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Online business models: value vs. values

I read a few years ago that ‘free’ had overtaken ‘sex’ as the most searched-for term on the web. I don’t know how much truth there was in the story, but it’s certainly true  the prevailing view is that stuff online should be free – an attitude which has found its way into the very core of some of the world’s biggest businesses.

Of course, there’s no such thing as a free ride. While we’re not digging into our wallets, the free services we use are digging into our online lives, farming and selling as much intelligence about us as they can. Google knows what we search for, what we say to each other in email, and how we use the zillions of websites who’ve plugged in Analytics. Their value is in that vast knowledge and their revenue in its sale to advertisers – the deeper the data, the more surgical the marketing strike and the higher the premium. Facebook’s based on the same principle; the more we tell our friends about ourselves, the more Facebook knows about our preferences, and the higher its share price becomes.

It’s an attractive model because ‘free’ is such a good way to grow quickly, but it inevitably creates a chasm between the value of the platform and the values of its audience. The only way to capture monetary value in this model is to erode the personal and private, especially as we’ve begun to share increasingly intimate pieces of our lives online. Once that model’s instilled, new features only have value if they increase or improve the data being captured – appeal to the user is only considered to ensure the feature is used, thus providing the extra data.

It’s like being offered a free car on the condition every journey you make is tracked, every piece of shopping carried in it logged, all your passengers’ details noted, every phone call made from it taped, and that data being sold to the highest bidder so they can sell things back to you. Would you take the car? I’m sure many would, but I think most would consider the intrusion too great.

Surprisingly, successful business models did exist before the web, and I believe they’re perfectly transferable. There’s nothing wrong with building an appealing brand which provides great services and expecting people to pay to use them.

It’s exactly the approach we’ve taken with Blipfoto, because the integrity which underpins our offering is central to the values – and value – of the brand. And that includes respecting its users’ privacy. As well as providing the service, we’re some of the platform’s most avid users and it seems stupid to manage it in anything other than a way which provides the best experience to its users.

We’re not alone in this approach. The most obvious example I can think of is Vimeo, who’ve firmly established themselves as the best place to share original moving image content online. There are many other places to post your videos, but the folks at Vimeo have built something focussed on the user, not advertisers. That’s why users (me included) happily become customers – at a price of $60 a year.

Where personal content sharing and social networking are concerned, my money’s on this approach giving greater value and stability in the long run. Unlike a business whose customers are advertisers and users its commodity, it forges a deeper relationship which really can be based on openness, trust and integrity.

It’s still early days even for the Googles of this world, but it’ll be interesting to see how these two approaches pan out – particularly for those being forced into moving real-world business models, value and values online. The biggest challenge is possibly faced by newspapers, who’ve always had to tread a fine line between the integrity of the brand and the value of their readership to advertisers, but will increasingly struggle to draw income from both ends.

As ever, with challenges come huge opportunities for those who get it right. I’m sure the winners will be those who don’t throw the baby out with the bathwater and remember that despite all the layers of new-fangled wizardry, people are still people, good service is still good service, and customers are still customers.

5 things MIT taught me about business

It’s not often your outlook on life changes perceptibly in five short days, but if you ever find yourself enrolled in MIT‘s Entrepreneurship Development Programmethat’s exactly what you should expect.

Despite a room full of previous participants telling me the same thing just two months earlier (and warning the days weren’t particularly short), as I cruised Boston-bound high above the Atlantic this January, I wasn’t in the least bit prepared for what lay ahead of me.

Bill Aulet, our leader for the week, describes the EDP learning experience as ‘drinking from the firehose’ – and he’s not wrong. Even with the constant stream of Coke, cakes and coffee entering your digestive system, I defy anyone to take that much into their brains that quickly. It’s overwhelming at times, as every waking minute is used to fill you with knowledge then test it to breaking point.

There are lots of waking minutes.

But through the bombardment of captivating lectures, guest speakers, workshops, discussion and pitching, important things quickly emerge. For me five simple messages stuck, which I’ve brought home along with a greatly refined view of how to build a business.

They seem obvious in hindsight, but the best things usually do. See what you think…

1. Understand what innovation means

A bit like ‘awesome’ (which I enjoy using frivolously while on US soil), ‘innovative’ is a word often used to describe things which quite simply aren’t. Innovation actually contains two ingredients: invention & commercialisation.

Innovation = invention + commercialisation

And if you spill too much of one ingredient into the mix, you should always make sure it’s the latter. An inferior invention can enjoy huge commercial success (Windows), but even the most awesome will fail without good commercialisation (Betamax). Innovation is the taking of something new to market, converting novelty into value. And it’s the fire that burns at the core of every successful entrepreneur.

2. Get Stuff Done

Successful entrepreneurs share an ability to Get Stuff Done. Sometimes that means working like a crazy fool to make something happen, sometimes it means persevering in the face of adversity, often both. But the key is achieving stuff – little things, big things – all outcomes you can put your finger on which moved you on from where you were before.

If it sounds terribly simple, that’s because it is. It’s also terribly effective.

3. Create value, capture value

Your service or product has to solve a customer’s problem, scratch an itch, or relieve a pain. If it does, you have real value to them. Establish that value in your customer’s mind and you’re in a position to capture value – revenue – in return.

Balancing the relationship between the two is a craft, but it’s surprising how many businesses miss one of those two basic factors (and unsurprising how many successful ones have them nailed).

4. Keep the main thing the main thing

‘Focus’ is a theme you come back to time and time again to at EDP. Even if you’re lucky enough to have money on your side, when you’re growing a new company, time certainly won’t be.

When the Vikings arrived on the shores of a new land, the first thing they’d do is burn their boats so there was no going back, and you should do the same. Identify a single market and pursue it with utter conviction and minimum distraction. Deselection is just as important as selection, and clearly defining your main thing gives a simple framework to make decisions quickly.

In short: if you want to fail, keep your options open.

5. Be the Chief Experimentation Officer

Failure isn’t always bad, but only if we can fail quickly and learn from it. That’s why experimentation has such an important role to play.

The basis of any experiment is simple: create a hypothesis and devise a way to test it out. But there’s a strong argument to forgo perfection in those experiments so they happen quickly and cheaply. If your hypothesis isn’t going to hold water, it’s better to find out with 80% certainty in 20% of the time and with 20% of the resource.

And never stop experimenting. As you grow, do even more – the most successful companies are expert experimenters.

Proof of the importance of these five points was found in two hugely successful Boston startups I visited, SCVNGR and HubSpot. This stuff runs in their blood, and I was struck by the clarity and focus with which they approach their business. They know exactly what they want to be; now it’s just a case of getting there.