Tomorrow's tech: Making money from the web

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.

Rory Cellan-Jones, Technology correspondent Article written by Rory Cellan-Jones Rory Cellan-Jones Technology correspondent

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  • rate this

    Comment number 1.

    Face book could guarantee close to a billion pound per year if it charged just a small sum. Would that be enough profit? The trade in access to information, collected from a user base, has to offer value for money to its users or they will go elsewhere. What is your business, if it is so reliant on advertising, other than to draw in an audience? Not all businesses need advertising.

  • rate this

    Comment number 2.

    The business models are still a joke - or just pie in the sky wishful thinking - & possibly fraudulently so. This applies to ALL similar businesses that are without real funding streams (mostly advertising) Remember that advertising is also not infinitely expandable!

    I really am not impressed by the audience size - just the simple is the income greater or less than the cost. Its businesses!

  • rate this

    Comment number 3.

    The biggest revolution is in video gaming, a $65+ billion a year global industry. Console games in physical form, where you have to buy before you try, have been in decline since 2008 and are now collapsing. Meanwhile free games with in game purchases have been booming like crazy, especially on smartphones and Facebook. Many industry dinosoars are having trouble adapting.

  • rate this

    Comment number 4.

    Weaning users off free stuff is going to be the real challenge for digital business. Once you give it away for nothing, like Facebook, it is hard to come back from that position. Enticing people in with 'freemium' offers is no answer. They will have to take the Apple approach and make consumers pay because they want quality and kudos.

  • rate this

    Comment number 5.

    4. MP

    Sorry, but it is a free market. If the customer doesn't value a product he/she will not pay for it. That is the case for most 'free' content. Charge for it and no-one will take it!

    Most so called 'business models' are risible.

    A huge number of users of a free product does NOT (and will never!) convert into a profitable product - that is the reality.

    Be a mug and waste your money!


Comments 5 of 8



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