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The presence of a revenue model doesn’t ensure profitability; if the charges, usage or number of users has been overestimated, or the cost structure scales up faster than revenue growth, new ventures burn up their startup capital faster than expected, needing infusions to keep up the pace of growth. Bootstrapping or angel investors can only take it so far; the burn rate forces tough choices.
In some ways, venture capital is easier to obtain these days. The excesses of the dot [...]

Transaction or subscription based models don’t have to be services targeting businesses. Consumers can and will pay for web services that meet their needs. A prime example is TheFamilyPost – a web service that gives families the option of storing photos and videos, creating an online scrapbook or presentation, a family website and chatroom, and more.
Sure, there are plenty of services online that offer some of these for free. You could always try using multiple service offerings to get similar [...]

Per user payment models work fine when usage doesn’t vary significantly between users; usage being clustered close to an average. It starts to break down if some users can benefit much more than others; heavy users then get subsidized by light users, leading to two possible outcomes: either the light users break away to another less expensive alternative, or begin to waste the resources in a bid to redress that inequality. Both of these are inefficient options, driven by inefficiencies [...]

As we saw yesterday, a “free plus ad supported” model makes most sense for consumer oriented activities; where the presence of a “non-free” offering means that most first time viewers will choose to stay away or opt for other free offerings instead. For businesses, however, the ad-supported approach may not make sense; a subscription style offering may be far better. Following the success of Salesforce.com and other web based services, a number of Web 2.0 businesses are exploring the subscription [...]

One downside of a “free plus ad-supported” business model is that it could impact the quality of the content offerings. On one side, free encourages anyone to take part – quite often, spam results. Blogspot is an example – the growth in the popularity of blogging, the importance Google gives to blogs in general and Blogspot in particular, and the fact that anyone can set up a free blog on blogspot, has led to an explosion of splogs.
On the other [...]

An ad-supported business model isn’t a bad one; plenty of sites do well with getting advertising to pay for costs, and even have a tidy sum left over. Many people have benefited from Google’s Adsense and other advertising networks, earning sufficient to devote themselves full time to webmastering.
The pitfalls of ad-supported lie in what your business goals are. If you’re looking for a multi-million dollar valuation and being acquired as the cash-out route, this can be hazardous. You need to [...]

The fundamental attributes of Web 2.0 (User Value, The Long Tail, Network Effects and Experience) mean that startup costs approach insignificance. Unlike dot-com boom startups, where investments needed to be significantly high to reach any kind of scale, the convergence of technology and community has made it accessible to almost anyone who wants to try.
Further, the evolving nature of community based activities means that investments can be phased out on a “do it as and when required” rather than spending [...]

How does a business grow its revenues? The two most common routes are either charging more per customer or growing the number of customers. Typically, charging more works better when the market reaches saturation – there are not many more new customers who can be enticed profitably. For a startup, growing the number of users becomes a no-brainer.
That makes all the more sense for a web 2.0 startup. Except, replace the “customer” with “user” – any member in a social [...]

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The huge success of Skype and Voice Over IP, has spawned opportunities for a variety of offerings seeking to capitalize on this growing market. Phones, headsets and webcams from a variety of makers including Philips, Linksys and Netgear, Adaptors to use your regular phone with Skype ??? the list goes on and on.
But the Holy Grail for Skype as well as users is to have it accessible through a mobile phone. Noone likes to be tied down to one place, [...]