The Internet Credit Crunch

The Internet is about to have its own “credit crunch”. It’s not that the web is running out of money – far from it – but an altogether different problem, revealed by Facebook founder Mark Zuckerberg in an interview with Frankfurter Allgemeine Zeitung – a leading German national daily newspaper. Zuckerberg reveals that they don’t have a business model for Facebook yet. Sorry, say that again? That’s right, Facebook doesn’t yet have a money-making plan.

Now that might not be too bad – after all Google had no money-making plans at the outset and they appear to be doing OK. But Google’s boss, Eric Schmidt, as long ago as 2006, said that he feels “Web 2.0” technology can never make money. So perhaps Facebook has more of a problem than it thinks. At the moment, Zuckerberg says, they are “experimenting”.

Here’s the “credit crunch” facing many web sites, including Facebook; they have built up a loyal following (millions of people in some case) but soon they will not be able to afford to maintain that following. The investors (Microsoft in Facebook’s case) will want a return soon – or they’ll simply cut their losses and run.

The New York Times suggests that the days of social networks are over – simply because they can’t make money. And Zuckerberg’s admission that they are focusing on growth rather than revenue is a stark reminder of where it all went wrong in the last dot com crash.

People focused on the technology and the excitement of the Internet – they did not focus themselves on establishing a business with a solid revenue model. Many small businesses that try to make money out of the Internet fail to do so – and as someone who gets asked repeatedly “how can we make money online” I find a remarkably similar theme.

Everyon – Facebook included – is looking in the wrong direction. They are looking at “traffic”, “lists”, “rankings”, and “SEO”. None of them pay the bills. If your business is trying to make money online focus instead on good old fashioned business practices of finding a market gap and exploiting it with a solid revenue model. Otherwise your business will be caught up in the coming second dot com crash.

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