Tomorrow's tech: Making money from the web

  • 14 August 2012
  • From the section Technology
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Using credit card on internet

For the World at One on Radio 4 I've done a series of essays on how technology will change our lives over the next few years. Today's essay looks at the continuing struggle of web businesses to find ways of making money.

"Build it and they will come" - that appeared to be the guiding principle of early web businesses. Questions about profits - or even revenues were seen as irrelevant - the important thing was to get people looking at your website and that meant everything had to be free.

The bigger your audience, the argument went, the more valuable your business - and on that basis some dotcom companies arrived on the stock market at outlandish valuations despite showing little evidence that they would ever make a profit. The dotcom bubble burst, leaving investors sadder but perhaps wiser - and then some online companies started showing that they could make serious money.

The answer was adverts - Google has turned itself into one of the world's biggest advertising businesses, and others have followed in its wake, notably Facebook. There are questions though about just how many marketing messages web users are willing to consume -particularly on mobile phones.

Those worries have seen Facebook's shares tumble since its stock market debut this May. Sherry Coutu - a serial entrepreneur who has invested in web businesses for many years - believes the days of something for nothing could soon be over:

"I think there has been a tendency in the past to build free services and hope that you would be able to build a sustainable business from it. I think that is diminishing as people search for being able to prove not only to themselves but possibly also to investors that they have a sustainable business and that they can make money."

The new buzzword is freemium, where you get offered a limited service for nothing in the hope that you'll sign up to a subscription to get more. The music streaming firm Spotify has pioneered this approach, and news organisations are also experimenting with it.

The other big hope is that consumers who got used to buying ringtones and then apps on their mobile phones, will understand the need to pay for anything they get via the mobile internet.

But competition in the online world is fiercer than ever. Companies still have to prove rapidly that they can win a global audience - and now they have to show they can make money too.