Chad Perrin: SOB

27 April 2008

Why Web2.0 Works (and what doesn’t work)

Filed under: Cognition,Liberty — Tags: , — apotheon @ 01:22

Yesterday, in Is there one thing I must say to the entire world?, I made a comment about the power of a good idea and the fact that, with such an idea, there’s no need for protectionist business practices of the sort employed all too often in creative industries (music, film, dead tree media, software) these days. The intent was to write something in 150 characters or less that made for a message to the world at large.

Somewhere along the way, I had a brain fart and wrote such a message in 150 words or less. It looked something like this:

If you come up with a good idea, you don’t have to force people to buy in. If it’s really a good idea, you can’t stop people from giving you money. If you try to force people to buy what you’re selling by preventing them from sharing it for free, you’ll alienate people and possibly ensure that what could have changed the world for the better will instead fade into obscurity. If people aren’t beating their way to your door, it’s probably not a good idea — and if you’re losing all your money through distribution and marketing, you’re probably dealing with an industry that has made a habit of alienating customers. So please stop telling me what I can and cannot do with what you’ve given me; trust that with a minimum of business sense you can make a living without wielding the law like a club.

There’s more to it than even that. There’s the fact that allowing people to share what you’ve created is the single most effective form of marketing you can employ if your work is actually worth anything. There’s also the fact that people value “originals” — the original, “official” release of something, a live performance, et cetera — which will always drive people to the creator even if third-party low-cast copies are readily available. Finally, there’s the simple fact that with great talent there’s always a way to build a lucrative business model in a free market, whether you have law enforcement agencies and armies of lawyers running around forcing people to behave a particular way or not.

So . . . what does this have to do with Web 2.0?

Some hints might be found in my older SOB entry, how not to make money on the Web:

Any company still in the business of selling software licenses is going to have a consistently tougher time making money as time progresses. Software does not lend itself to being treated as tangible property: an entirely separate body of law (copyright law, specifically) is required to make it possible to even try, and the process of trying creates new expenses in enforcing this unnatural business model based on artificial scarcity (which any economist will tell you is ultimately an unwinnable game).

Something like Montastic could be monetized by nothing more than a Google AdSense banner. Productized software, meanwhile, requires legions of lawyers, distribution channel partners, and insane wastes of development resources creating enforcement software like WGA and other DRM-leaning “solutions”, all of which ends up treating your customers like your enemies when they should be your friends.

What is Web 2.0?

There are people all over the place begging for an opportunity to tell you what “Web 2.0” means. They’re full of buzzwordy ramblings about leveraging this and monetizing that and the implications of the other thing. The closest I’ve seen to actually approaching an insightful explanation of “Web 2.0”, in the form of what works and what doesn’t, goes something like this:

  1. simple, clean, user-oriented, functionality-focused design

  2. building value through user participation

  3. letting the data come to you

  4. non-obvious means of turning a profit that are tangential to the main product or service

There’s an underlying principle to this, however, that is being overlooked by just about everyone. It’s the key difference between successful “Web 2.0” and unsuccessful “Web 2.0 manque”:

  1. Employ a business model defined by the customers.

That’s about it. There’s no imposition of business model from above in the form of legal limits. There’s no trying to make the customer base conform to a preferred way of making money. There’s no coercive marketing, high-pressure sales, or obfuscation. There’s no priesthood of product or service development dealing with the supplicants of the customer base.

Is this a new business model?

It’s all shiny and new — right? Except . . . it’s not. It’s basically the oldest business model there is. It’s a business model of free exchange and cooperative advancement. It’s the most robust form a business model can take:

  1. Nobody can undercut you by giving the customers more of what they want if you’re not withholding anything.

  2. Getting the customer base involved gives them a stake in your business model’s success, so that even if you’re not always at the top of the market niche you’re never drowning or even treading water.

  3. Even if the entire legal system collapses, that doesn’t directly affect your ability to keep making a profit with your current business model (unless, of course, your business model is tied directly to the current legal system without actually depending on it for the form of the business model — but that’s a weird edge case).

Remember: the most valuable innovations typically aren’t innovations in getting people to buy your shit. Instead, they’re typically innovations in how to achieve what you already know they want. It’s recognizing a need for an improvement in the satisfaction of the customers, and not creating new needs for satisfaction.

. . . and making your profit stream rely on the notion of “intellectual property” is a great way to sabotage your own “Web 2.0” business model. When your business starts hemorrhaging money because you can’t effectively stop people from “pirating” your “intellectual property” (note scare quotes in this paragraph around terms used by champions of coercive business models to confuse readers/listeners), just remember the cardinal rule of a failing get-rich-quick scheme before you come whining to me about “thieves”, et al.:

It’s not my fault your business model sucks.


  1. Thanks for the idea about making Montastic!

    Comment by Daniel Guermeur — 28 April 2008 @ 04:59

  2. Amen!

    Comment by Joseph A Nagy Jr — 28 April 2008 @ 05:54

  3. […] [From Chad Perrin: SOB ยป Why Web2.0 Works (and what doesn’t work)] […]

    Pingback by Web2.0 Business theory (linked article) — 3 May 2008 @ 12:26

  4. […] said it before (more than once in fact) and, given half a chance, I’ll say it […]

    Pingback by Chad Perrin: SOB » It's not my fault your business model sucks. — 26 August 2009 @ 10:40

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