Thursday, February 10, 2005

What to sell? Ads or firm?

Yes, this is another post about the acquisition of Bloglines by Ask Jeeves. It's also about one of the main themes of this blog. How do you make money when your product is free of charge?

Making money from free stuff is particularly difficult when you face competitors that are either: also charging zero; or huge . The difficulty increases dramatically when some of your competitors, or likely future competitors, come into both these categories, that is, they are huge, and they change zero for the product that competes with yours.

This is course is one of the big general challanges of e-business. The web includes giants like Google, MSN, and Yahoo. It also includes a vast amount of content, tools, and other stuff available at no charge.

It is also a big challenge in the specific case of Bloglines and of Mark Fletcher. Notice that I say is rather than was. Mark still heads Bloglines. Bloglines, the web-based aggregator, is still owned by a firm, as opposed to a nonprofit. The difference is that it's now owned by a firm that is larger, offers a broader base of products, and sells shares (ASKJ on Nasdaq). So the challenge remains, although the response to it may well be, and probably should be, different now that Bloglines is a subunit of a large organization.

In particular, one way of attempting to meet the challenge is by selling advertising. Bloglines feeds (pun intended, but probably far from original, so track down the person who did it first and shoot them) a lot of people. For example, it knows about me, because it keeps my blogroll and clipblog. It probably tracks how I use this blogroll. It sounds as though contextual advertising could provide a good revenue stream for Bloglines. This is one of the things that doesn't change with the acquisition.

There are of course arguments against Bloglines advertising to its users as it feeds them. Its users might be upset. I certainly would be, unless the contextual advertising was both highly unobtrusive and highly relevant. On the other end of Bloglines' supply chain, the bloggers might be upset. Jason Calacanis certainly would be. In this forceful post, he explains why in no uncertain terms, and also argues that Bloglines "is not a business."

Richard MacManus takes Jason's post, blends it with some of his own previous thoughts, throws in some seasoning, and cooks up the post at Read/Write Web most likely to be made into a movie by Oliver Stone. He posits that Mark may have deliberately "let slip" the prospect of adverts on Bloglines in order to test the waters without actually getting wet. Seeing the reaction from Jason and others, Mark decided that he couldn't turn Bloglines into a money-making business, and that he should sell the firm while he could get a good price for it.

So, more generally, you've grown your web-based business by giving away your product. You've got lots of customers, and lots of customer data. Is advertising to your customers a route to profit, or just a way of alienating them and other stakeholders? How do you find out whether advertising will work without actually doing it? If it won't work, do you have any good options, other than selling the business? Will the acquirer be able to make use of it as a broader and profitable range of businesses?

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