PROPOSAL FOR SUBMISSION

Research Topic

This research will be based on Web 2.0 business models, revenue models and how this will have an impact on ecommerce development today. The research will first have a general look at web 2.0 firms and their business and revenue models. Then the research will concentrate on two virtual community firms Facebook and Twitter to evaluate their case of starting their firms without a business model or a revenue model. The report will acknowledge how business models have been applied and need to be applied to major Web 2.0 social networking firms.

In general, Web 2.0 is the network in which individuals contribute to the distribution and expansion of contents, tools and applications over the Internet. This concept helps to increase complexity of ecommerce development. For instance, various innovative business models have emerged as a result from the widespread technology of Web 2.0. These models have provided customers as well as service providers with different values and experiences.


Rationale of the research

Firstly, the idea of free online social interaction and networking sounds great and it has been proven to be successful, at least, in capturing popularity and participation of the majority of Internet users however the profitability part has been questionable when it comes to popular web 2.0 sites such as Facebook, Twitter, My Space and so forth. Therefore it makes us wonder about how long these firms last when they have not implemented a business model or a revenue model and if they can last at all without one. With that in mind, we exploit different business models to have a better understanding of how Web 2.0 can be used as an ecommerce tool to make profit.

Secondly, miraculous growth of popularity of social networking sites such as Facebook and Twitter in the past years raises a question of how much profit they could gain if they had initially implemented a business model or a revenue model. Without the means of revenue or a business model, it can be assumed that Facebook and Twitter has been operating on their own expense as well as their investors for the past years that they have been operating.

Research Objectives

1. The research report will first introduce and explain the term “Web 2.0” specifically social networking. Thereafter, we will go into detail to have a thorough understanding of how Web 2.0 develops, varies and benefits the society.

2. We will study how Web 2.0 concept can be profitable in ecommerce by examining different Web 2.0 business models and Revenue models.

3. Examine the key elements of a business model.

4. The report will also look at issues such as why web 2.0 firms cannot sustain their businesses without the help of investors since they have a large number of members, what makes a web 2.0 firm e-commerce, why firms do not make a huge sum of profit when they initially start to operate, the necessity of a business and revenue model, and the effects of growth first and profit second strategy.

5. Lastly the profitability issues of two of the most popular social networking sites at the moment Twitter and Facebook in applying business models will be investigated. The challenges that they face in the web 2.0 social networking marketing.

Structure of Report

Executive Summary
Table of Contents
1. Introduction
2. Literature Review
3. Methodology
4. Web 2.0 Social Networks
4.1 History
4.2 Web 2.0 Business Models
4.21 Key Elements of a Business Model
4.3 Types of Web 2.0 Revenue Models
4.4 Facebook
4.5 Twitter
5. Findings
5.1 Types of Social Networking Firms
5.2 Facebook and Twitter's Business and Revenue Models
5.21 Business Strategies Implemented by Social Networking Firms
5.22 The Necessity of a Business and Revenue Model
5.3 Factors Affecting Social Networks from Making Revenue
5.31 Competitors
5.32 Customers (B to B)
5.33 Investors
5.4 Facebook and Twitter's Costs and Sources of Capital
5.5 Web 2.0 Firms that are making a Profit
5.6 The effects of "Growth first, Profit Second"
6. Limitations and Recommendations
7. Conclusion
8. Appendices
9. References


Literature Review

Not much of research has been conducted specifically on the importance and relevance of a business model to a web 2.0 firm or virtual community firm. However issues surrounding the matter have been researched and explored. A paper by Harris and Rae (2009) stated that social networking is playing a role and will be playing a major key role in future of marketing. The paper furthermore states that “externally social networking can replace customer annoyance with engagement, and internally help to transform the traditional focus on control with an open and collaborative approach that is more conducive to success in the modern business environment” (Harris, Rae, 2009).

According to Gills and Pitta (2009), Twitter, one of the premier social media, offers marketers some valuable potential not only in networking but also in gauging the concerns and desires of a variety of target audiences. This could be further explored into being one of their revenue models. And it was further suggested by Strategic Direction (2009), that twitter proves to be economically viable because even though it has promised to keep the service free for ordinary users, it will be looking into charging businesses for extra functions. Giles and Pitta (2009) further shows that Twitter has been found to be effective in connecting with three important groups, namely, industry professionals, decision makers, and influencers. Giles and Pitta (2009) concludes that Overall, social networking has become a tool that can enhance marketing effectiveness.

Tikkanen et al (2009) illustrate in a study that conventional marketing parameters such as web advertising or product placement may not be the most effective revenue model due to reason that every virtual community provider has prompted to use this type of revenue model and also that there are many other options due to its special characteristics.

Turban and King (2003) stresses that the structure of a business model varies because there are many ways that companies can generate revenue however all business models must specify their revenue model. A revenue model outlines how a web 2.0 firm will earn revenue. However Leimeister et al (2004) stresses that a virtual community business model must have innovative components in order to achieve the “first-mover-advantage” and also to differentiate itself from other existing models on the market. This is essential for successfully entering and surviving in the market. Leimister et al (2004) goes on to state that the combination of different revenue sources and funding sources guarantees security against short-term fluctuations and minimizes financial risks.

In addition Leimeister et al (2004) states that another component that is important to the revenue model and the business model is high investments in personnel and marketing; Leimeister et al (2004) furthermore informs that these are the major expenditures in operating a virtual community/Web 2.0 firm.

Leimeister et al (2004) concludes that according to current research, communities with a supporting function in a company and not a dependency on direct earnings seem to be most promising when it comes to realizing the Virtual Community business model. Most existing web 2.0 firms seem to focus on indirect earnings for example advertising fees. For web 2.0 firms to be considered as stand alone communities they would be required to change their revenue models to direct earning such as member fees and it is only at this time that they will be able to achieve more stability in their business models.


References for Literature Review:

1. Harris. L, Rae. A, 2009, Social networks: the future of marketing for small business, Journal of Business Strategy, volume 30, viewed on 27th October 2010

2. Giles. D, Pitta. D.A, 2009, Internet Currency, Journal of Consumer Marketing, Volume 26, issue 7, viewed on 21st of October 2010.

3. Turban. E, King. D, 2003, Intrdocution to e-Commerce, Prentice, New Jersey

4. Leimeister. J. M, et al, 2004, Revisiting the Virtual Community Business Model, Proceedings of the Tenth Americas Conference on Information Systems, New York, New York, August 2004, viewed on 28th October 2010.

5. Tikkanen.H, at el, 2009, Exploring virtual worlds: success factors in virtual world marketing, Management Decision, Volume 47, viewed on 20th October 2010.

6. Strategic Direction, Strategic Direction, 2009, Ways to Exploit Emerging Technology: Marketing on new Platforms, Strategic Direction, volume 25, viewed on 27th October 2010


List of References for the Report:

1. DonDodge, 2007, Web 2.0 = web app + 2 founders + 0 revenue, viewed on 9th October 2010, http://dondodge.typepad.com/the_next_big_thing/2007/08/web-20-web-app-.html

This article demonstrates the different kinds of revenue models that are available to web 2.0 firms.

2. Bernoff, J, 2008, The Real Business Model for Web 2.0: Corporate Clients, viewed on 30th of September 2010, http://forrester.typepad.com/groundswell/2008/06/why-id-bet-on-w.html

This article will be used to illustrate on other kinds of web 2.0 social networking firms that are making money and had been making money when they initially started their firms. These businesses show different strategies that they have been implemented as compared to facebook and Twitter.

3. Drama 2.0, 2009, Web 2.0, Revenue Models and Profitability: A Web 1.0 Comparison, http, viewed on 29 September 2010, htt//www.centernetworks.com/web-2-revenue-models

This article will be used to compare web 2.0 applications to web 1.0 applications. This article will also be used to show how the internet has developed and where it might be heading in the future in terms of ecommerce.

4. O’Reilly, Tim, (2005), “What is Web 2.0?”, O’Reilly media, viewed on 23 October 2010, http://oreilly.com/web2/archive/what-is-web-20.html

This article explains what web 2.0 is, its applications, platform and so forth. This article will be used to explain and to define web 2.0 and it will also be used to narrow down the study to online social networking. The article so illustrates the core competencies of web 2.0 companies.

5. Miller, C, C, 2010, Twitter Unveils Plans to Draw Money from Ads, viewed on 27th September 2010, http://www.nytimes.com/2010/04/13/technology/internet/13twitter.html

This article will be used to investigate Twitter’s revenue plan, how it took the firm to implement a revue plan and the contents of the revenue plan.

6. Yarmosh, K, 2005, Web 2.0 Business Models, viewed on 27th September 2010, http://kenyarmosh.com/web-20-business-models/

This article will be used to illustrate web 2.0 business models. It defines what they are and explains how they are used for a web 2.0 firm.

7. Deitel, 2008, “Dive into Web 2.0 e-book”, DeitelEbook, viewed on 29 October 2010, http://www.deitel.com/Books/Web2eBook/Web20BusinessModels/tabid/2498/Default.aspx

This is a chapter of the e-book “Internet & World Wide Web – How to Program” (2008) which helps us as a main source for our Web 2.0 business models. It lists different Web 2.0 business models available on the World Wide Web.

8. Crotty, D., 2009, “Successful Web 2.0 Business Models”, The Scholarly Kitchen, viewed 2 July 2009, http://scholarlykitchen.sspnet.org/2009/07/02/successful-web-2-0-business-models/

This author reveals some secrets that people have been using to make money on free social networking sites. He also states that most of big social networking sites have been building up on its size without an obvious business model.

9. Wasserman, T., 2009, “What if social media can’t be monetized?”, Brandweek magazine, viewed 29 October 2010, http://find.galegroup.com/gtx/infomark.do?contentSet=IAC-Documents&docType=IAC&type=retrieve&tabID=T003&prodId=AONE&docId=A202706076&userGroupName=swinburne1&version=1.0&searchType=BasicSearchForm&source=gale&infoPage=infoMarkPage

The article mentions why social networking sites are not good places to make profit. The article also suggests that social networking site should be used to generate awareness instead.

10. Hempel. J, 2010, Ning's fix for the Web 2.0 profit problem, viewed on 23rd October 2010, http://tech.fortune.cnn.com/2010/05/04/nings-fix-for-the-web-2-0-profit-problem/

This article talks about a company that had been implementing a freemium revenue strategy however, they then suddenly decide to charge their users, the out come is usually the users decided to leave or they are left unhappy. Therefore this article will be useful in that it looks at what happens when you do not choose the right business strategy, business model and revenue model. And when it is too late you decide to implement one. This article also looks at situations where the firm concentrates on growth first and then when it wants to make a profit, the out come that is expected.

11. WebHotstingReport.com, 2009, The History of Facebook, viewed on the 27th October 2010, http://www.webhostingreport.com/learn/facebook.html

This article will be used to find out the history of Facebook.

12. Wijiya. S, et al, 2008, Webstrategy Formulation: Benefiting from Web 2.0 Concepts to Deliver Business Values, viewed on 28th October, http://www.open-knowledge-society.org/sample.pdf

This article shows the strategies that need to be implemented by web 2.0 firms in order to be successful in their market. The article talks about how The emergence of web 2.0 technologies has led many internet companies, such as Google, Amazon, Wikipedia, and Facebook, to successfully adjust their webstrategy by adopting web 2.0 concepts to sustain their competitive advantage and reach their objectives.


13. Strickland. J, 2010, How stuff Works, viewed on 27th October 2010, http://computer.howstuffworks.com/internet/socialnetworking/networks/twitter.htm

This article gives a brief history on Twitter.

14. Eldon. E, 2010, Facebook Revenues Up to $700 Million in 2009, On Track Towards $1.1 Billion in 2010, viewed on 28th October 2010, http://www.insidefacebook.com/2010/03/02/facebook-made-up-to-700-million-in-2009-on-track-towards-1-1-billion-in-2010/

This article looks at Facebook’s financial report.

Revenue Models

According to DonDodge (2007), venture capitalists tend to be fans of ad-driven sites since advertising revenue theoretically covers the cost of giving away a Web service free, and free sites attract users much faster than sites that charge money. Such sites are typically also cheap to run because there is often no need for customer-service agents or costs for physical goods. So such companies can have high profit margins if they succeed. Many of today's hottest Web properties are based on the online-ad model, including Google Inc., which pairs ads with search results, and social-networking site Facebook Inc.

Here are some web 2.0 revenue models suggested by DonDodge (2007):

Freemium - The Freemium model, upselling from free to premium

services is a good model. Many of the widgets provide a free service with options to buy premium services such as more detailed traffic statistics, more powerful services, enhanced customization, or higher levels of service.

Transactions - Direct selling to your audience, affiliate marketing ala Amazon.com, finders fees, or percentage of sales, are all good models for certain types of services.

Subscriptions - Yes, people will buy subscriptions to software, services, and high quality content. There are some great businesses built on subscribers.

Advertising can be a component of any revenue model that includes a large targeted audience, but it shouldn't be the only path. There are only so many ways to split the advertising budget pie...and the big guys are getting most of it. Web 2.0 entrepreneurs need to think creatively about all the possible revenue streams.

Discussion!!!

Do you know any other revenue models that can be used by Facebook or Twitter?

Reference:

DonDodge, 2007, Web 2.0 = web app + 2 founders + 0 revenue, viewed on 9^th October 2010, http://dondodge.typepad.com/the_next_big_thing/2007/08/web-20-web-app-.html

Twitter's Revenue Plan

Check out this video about promotion on tweeter

For Discussion: Twitter!!!

Did you know that Twitter didn't have a revenue model up until recently when it launched "Promoted Tweets"? And did you know that Twitter still doesn't have a business model?

For Discussion: Web 2.0 Companies Making Big Money

There are web 2.0 companies that are making good money with use of their business mo

del as well as their revenue model. These companies are not as flashy or as popular as Skype, Facebook, My Space or Twitter and they do not grow like mushrooms either. These companies serve corporate social application needs. They saw that there was a market in corporate social networks and they took full advantage of that.

According to Bernoff (2008), these companies are not your typical Web 2.0 business paradigm, since serving corporate customers means lots of client service, which is people-intensive.

These companies do not lift off miraculously like a pure technology startup. In fact, in many of these companies, the technology itself is positively ordinary. But the startups grow because they deliver value for which they can charge a premium and get customer loyalty. The customers of these companies do not defect when something shiny and new comes along, because they like the service that they are getting. Unlike Facebook or Twitter, customers can just decided to close their accounts when something else better comes along just like they did with Myspace when Facebook came along and some even defected when Twitter came along.

Reference

Bernoff, J, 2008, The Real Business Model for Web 2.0: Corporate Clients, viewed on 30^th of September 2010,

http://forrester.typepad.com/groundswell/2008/06/why-id-bet-on-w.html

For Discussion: Social Networks and their Lack of a Good Revenue Model

Looking at Facebook and Twitter, some of us can only assume that they are making a huge profit. This assumption is taken by looking at the amount of people that use Facebook or Twitter, the number of businesses that have taken an interest in these social networks. However it is a major surprise when we discover that the hottest Web 2.0 startups are in fact unprofitable however it becomes not much of a surprise when you discover that they lack viable revenue models for them to be profitable.

Twitter for example has managed to capture the web 2.0 community but however it has failed to make any real profit due to the lack of a revenue model. Social networks such as Twitter all share a common trait which is that none of them has developed a self-sustaining business whose financial future seems assured.

AdSense has been the main source of revenue for many of the Web 2.0 companies. AdSense is a program by Google which pays web 2.0 companies in order to advertise on their sites. However this does not necessarily mean that the amount made from AdSense will be great to account to the company’s profit. If every new social network company formed relies on AdSense as a source of its revenue, is there enough money to feed all of them? Definitely not, these web 2.0 companies need to find other sources of revenue other than AdSense.

Popular Web 2.0 companies such as Facebook and Twitter have not been cheap to operate or to grow which is why they need a solid revenue model in order to survive in the Web 2.0 market. With a revenue model they will be able to sustain their revenue source.

According to Green (2006), the biggest problem with web 2.0 companies it they put too much weight on the free and not enough on the premium side of the business. They cannot make a profit by pay too much attention on the free side of the business. However free products or services will definitely attract more traffic to your site however there is still the matter at hand, which is, your company needs to make a capital for itself. Therefore by charging for some things, this will give it the capital it needs. Green (2006) says that the trick is o launch a low free level to start with, that has unique applications and that are also addictive to the audience, then the premium side of the business should have room to support the free side.

According to Drama 2.0 (2009 web 2.0′s biggest stars in the past had opted to put revenue models on the back burner. Instead, they raised large amounts of capital for the purpose of growth and achieving critical mass. However things have changed, as they have seen that revenue is required for them to survive and that they cannot just simply rely on their investors when they themselves are not making any money. Twitter was established in 2006 according to Strickland (2010) and it is only now, four years later that they have decided to come up with a revenue model.

Now according to Miller (2010), Twitter has come up with a revenue model which will make use of advertising. Miller (2010) states that twitter will sale keywords to advertisers which they will them to their ads and they will show up when the twitter user searches for these keywords. Twitter will call this program “Promoted Tweets”.
Miller (2010) says in he next phase of Twitter’s revenue plan, it will show promoted posts in a user’s Twitter stream, even if a user did not perform a search and does not follow the advertiser.

According to Miller (2010), several companies including Best Buy, Virgin America, Starbucks and Bravo will run their ads on Twitter. Therefore Twitter will be making a profit from both brick and mortar as well as click companies.
In addition to this revenue, Miller (2010) states that Twitter already has some revenue from deals to license its stream of posts to Google, Microsoft and Yahoo.

References:

Drama 2.0, 2009, Web 2.0, Revenue Models and Profitability: A Web 1.0 Comparisonhttp, viewed on 29 September 2010, //www.centernetworks.com/web-2-revenue-models

Green, H, 2006, Web 2.0 Companies Making Money? viewed on 28th September 2010,
http://www.businessweek.com/the_thread/blogspotting/archives/2006/04/web_20_companie.html

Miller, C, C, 2010, Twitter Unveils Plans to Draw Money From Ads, viewed on 27th September 2010, http://www.nytimes.com/2010/04/13/technology/internet/13twitter.html

Strickland, J, 2010, How Twitter Works, viewed on 29th September 2010, http://computer.howstuffworks.com/internet/social-networking/networks/twitter.htm

Main objectives of our research

Objectives:

1. We introduce the term "Web 2.0" and list up everything to know about it.
2. Next we examine Web 2.0's various business models.
3. Lastly we bring up the controversial topic of profitability of Web 2.0 models.