Business models in the Internet economy are changing rapidly. With the arrival of Google, eBay, Skype, Yahoo, MySpace, YouTube, Flickr and many other similar Internet success stories it becomes clear that companies who want to play in this space will need to change their business models. This applies to telcos, media and IT companies alike.
We have seen BSkyB in the UK launch a free broadband access service, and now AOL Time Warner in the USA has decided to follow that model.
AOL was one of the last ISPs to whole-heartedly embrace broadband. Until a few years ago it argued that their target audience, families with children, would not need broadband. Furthermore, they believed that, through the merger with media giant Time Warner, they would be able to force their customers to use their business model of ‘walled gardens’ and that they would get away with charges for email and other services.
Their lack of understanding as to this market’s direction has cost them dearly. Financial analysts have estimated that the AOL-Time Warner merger, based as it is on unsound business models, has cost shareholders $200 billion.
Back in 2001, on the day of the merger announcement, we wrote an extensive analysis, explaining the flawed nature of the merger model.
Equally important is the fact that the company has lost a third of its customers over the last few years – customers that are, of course, desperately needed for the free Internet, paid advertising models.
As I have said in a recent analysis of Internet business models, companies need to build customer bases and to then follow their customers, and target them – providing them with services in which they are interested. Around these audiences new business models can be built, based on advertising, permission-based marketing and extra (paid for) premium services.
The music industry is a good early example. Here new niche markets are built around audiences as small as the fan club of one particular artist. Content and advertising is completely tailor-made for these audiences, also taking into account different devices that might be used by its customers at different times (ipods, mobile phones, laptops and PCs, digital vide recorders and HDTV).
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