The Wall Street Journal Online published an interesting article last week titled Microsoft Fires Volley At Google in Ad Battle, which states in part:
Some industry executives believe the Internet today is facing the sort of turning point that the computer-operating-system sector confronted two decades ago: Whoever controls the technology platform for buying and selling online ads could hold tremendous power over the Internet industry for years to come — much as Microsoft was able to use its Windows operating system to shape the personal computer.
I believe this assertion is largely true – whoever has the dominant share of advertising distribution will be at the centre of power within the Internet industry, as they will essentially control the revenue spigot.
During the initial ‘dot com’ boom, the prevailing mindset (and, thus, business model) was ‘build your audience, and worry about monetisation later”. This mindset actually fed on itself, as many popular, free services launched in 1998-2000 were themselves predicated on the availability of free services (e.g. free web hosting, free comms, free downloads etc.). That is, sites that offered free services were built upon free services offered by others.
When, around 2001, the crunch came, funding dried up, and start-ups started trying to implement their (hastily devised) revenue strategies, the ‘free built upon free’ environment became a nasty accelerant for destruction.
Non-profitable companies attempted to implement fees for previously free services, with the result that those who used those free services had to implement fees to cover these new overheads. End consumers refused to bite, with the result that no-one in the value chain was actually able to cover their costs, and businesses collapsed left and right.
This time, of course, it is all different.
The dominant mindset is that advertising will pay for the services, so that they can be provided free to the end-customer. Recognising the value of this arrangement, consumers will (it is believed) be only too happy to interact with advertisers, and provide the necessary information to ensure advertising can be sold at a premium.
Whether this revenue model is the panacea many think it is is debatable. However, it is undoubtedly true that many emerging ventures will be heavily reliant upon advertising revenues to drive their business model. In this scenario, the owner of the dominant advertising publishing/distribution platform will control the levers that turn advertising revenues on and off – a very powerful position, not unlike the position of those wealthy merchants who sold picks and shovels during the early gold rushes. Regardless of whether you struck it rich or went broke trying, along the way the equipment merchants earned their fee.
No surprises, then, that Microsoft, Google and Yahoo! are fighting the good fight over who will be in the driver’s seat.