The Idea Exchange

The internet is booming these days with the creation of thousands of new sites in the so-called “Web 2.0″ category.  Ranging from social networking to productive gadjets, or “widgets,” to interactive forums, this Web 2.o movement is actually quite useful.  The one thing I find interesting though are the business models these sites are carrying out.  Most of the new Web 2.0 sites are free to anyone, but there are several quite popular sites that require paid memberships as a full option.  One prime example that I am familiar with is LinkedIn .  I know there are dozens of others that require a paid membership, but these two sites in particular are what I would like to focus on.

First of all, there are two prime revenue generating concepts for a Web 2.0 site: paid subscription and advertising.  Google cleary revolutionized the internet advertising business and many companies have followed suit.  Advertising has become such a huge source of revenue that it is very easy for a popular site to earn a massive profit off of advertising alone.  Networks like MySpace and Facebook are worth millions, even billions of dollars, and their members pay no subscription fee.  However, LinkedIn, the self-proclaimed “King of business networking,” charges a substantial fee for any of their premium services.  LinkedIn is a wonderful tool with many outstanding features and many people have been able to truly leverage it for business success, but with all the pressure from other start-ups offering similar or superior features for free, it could easily become obsolete.  There has been a lot of discussion recently about whether Facebook could completely dominate LinkedIn’s market segment by allowing different parts of your profile to be viewed by different contacts.  This would ultimately allow users to have a professional profile and a personal one so that they can moderate who sees what.

If this is the case, or if another start-up offers a service with superior features to LinkedIn for free, why would I still use LinkedIn?  I might maintain my account there, but encourage my contacts to join this better service so that more could be done.  It isn’t common for people to have profiles on different sites such as MySpace and Facebook, and it also isn’t common for a brand new company to essentially take over even if it starts far behind (watch Facebook begin to dominate MySpace in a few years to see what I mean).

Essentially, I believe many users will get frustrated with LinkedIn, especially if they move to a greater reliance on paid subscriptions.  When I am only given a limited amount of introductions and network questions, it discourages my use of these tools altogether.  I don’t understand why they can’t see the reward of moving to a free system with all the features and then luring every potential customer now that the LinkedIn name is well-established.  The ad revenue would be enormous, and would probably easily outpace the revenue from the subscriptions.

Another service that fits this description is the Motley Fool Community.  I love the Motley Fool website, and I also think their innovative ranking system within Motley Fool Caps is outstanding.  However, why do I have to pay $30 a year to use their discussion boards to ask the questions I want to discuss?  If this service was free, it could easily become the prime place on the web for financial discussion, and the ad revenue would be huge.

 I hope the Web 2.0 sites currently using a business model of paid subscriptions will quickly see that this is an inferior strategy.  It is too easy for another network to come along and wipe you out because the new network is free.  Dropping these paid subscriptions will lead to more revenue, bigger social networks, and happier users.  Gotta love a win-win.