Is a feature a business?

It’s not clear to me that a lot of the companies that have received venture funding in the music space (or really the entire technology space) are truly businesses in the way that I understand them to be. Here’s what I understand about business: somehow or some way, a service is provided that somebody somewhere explicitly pays for. It doesn’t have to be the end user, as Google has shown. It can be the long tail of the marketing ecosystem, small businesses and big businesses that will pay for a specific action like the clicking of a link to increase the likelihood that their goods are sold.

But at some point, there has to be an actual and monetizable exchange of value. Looking out across the spectrum of new technology companies that people are kind of using (I say kind of because even for the big ones it’s still mostly a small circle of technology geeks that are the power users of the product) I’m having trouble finding concrete examples where companies are actually effective at monetizing their user base.

What exactly is the Twitter business model? It must have something to do with advertising but I’m not sure what. I haven’t seen ads supported by Twitter’s micro-blogging platform as of yet. I know a lot of people are using the service and, somehow, even I am getting a few followers a week. But my sense it’s kind of like a Linked In scenario where these are other marketers that are “following me” so that I might follow them. So while Twitter seems to be an interesting feature and certainly a useful tool for me as I think about marketing my music, I still can’t figure out who in their ecosystem is writing a check.

Same goes with a lot of the Mozilla add-ins you see like StumbleUpon. And then there’s a company like MuxTape. Irrespective of the fact that the RIAA is going to sue them, which in itself is highly amusing. What exactly is the point? I’m at a loss to figure out how making an mp3 mix on a website is actually a business and, assuming that it is potentially a business, who is paying what for whom.

It’s strange to me that what really seems to be happening (or perhaps has always happened) is that big technology companies are outsourcing their feature set R&D to start-ups. That’s fine and again not anything new. But I can’t see how you get to a big valuation if you can’t ultimately prove that someone is willing to pay for the actual use of the service.

There’s an assumption that with a large installed user base, and a decent feature set, there has to be a way to integrate the users across a broader platform and monetize their actions. Serve up advertising to all Twitter users through Google ads, assuming Google ultimately acquires them. But we’ve seen through YouTube that Google isn’t actually that good at inventing business models where none exist.

To my point, here’s an article talking about the same thing.

Tags: internet, music and the web

Sam

Video mining is really tough. The problem is that the web is really built on text as the organizing principle. I thought about that when I was considering a Tumblog through Tumblr. I don't feel like pictures or videos SEO that well unless they're robustly supported by text tags. Everything needs to have a rich layer of words to buttress it if it can be found and, therefore, monetized, through search.
Derek

I was thinking about this the other day too. First thing that came to mind were the many dot-com companies that sprang up in 98-00, many of them with awful ideas and crashed. But they did have some type of business model, and promised to be a business that made money. Obviously most did not, but at least they gave the impression that they were a business. These "web 2.0" features do not even seem to promote that they want to make money; they are just "there". My feeling is that they must have potential backers or maybe seed money from larger web companies, but I'm not sure. Maybe it is a test run, and that if features like Twitter become more successful then they will change their operation. But why bother? Why change something that the Web is getting for "free"? It is an interesting question.
Denton

I totally agree about the disparity between valuation and value of so many start ups. VC's are paying for all these businesses with unproven models. Facebook, Twitter, all of 'em. It seems like there's no pressure for those companies to monetize anything. It feels like 1998 2.0. Facebook has their own google-esque advertising platform, and says that people are "social before they search." We'll see.

YouTube will be much better monetized as the technology of "Video Mining" comes along and google can serve contextually relevant ads on User Generated Video, that's presumably been pre-scoured for content the advertiser would feel is undesirable for pairing with their brand.