Trends For 2009 Via GigaOM: Business Models – Sink or Swim

GigaOM’s Om Malik yesterday posted “5 Trends That Will Separate the Strong From the Weak in 2009“, where he smartly outlines technology industry trends for 2009, instead of getting into the game of making New Year’s predictions (which for just about everybody invariably turn out out to be off the mark).

Here is the one I see as the most relevant for all businesses large or small:

Business models sink or swim. Several new business models have emerged this decade, among them VoIP, Social Networks and online video. But with a few exceptions, they haven’t been profitable. 2009 could be something of a crucible for them. Companies offering products or services for free will be tested as ad dollars remain scarce.

I would submit that this is very much true, and has been true for most small businesses even before the dislocations that 2008 brought us. Whether you are an entrepreneur just starting out, or already own a working business that you would like to grow with new products or services, (Profitability) Proof of Concept is EVERYTHING.

Many people, especially in the early phases of a new business (including many tech start-ups), concern themselves with a bunch of side-activities that I collectively call “playing business”: Things like getting stationary and business cards printed, building a brochure Website, hiring a lawyer to incorporate or file patents, etc. etc.

And the truth is, until you test your offer against the reality of your target market (if you’ve done your homework on identifying/selecting a detailed one), you have no business, and can dispense with just about all the formalities.

Pay-Per-Click (PPC) advertising through Google Adwords et al. has made it shockingly simple to market test, so that just about no one has any excuses left for not doing so (and the same goes for launching new products or services for an existing business). So why then is it that we tend to avoid going straight for the Proof of Concept first? The answer is simple: fear. We’d rather cling to a cherished illusion or dream, than find out the cold hard truth.

Fair enough, it’s understandable from a psychological perspective, but it is likely costing you and everybody else enormously in terms of the time and effort wasted on errant paths that should have been trimmed long ago, and in terms of failure to flexibly adjust to the realities of your market.

Here’s wishing us all the courage in 2009 to “Fail Fast”, that is to test fearlessly and up front. If you remember only one thing for all of 2009, make it these three little words: Proof of Concept.

Happy New Year!

– Alex Schleber

UPDATE: Google Changes Game For YouTube Monetization – Opportunities And Pitfalls

As I reported yesterday, Google may have just changed the game re: monetization of its massively used (but so far barely profitable) YouTube video sharing service. Get the details on how it looks here.

But what makes Google’s new "sponsored videos" feature on YouTube even more relevant is today’s news that YouTube searches now represent the second largest search engine in the world according to ComScore, ahead of both Yahoo and Microsoft’s MSN/Live! So there should be ample room for YouTube to generate profits for advertisers and in turn for itself (Silicon Alley Insider estimates that it could add $1B to Google’s bottom line).

However, as I began to lay out yesterday, there are a number of caveats that need to be kept in mind by the internet marketer looking to take advantage of this opportunity:

1) Marketing within Social Media (vs. search ads PPC) is generally tricky due to a deeply rooted differentiation by most people between social and business contexts: People don’t like them mixed, and can react very negatively if they are (read Dan Ariely’s excellent "Predictably Irrational", chapter 4 "The Cost of Social Norms").

2) So if you are going to market in any social context, you need to get the tone and the context just right, else you are not only wasting your ads, you are likely hurting your brand. The backlash may also be much stronger than in other situations, because you will be dealing with a perceived violation of social trust.

Whatever initial offer you make needs to still fit into the "friends" context somehow, or else be so targeted that the prospect truly sees your offer as a form of "friendly service", e.g. if you are offering something that would help with a social task they are about to undertake, like offering flowers at a special price if someone is surmised to be going on a date, etc. (judging from e.g. a Facebook "action" of theirs).

3) While YouTube is overtly the least directly social (compared to say Facebook, etc.) and instead more entertainment oriented, the social aspect of sending/receiving video clip links to/from your friends is still clearly there. So to stay in tune with the viewer/prospect, you still need to get the CONTEXT just right:

If the search keyword (or individual video for that matter) is an entertainment vehicle first-and-foremost, then offer them more (hopefully related) ENTERTAINMENT products, NOT shoes or cars or deodorant. This goes for pre- or post-roll ads as well by the way, which prospects tend to gladly view IF they have something to do with the actual video content requested.

With more educational keywords/videos, there may be more latitude to offer things, though they still need to be related and represent a LOGICAL follow-up, else your sponsored video will get largely ignored/filtered out by the prospect just like most other ads (even though, as I said yesterday, Google appears to be embedding the ads very discretely, so that they don’t scream "ad" vis-a-vis the other video content).

So the formula would be, create videos that are highly relevant to your keywords, while also being disruptive enough to get attention.

Google Changed The Game For YouTube Monetization Today

In my view, Google just changed the game today regarding monetization of its massively used (but so far barely profitable) YouTube video sharing service. Get the details on what it will look like in this CNET article about it here.

In a word, Google is starting a new "sponsored videos" feature on YouTube that will follow their well proven keyword/Pay-per-click (PPC) model, only now with videos instead of the familiar (and mostly ignored) Adsense text ads. This should be a great opportunity for those internet marketers already further along with their video efforts.

It should be pretty cheap to bid on the YouTube keywords at first, due to limited competition on them (the barrier to reasonably well-produced, well-converting video is still high, a lot higher at least than for text/image websites), and the click-through rates should be high because the videos blend right in as just more video content.

Note that the appearance of the still screen shot shown for the video before play will be crucial to attracting extra attention (like a well-done display ad). But in principle, nothing about this form of "ad" will make it so that YouTube viewers will mentally block them out – which usually happens even unconsciously after a short while, because the "ads" are, well, videos, the same thing that the user was looking for in the first place.

But if done right, it can be the equivalent of an advertorial, a marketers dream…

An important caveat applies here: You want to be sure to get the context right, i.e. deliver a video that will be perceived as relevant, or even value-added to the user’s keyword search. Else you will garner exponentially negative brand equity, as users will feel betrayed.

Again, I’d say Google just changed the game today as far as their ability to monetize YouTube is concerned (which was pretty poor so far), but it also should be a great avenue for internet marketers: Instead of wasting time trying to manipulate the YouTube view rankings, or having to "viralize" the videos some other way with a high failure rate (although if you can have that built in, the effect after the initial sponsored promo phase could be multiplied!), you just buy the "in".

Of course, you’ll still have to know what you are doing in terms of direct response marketing to get prospects to convert from the video, and make the numbers work reliably for you.