Nearing Zenith

The infestation of the abstract business model.

Layton Duncan on the “abstract business model”:

The post bubble years have seen an infestation among online startups. An infestation of what I call the abstract business model.

Put simply, business model abstraction is where someone other than the user bears the financial cost of a product or service: ie the product revenue is abstracted from the users of the product. Facebook is currently the poster child of this approach, as MySpace was before it, and Xanga before MySpace. Note that trend.

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The balancing act between users interest and the revenue providers interests created by these abstract business models is a fragile one. History is littered with it’s casualties. The old faithful user pays model on the other hand, fosters a healthy, positive feedback cycle between users and the company. What’s good for the user is good for the company. That builds loyalty, and helps drive the development of a better product. What could possibly trump that?

I’ll add that we’re not really “post bubble” at all, but simply seeing the continuation of a monetization business strategy that seeks to highly overvalue (for IPO or buyout) a subsidized (investor paid) activity for massive (potential) profit. The party comes to an end when either a) the real, sustainable revenue of the business model fails to meet investor expectations or b) the revenue generating strategy destroys the activity’s appeal.

“Social” is supposed to be huge in popularity and profitability because everyone wants to chat and post, share and connect, with convenience and security. But “Social” is supposed to be tricky because no one wants to pay real money for the privilege of doing those things. Both cannot be true, clearly, but that doesn’t stop people from trying to capitalize on this enormous mismatch of expectations.