Virtual Value: Can Anybody Make Real Money Online?

By Richard Bolton, Executive

The Internet in its Teenage Years

When you think about the Web from the point of view of business, it’s perfectly fitting that the Internet is a teenager. And I’m not just talking about the mass popularity surrounding YouTube, Facebook, and other youth-centric properties and sites.

What I mean is that, while the Internet has been changing how we live and work for the last 12-15 years, many executives wish the Web would just grow up. In a wide range of industries – from telecommunications, media and entertainment, and publishing to retail and banking – the fundamental online question remains the same as it did way back in the mid- to late 1990s, when the Internet was a toddler: how to make money online? That’s the basic challenge, even if you clarify the questions to fit specific industries or situations:

• What content and services can be monetized into revenue?
• How can we attract more eyeballs and keep them on our sites longer?
• What’s the right model for our online business – ad-supported, subscription, or freemium?

Rapid Growth, Confusing Options

There’s no denying the size of the opportunity. Consider that the advertising dollars U.S. companies spend online will double in the next few years, reaching $35.4 billion by 2012, according to Jupiter Research. Mobile ad spending will take off, too, reaching $15 billion by 2011. In other words, an advertising channel that barely exists today will become a huge business in a just a few years. These shifts mean different things to different types of organizations, of course. Media companies (including newspapers, magazines and television) may face the most direct impact. They have made major bets to expand online offerings in the hope of thriving on the Web as they have in traditional channels. Financially, the plan is to use the Web to replace shrinking revenue from these traditional channels. So far, it hasn’t worked.

For a while it looked like the big portals, Yahoo!, AOL, and Google, would be the biggest threats for traditional media firms, but YouTube, MySpace, Facebook and millions of blogs are doing equal damage. No wonder NBC, Fox, Microsoft and other giants are buying up whatever properties get hot and achieve critical mass.

Fragmentation vs. Managed Change

When a single individual with an Internet connection and enough (perhaps too much) time on his or her hands can attract more attention online than heavily-resourced global organizations, the rules have changed. The basic model – broadcast a single message to the largest number of people – on which these enormous companies have been built is shattering.

Or, to be more precise, it’s fragmenting into a great number of micro-niches – small groups and individuals who want highly customized information and services, when and where they want it. And often they expect it to be free. ”Old-line media” is learning the hard way that, if they want to keep their customers, they have to go to them – via widgets, mobile applications, and perhaps, occasionally, on their cable boxes.

The rise of Web 2.0, user-generated content and social networking means the potential to interact with customers and get to know them better than ever – but the risks and threats are just as great.

Further, it’s not entirely clear what the most effective business models will be to take advantage of online opportunities. Will content be free, with revenue coming through advertising sales? Or, will a subscription model make sense? And what about “freemium” models, which mix free and paid, premium content?

Even tools and tactics are evolving rapidly. What mix of search , behavioral, and display advertising is likely to be most effective? And which are the best advertising platforms and technologies? Rich media allows companies to be more creative in their use of video in online ads, but the jury’s still out on ROI. Choosing partners can be difficult too, since pervasive M&A activity means they can be competitors overnight.

Competing with Free

In addressing these questions to shape an online strategy, companies must recognize that the answers aren’t necessarily permanent. Put another way, the constantly changing nature of the Web means that what works today won’t necessarily work tomorrow (or even this evening). Even early online winners must keep evolving. We worked with one of the largest ISPs in the business during a “bet-the-business” initiative which changed the fundamental operating model.

Few organizations have done more to popularize the Internet with consumers than this true Internet pioneer. But, after many years of rapid growth, increasing numbers of subscribers were moving to free Web-based portals. Again, it’s a nearly impossible question – how do you compete with free? For our client, the answer was to become free itself, meaning it would use advertising sales as its main revenue channel, replacing the subscription model it had used since day one.

At the same time, the company’s advertising customers were also requesting changes in the way ads were served across various properties. This change was necessary to enable more targeted campaigns with greater reach spanning multiple properties. Finally, customers wanted faster turnaround times and greater insight into performance. Along with the business model change and technology overhaul, many processes would also need to be re-designed. If it sounds hugely risky, it was. But the company was in a “change or die” situation.

Our Change Engineers were embedded with the company’s teams throughout the project. We were responsible for establishing the necessary program management capability to keep multiple work streams on track and aligned and for translating business strategies and objectives into specific IT and process requirements.

Lastly, we designed and delivered extensive training and communications on the new processes and systems to 500+ users in the U.S. and elsewhere. The effort was necessary to overcome resistance to change and ensure user adoption and support of the enterprise goals. And the effort paid off: in the first three quarters after launch, ad revenue shot up 26%, 40% and 46%, while more streamlined processes and less duplication of effort resulted in greater operational efficiency.

It’s About Change-Ability

The moral of the story relative to the Internet is that successful transformation is possible for companies who design the right strategies and can execute them effectively. For large organizations, a successful online business is largely driven by the organizational ability to change, as much as it is by enabling technology.

Most big organizations won’t be paradigm shifters or develop killer new apps, like Facebook. But they can leverage their advantages – operational expertise, effective process, extensive resources and large customer bases, to name just a few – as they seek to harness the power of change for online efforts.

Of course the online revolution has been a major force in other industries besides media. For manufacturers, retailers, banks and consumer packaged goods (CPG), the online challenge translates to consumer empowerment: how do you satisfy customers who are likely to know as much about your products and services as your own employees, and maybe even more?

And then there’s the marketing dimension: what happens if/when you give up control of your brand? Yes, brands (whether a weird light saber dance or food products) can become overnight sensations. And, yes, you can gather more and better customer feedback than you ever could before, but are you ready for it? And what’s your process for turning customer input to better service?

Online Ironies

Ironically enough, the keys to succeeding with online business models are often old-school management concepts, like strategic sourcing, process engineering and systems integration. Sure, it’s paradoxical, but operational efficiency, technological integration and responsive service mean more when there’s so much free content to be had.

Even the most analog-seeming concepts, like change management and communication, have a way of turning into tangible value when applied to digital businesses. In this sense, however much the rules have changed, the old rules still apply.

Bottom Line: All Change, All the Time

As turbulent as the first dozen or so years of the Internet Age has been, there’s plenty more change to come before the Web reaches full maturity. Web 2.0, social networking, increasingly powerful mobile platforms – all of these represent important shifts in how people live and businesses operate. And don’t think that a maturing Web will change any less rapidly.

Remember that, somewhere out there in cyberspace right now, a teenager is goofing off with an idea with the potential to wipe out many decades worth of accepted business practice and several billions of dollars worth of invested capital in a relatively short time.

Still executives in even the most troubled industries should take heart from the fact that they can make money online – and lots of it, potentially. It’s even better news that in many cases, they already have the content and services they need to attract more eyeballs and dollars online. It may seem somewhat ironic that by focusing on a few management (and change management) fundamentals, larger organizations can learn to move at Internet speed. Maybe the Internet’s not the fountain of youth for mature businesses, but certainly it can help them feel (and operate) like they’re young.