Universal Mobile Interface

Will the business models of web 2.0 services work when expanded to the mobile?

Posted in UMI by Martin Vendel on May 11, 2009

Over the last years, many successful web 2.0 services have been launched, well received by the end users but many times struggling to reach break even and profit. Some made impressive exits based on future revenue potential and good timing. The business is often based on an advertising model and follows a standard Internet approach. First launch a very compelling free service with potential to spread virally, with the primary target to attract many users and gain significant penetration. In a second step, capitalise on the digital real estate by offering advertising space, premium services and sponsored links. Several have succeeded in getting the service and distribution right, but a quite limited number have made real money as the costs quite often by far exceed the limited revenues per user. You can always hope for an exit, but eventually someone needs to make a profitable business out of the service. In addition, operators are concerned by the increased IP traffic advocating more traditional telecom business models, reflected in the debate about net neutrality. The rights issues are not obvious as technology is at least one step ahead of the legislation. The financial ecosystem surrounding these new services has not stabilised and matured fast enough to judge the sustainability of the models.

New Picture (10)Even with quite unproven business models within the present context, many of these players are now working on expanding their scope adding mobile access to their services. The purpose is to increase the usage by existing users, further improving stickiness and value of the services, but also to acquire new users and initially gaining an edge to the current offer. Already having difficulties with existing business models, will expanding into the mobile space further increase the pain or will adding the mobile channel significantly improve the overall business case? To convince and ask investors for additional funding may many times be a tricky pitch to make. Why expand into a new channel already before the concept has been proven financially? Especially given the financial climate and due to that advertising spending may not develop as once predicted. No wonder that many players are cautious investing time and money into going mobile. And many of them should be, while for some going mobile may be exactly the correct move.  

The mobile arena is the place to be and all predict a growing global business of very large magnitude: we soon reach 4 billion mobiles; it is the most personal device; it is always on etc. But will the existing business models be supported when the web 2.0 services are used trough the mobile? The following factors may impact the existing business model substantially and may make the web business model hard to transfer into the mobile context:

  • There is much less room for banners etc.
  • The service may find a very large audience but in markets that may be less relevant for the service and with an unfavourable ratio between revenue potential versus cost
  • The usage pattern between the mobile and the PC will differ, resulting in shorter sessions and more to the point usage
  • Present premium services may not be relevant in the mobile context
  • Significant additional cost may arise depending on chosen technology
  • Acquisition costs may rise due to cost of sms and clients
  • Keyboards, if any, are used to a much lesser extent
  • Search is less developed and users can not be expected to click on a link and banners if not really relevant
  • Data speeds are limited
  • Existing content rights may not be cleared for this media

New Picture (11)The existing business model may still work well given the characteristics above, but for most this will not be the case. Then you either have to accept the fact that the mobile will mainly be a cost that should be balanced by increased loyalty, gaining new customers etc. or you can refine the model adjusting it to the limitations of the mobile and focus on what creates value in this new environment. Some assets of the existing web services can become very valuable when utilised in a correct way. As predicted below relevant links and ads will become very valuable. The end user is expected to rely much more on trusted parties such as micro communities and peers and will be much more inpatient demanding useful stuff just a click away. That given, a service holds a substantial potential if it can or can be adjusted to:

  • Give a good user experience on the mobile, given its constrains in window size and keyboard functionality
  • Be designed to be used regularly on the mobile
  • Be capable, by profiling etc., to recommend very precise and valuable links
  • Offer non intrusive and opt in advertising
  • Act as recommendation engine based on peer to peer, blogs etc
  • A natural home of relevant links where users share even sponsored links
  • Encourage selection on relevant links on the web to be saved directly into the mobile user interface
  • Offer premium services useful through the mobile

This is not any more about putting ads with limited value for the user all over your sites, this is now a game about being one of the ten to twenty preferred services and giving really relevant offers and links to the specific customer and at the right time and place. If you can do that, then you are in the position create substantial value, if you can’t then not even big volumes will save you.

This all applies to web 2.0, but what about other services? For those that mainly use the web for marketing of old fashioned profitable products and services the mobile will undoubtedly be a very important part of the marketing communication mix and will, correctly used, be a quite profitable and necessary component. These players should also consider developing their services in line with the above to further strengthen profitability.

In conclusion, the mobile may be just what many web 2.0 services need to capitalise on their core assets. Utilised wisely it should even be possible to make up for the presently weak existing business cases. In addition, the mobile channel will increase reach, loyalty and usage supporting the overall case at large.