My predictions My thoughts and predictions on technology and business, and sometimes strong ones at that

I recently attended part of the recent Techcrunch 50 conference, and when I wasn’t there I was watching much of it online. For probably 80% of the companies when it came time to ask about their business model, they said ads. Then they talked about cause they have all of this great information about the user they can advertise better than they used to. The problem is they’re forgetting all about user intent. This is why ads on facebook simply arent working, with some CPM’s being as low as .05. 

Ads work on search because users are looking for something, and if you place an ad for it they’re fine with it, because they didn’t want to stay on the search page. When a user goes to facebook they want to stay on facebook, not leave. When a user is in an application they want to stay in the application, as long as the site or application is a destination or resides on a destination it will not make great revenue from traditional ads. Yeah, theres oppportunities for newer creative advertising, but this form of ad’s will not provide the same revenue yet as others. If you’re launching a product or site, actually consider how your worth making money, just saying ads in most cases is not a business model.

I recently read an article on Techcrunch on how web 2.0 had undoubtedly made an impact, but had yet to truly make money. From my stance they is really one way to make money on the web, which is through advertising (paid subscription services are dying). This can either be done through a simple banner ad, or something that can more easily be deemed a qualified lead or referral. Ads will always be there, but if web 2.0 is to start making money it must be on improving the measurement and throughput of qualified leads.

Without going into too much detail on referrals and qualified leads I’d like to mention a great example of this, mint.com. Mint offers a great free service of managing your personal finances. Throwing out security and sharing your data (another time another place), they do a great job of categorizing and monitoring your finances. In exchange they have access to your spending history. So you give them your spending history, in exchange that have hundreds of thousands of peoples data, such as what credit card you use, who your cable provider is. With this mint does what I believe is a good job of generating referrals, but telling you how much you can save by switching from Internet provider A at $60 per month to Internet provider B at $30 per month. They’re not just giving ads for the sake of it, they’re giving me something that I would actually want.

Does this lead to higher or lower revenue? We’ll this I’m not sure of, but with regards to advertising, feel this is a more better fit for a user. I only get things that the service provider thinks I want not what they think they can sell me. As we reach more of the semantic understanding of the web I believe this will prevail and make web 2.0 more profitable, but it cannot be done with web 2.0 alone.

As I write this, I write only from my vague knowledge of where revenue’s come directly from. However, I do hope to back this up in the future with more numeric backing. My title of the post may be quite strong and negative, but I feel it has reasonable ground to stand on, based on one simple principle. A corporation should stick to and focus on it’s core business, and exhausting resources outside it’s core business could end up costing them their business.

As it is, Google’s primary revenue comes from advertising, they’re the primary source for advertising because of their search engine. While some may say their core business is data, I disagree, as how are they making money off of data. Data simply allows them to better target their ads. With Google’s attitude of “Do no wrong” they are unlikely to profit from the consolidation and sales of such data.

Meanwhile Google is exhausting their resources with little to show for it. Google over the past 5 years has been hiring some of the top talent within Silicon Valley. Paying good salaries for individuals that are supposed to be some of the best software engineers in the industry. I’m not suggesting that the individuals are not sharp, but what has Google truly produced from within it’s own walls? Google has bought many of it’s out lier products, i.e. Google Earth, Google Spreadsheets, Picasa, and others. First if they are to go into these areas they should strictly focus on acquisitions and have a smaller developer base.

Though from my perspective Google should not be investing in any of the three products mentioned above. While cool and arguably good products, how does Google plan on making money from these? If they are exhausting resources and effort into these products, at the expense of improving both search and ad’s they’re not focusing on their core business as they should be

Finally, if Google is not pouring into these two areas, search and ad’s, it only takes being beaten by one to be unseated. As soon as a company is able to do search better, or ad’s better Google will lose the majority, if not all of their revenue. While they may be able to stay around after someone else has become a dominant player, it will only be as a very small fraction of what they currently are.

I’m not predicting that Google will be gone in 8 years, but unless they really start to devote to their core business and quit wasting resources on un-needed areas they will have something to worry about.