Four Ways to Make Money from Your Public Site

When estimating the profit potential of a consumer-oriented Web site, I think one needs a separate set of four categories. If you are starting a new site for the purpose of making money, it is worth considering which categories your planned Web operations fall into and how hard it is to make money in those categories.

Here are the categories:

1. Sites that provide traditional information. This is the type of site that requires the least imagination but also the most capital investment. Find bodies of information that consumers in the 1980s bought offline and sell them online. This includes movies/videos/television, newspapers, magazines, weather reports, and stock market information. Revenue comes from advertising, links to sites that do retail transactions and give you a kickback, and occasionally subscriptions.
   
   
2. Sites that provide collaboratively created information. This is information that was virtually impossible to collect before the Internet. A dead-trees example would be the Consumer Reports annual survey of automobile reliability. They collect information from their readers via mail-in forms, collate the results, and publish them once a year. The Internet makes this kind of activity less costly for the provider and provides much more immediate and in-depth information for the user. Revenue comes from the same sources as in Category 1 but production expenses are lower. A familiar example of this kind of site is eBay.
   
   
3. Sites that provide a service via a server-side program. An example of this would be providing a wedding planning program. The user tells you how much he or she wants to spend, when and where the wedding is, who is invited, and so on. Your program then figures a detailed budget, develops an invitation list, and maintains gift and thank-you lists. You are then in a position to sell an ad to the Four Seasons hotel that will be delivered to couples getting married on June 25th, who live less than 100 miles away, who are inviting fewer than 80 guests, and who have budgeted more than $17,000. A familiar example of this kind of site is Hotmail.
   
   
4. Sites that define a standard enabling a consumer to seamlessly query multiple databases. For example, car dealers have computers managing their inventory, but those data are imprisoned on the dealers' computers and are unavailable to consumers in a convenient manner. Suppose you define a standard that allows the inventory computers inside car dealerships to download their current selection of cars, colors, and prices. You get the car dealers to agree to provide their information to you. Then your site becomes a place where a consumer can say "I want a new dark green Dodge Grand Caravan with air conditioning and antilock brakes that's for sale within 60 miles of zip code 02176." From your query to the dealers' multiple databases, your user can get a list of all the cars available that match their criteria, and can jump right to the relevant dealer's Web site.

In terms of bang per dollar invested, the most expensive type of site is Category 1. To create a site like this, you have to hire writers, pay photographers and editors, and scrupulously maintain your site. If you stop updating for one day, people may turn away to a competitor's site.

A Category 2 site is very cheap to start up. You spend a little bit of money for programming, a data model, and "anchor content". Thereafter the site expands itself.

A Category 3 site requires much more investment and effort, particularly in selling ads and working with advertisers, but it has potentially much higher payoff since you know so much more about your users. An advertiser won't pay too much for an ad on the MSN home page, perhaps a few cents per impression. All that anyone knows about the readers is that they haven't changed their browser's default first page. An advertiser will pay a lot more for an ad on a search engine's site, if it's delivered only to those people who've entered query words relevant to the product advertised. Small text advertisements in the Google search engine have proven to be the best investment for advertisers on the Internet and quite profitable for Google. A Jerusalem-based programmer can buy an ad that will appear every time someone searches for "Oracle consultant" on the Israeli version of Google. Google doesn't know all that much about its users. A Web application that knew a lot about its reader might be able to charge an advertiser several dollars just to display a single text ad.

Category 4 is probably the most lucrative because it harnesses the full power of the Internet. Entering this area requires having the right connections and making the proper business arrangements. It is the Category 4 sites that will change the way the computer is seen. In a Category 3 car site, you offered users a new car planning service. You know what kinds of car they need, their budgets, and where they live. You can charge car manufacturers and local dealerships quite a bit to display banner ads that might tempt particular users. But in a Category 4 site, you know which user is about to drive to which dealer to buy which car with which options. You can demand a commission from the selling dealer. You can charge $50 to a competing dealership to run an ad that says "Just wait two days and Joe Foobar Toyota will have that same color sedan in stock. The price will be $75 lower and Joe Foobar Toyota is 10 miles closer to your house than the dealer you're planning to buy from."