The Business Models of Web 2.0

This is an excerpt from a blog post found HERE

Web 2.0 Business Models
In order to gain a full understanding of what web 2.0 can do for your company, it is important to understand existing business models using the web 2.0 mentality.

Freemium
The Freemium business model is found on many community-based platforms, and certain ecommerce sites that offer a “browse for free” feature. It is a model based on the idea that basic services or features are given away for free, in order to build a large user base by word-of-mouth marketing. The strength of this model is based around innovation, offering a compelling product or service not available elsewhere. The product or service offered at its most basic form is still extremely useful and/or beneficial to the end-user. This basic service or product can still be fully utilized without any investment on the part of consumer. However, advanced and attractive features are only available as a premium service or upgrade.

Software-as-a-Service (SaaS)
The Software-as-a-Service (SaaS) business model is built with the idea of utilizing or hosting business-critical IT applications off-premise. These applications are then licensed or charged based on usage or transaction, and offer all the latest innovative Web based applications developed for individual use.

The applications thereby distribute (and thereby reduce) adoption and ownership risks by efficiently fulfilling services critical to the operation of the company. This model is also based on user base and user interaction.

The software is key for the success of this model, but it is not the focus. Instead, technology is important as a key component, which thereby facilitates the business models of these companies.

Metcalfe’s law applies to the SaaS business model, in that the total value of the service is roughly proportional to the square of the number of customers utilizing the service. If site A has functions 1, 2, and 3, and site B had functions 2, 3, 4 and 5 (with 5 being a new and innovative approach to a service, product, or function; thus making variable 1 of Site A obsolete) a user previously using company A would be more likely to switch to the incentive of company B. As the success of the internet is based on innovation and an ever-evolving move to enhance the user-experience, so to will be the success of that incentive. However, the risk involved when considering the longevity of success for that incentive is minimal if a strategic advertising and marketing plan are there for support. For example, there are hundreds of different dating sites and community portals going live online every year. Most will suffer the fate that many faced in the dot com boom. Understanding your competition and target audience will help you to identify the demands that will serve as a guideline into creating your own “business incentives“.

Companies that provide services that enhance the user experience, provide tangible results, and are not available anywhere else will dominate the market indefinitely.

Service Oriented Architectures (SOA)
Service Oriented Architectures open the potential for partnerships, where 3rd party information distributors can leverage their services to help contribute to and/or facilitate an entire company through syndication. For those that can sell or syndicate content, open APIs that enable mash-ups are essential as they allow others to build useful applications on top of existing content in order to increase its value. This greatly increases the success rate of niche markets by allowing them to puzzle together their company with multiple forms of existing software to maximize their list of services and overall value.

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