Business model innovation is the most interesting & important trend in consumer internet right now.
The last generation of internet giants made money with ads. The next generation will make money in more diversified & innovative ways.
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The last generation of internet giants made money with ads. The next generation will make money in more diversified & innovative ways.
👇👇👇👇👇👇👇👇
1) When the internet started out, people weren’t yet comfortable transacting online; ads let internet sites remain free & accessible to anyone.
This coincided with a post-9/11 erosion of privacy. We’re seeing the effects today in the invasiveness of Google & Facebook ads.
This coincided with a post-9/11 erosion of privacy. We’re seeing the effects today in the invasiveness of Google & Facebook ads.
2) Our renewed focus on privacy is in part fueling a backlash to ad-based models.
But even if consumers wanted ads, ad-based models are less & less attractive. The Google / Facebook duopoly gobbles up 77 cents of every $1 spent on digital advertising.
But even if consumers wanted ads, ad-based models are less & less attractive. The Google / Facebook duopoly gobbles up 77 cents of every $1 spent on digital advertising.
3) The most innovative companies pioneer a new model. Discord, one of our companies at @IndexVentures, eschewed ads from the start.
Instead, Discord Nitro charges $10 / month for custom, value-added features. Discord did $130M in revenue last year, up nearly 3x over 2019.
Instead, Discord Nitro charges $10 / month for custom, value-added features. Discord did $130M in revenue last year, up nearly 3x over 2019.
4) Gaming companies have also innovated. Roblox & Fortnite mostly make money through in-game microtransactions.
For example, the Travis Scott skin launched alongside Scott’s Fortnite concert costs 1,500 V-Bucks, or about $15.
For example, the Travis Scott skin launched alongside Scott’s Fortnite concert costs 1,500 V-Bucks, or about $15.
5) A common insult on Fortnite is “Default”, meaning that someone is using free skins. The cool players pay for exclusive, sought-after skins; buying skins is a way of buying status in the game world.
Microtransactions are already 75% of gaming revenue, up from 20% a decade ago.
Microtransactions are already 75% of gaming revenue, up from 20% a decade ago.
6) Virtual currencies are appearing everywhere. Beyond gaming worlds like Fortnite & Roblox, recent examples are Bumble, Duolingo, & Candy Crush.
Virtual currencies will only become more prevalent as new digital economics emerge; NFTs will play an important part.
Virtual currencies will only become more prevalent as new digital economics emerge; NFTs will play an important part.
7) China has been pioneering these new business models for years. Compare Facebook, which gets 99% of its revenue from ads, with Tencent, a much more diversified company.
8) Emergent internet companies will follow a new playbook. Clubhouse is an example, promising to test models like ticketing, tipping, & subscriptions.
Business model innovation is only getting started.
New platforms will be built for creators & communities, not for advertisers.
Business model innovation is only getting started.
New platforms will be built for creators & communities, not for advertisers.
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