Monday, February 04, 2008

A New Market for Tech Entrepreneurs - User Content.

(User) Content is King

With all the buzz about Microsoft's mission to own Yahoo! and their recent investment in Facebook (for a ridiculous valuation) - it shows a clear sign that we are entering a new era for the entrepreneur and the tech economy. Not only are the big tech companies re-defining their 10-year vision, but the "users" are truly in control of the market for the first time.

Here is why the "users" are in control:

1. Software is Free. Whether you download freeware or make your own, software is no longer being purchased by the masses. In fact, users have taken the initiative to build their own. "Open Source" has been a buzz word for a long time, but it was too complex to implement and build market share. What needed to happen was the "cycle" of users to get sick of paying top dollar for software, and for the Open Source and Shareware market to spawn "market-driven" companies that upholds the spirit of sharing and "free use", but can build a solid product. In the next five years, users won't pay for software - and they shouldn't because most of the crap on the shelves is way over-priced and not meeting the needs of the average user. There is an adjustment happening right now, that is forcing software companies to adapt to a web-based model, and be more aggressive on pricing.

2. Social Networks and Blogs are dominating traffic. For the first time, Users are truly making the decision on where they go on the web. I know it sounds weird - but for a long time, users were driven to websites by the advertisers. Five years ago, a user would hit a website because they saw an ad, and rarely because of "word-of-mouth" or through smarter search engines. Now, with better search engines, social networks and an Internet where users determine what is good content (ala Digg, Social Bookmarking, etc) - the advertisers don't have enough money to move users to where they want them to go. Now users are driving most of the content, and also driving the trends of traffic. This poses a major problem for media and anyone that intends on selling traffic - because the user is now in control of the wheel and (by the way) can skip the middle man and make money from their own content and traffic.

3. Users are the economy. The shift that is happening is actually very scary. The web economy has always been based on some of the same basic elements of any media - users, clicks, impressions and transactions. And for the most part, there was a middle-man to broker all these products. The is no better example than Google, who is essentially brokering the users time on the web to advertisers. Every page you visit, they display ads... you click on the ad.. they make money. BUT! there is a problem in this model. Google is assuming that users will continue to "aimlessly" browse the web, and not learn and become a "smarter" user. This is the flaw in their model, and ultimately I believe will effect their business. Just like the banner ad business in the late 90's... people at first would click on banners - but then would naturally start ignoring the banners because they typically did not go to a content-rich website, but instead tried to sell them product they didn't want. The "Google Ads" will fall victim to this as well, and when users stop clicking Google Ads.... the Content owners will start to look for other options. The entire "Google Economy" is dependant on user behavior. Why would people stop clicking on ads? Simply... because they no longer use the web to simply search aimlessly - but not have "stuff to do" - the rise of blogs, social networks and other web-based applications takes away time from surfing and thus aimless ad clicking. Don't believe me - read about why Google is reporting a poor performing quarter. They claim users on social networks aren't clicking ads. People aren't searching anymore... they are using the web - and the "ad-based" economy will suffer.

So my point is this - if you are looking for the next killer app? Focus on this trend. If you are building a product that you are licensing (software), or selling advertising (PPC, etc) - then you may want to reconsider your model.

If you want to make money - you will need to provide real value to the user and allow them to share or dominate your profits - and embrace the new economy on the Internet, where it is completely based on one thing - "User Content". The days of clicks, impressions and licenses are over.