sports media you quickly realize that it’s a never-ending cat and mouse game between sports properties and major brands looking to reach the mass audience of sports fans. Unlock brand’s advertising budgets in any way possible and the cash flows and you’re a hero.

Lately though, advertising hasn’t lived up to its billing. There are two main causes. The first is that the advertising market has gone into the crapper during this so-called Great Recession. Marketing budgets have been slashed as marketers are forced to evaluate everything and focus on proven tactics and ROI. The second is that digital advertising just really isn’t all the effective. With the exception of Google, which has an awesome thing going with search, most big brands don’t really understand how their website can help a brand be cooler (branding) or sell stuff (Direct response). Social Networks, Twitter, Facebook (virtual products? please!), blogs and mobile have had difficulty creating innovative monetization models to go along with innovative products, platforms or communication.

Chris Dixon wonders what happens if this is it for digital business innovation? What happens if all these breakthrough platforms end up monetizing in a similar fashion as AOL Instant Messenger? Groundbreaking behavior and communication product for sure, but not a business. That sounds like an industry that I want no part of.

Perhaps the ad market will soon make a comeback and easy advertising revenue starts flowing online again. Traditional media (print, radio, television) all got fat eating off the advertising world. Then in the 80′s cable television came along and innovated a new business model (charge cable companies for distribution of content). My gut tells me that digital is going to create new business models and not just borrow the advertising playbook. I’m more interested than ever in evaluating and innovating new digital business models. Link instant messenger, a great idea or product doesn’t always add up into a great business (especially in the digital world). I want to be in the business of creating great businesses.

E-commerce interests me. It allows you to buy anything from anyone at anytime. It makes efficient and fluid markets and increases transactions. Check out Etsy and buy handmade good from Africa and then think about what you are actually doing! In addition, the market share of people who shop online will increase. Children today view as Toys R’ Us or Wall Mart. E-Commerce has yet to be integrated with the social web. This blows my mind away how far we still have to go when it comes to e-commerce. I want to buy stuff that my friends recommend to me. That’s more effective than any advertisement I will ever view. I expect major innovation in the E-commerce space in the next stage of the web.

Mobile interests me. The utility ability of a mobile application is so powerful and so intimate. Most people have their phone on them at all times. It’s so valuable that the iPhone has been able to do something that the media companies could never really figure out how to do on the web. They charge for applications. The more the product is downloaded the more $ it generates. I like that model.

Subscription and micro-payments interest me. What kinds of digital services are people willing to pay for on the web? I’d love to offer something of such value that a consumer would lock into paying recurring fees to access it.

There are so many great ways to generate money on the web. My goal is start to learn more about some of these different opportunities. I want to talk to people who have non-advertising business models that are generating revenues and are profitable. What are they doing right and what are the fundamentals of their digital business? The tools that are available to an online marketer are as powerful as anything I have ever come across in business. I want to take advantage of that.

I no longer want to hear (or think) about great digital ideas or products. I want to focus on great digital business (and new money making schemes!).

  • Sugar

    Subscription baby! Getting the consumer to pay for something (with their credit-card) on an auto-renewing basis is genius :-) .

  • Sugar

    Also, for e-commerce/social web integration examples, see the Facebook Beacon disaster as an example of what not to do.

  • Kevin Marshall

    The b2c model that interests me the most right now is that of ‘virtual goods’ (which I guess can be argued as e-commerce).

    A system like, with very basic functionality, can generate millions of dollars without selling hardly any physical goods to track, produce, or ship (ie. almost all profit!)…that’s the kind of thing we need to be gearing any innovative or great new digital products and ideas towards.

    Aside from that, it’s been my experience that b2b subscription is the next best way to go…find something business are willing to pay a reasonable reoccurring fee for and you’ll be all set (they are more willing to accept paying for things and they generally have more money to pay for it…both of which means you need to make less sales, and it’s generally easier sales to make and maintain).

    Advertising has been a fallback plan for the internet since the early 90s…but it’s always felt a little more like the lottery to me than a real plan…everyone plays it, but only a select few really ever cash in on it (and I even question how many who cash in on it ever really come out with all that much money in their own pockets long term).

    For me personally, I’m always trying to ask myself the questions “what would I pay for online?” and “what would my business pay for online?”…but the problem is, when I’m being honest with my answers, it’s almost always “not much” (or the answer is generally something that would take a serious upfront investment to build … like a system like Netflix watch instantly which I do already pay for)

    Great stuff to be thinking about though…if you crack it, please make sure you let me in on the secret!

  • Jah Hillz
  • Daren Herman

    Other than some sweeping hyperbolic statements made above such as “The second is that digital advertising just really isn’t all the effective,” this blog post is somewhat interesting because it shows your passion for the digital world and how you’ve been participating in it since you were scheming during college.

    People that poo-poo the ad world for not being effective are simply not using it the right way. Advertising is extremely effective if done correctly and digital advertising is revolutionizing the entire landscape. It’s a fascinating time for advertising.

    When building startups, I always say that you want to be as close to the transaction as possible. This is a good rule of thumb. The reason why you want to be as close to the transaction as possible is because it a) rules out middlemen and b) makes sure you do not have to rely on anyone else but yourself to complete the transaction. How can this be leveraged in the digital sense? Amazon, Zappos, Busted Tees, Huffington Post, Playspan, The Daily Beast, Gilte Group, etc. All companies that do well.

  • Litty

    Yeah, the sweeping generalizations are more a product of poor writing skills than deeply held beliefs.

    I like the idea of of being closer to the transaction.

    I guess i don’t love the business of selling advertising as a publisher or platform.