Cash strapped times

With big companies cutting back staff and our high street retailers going under, is there any room for new internet start-ups? Are the Twitters of this world going to struggle in these turbulent cash strapped times? Will there be funding for new and fantastic communication tools in the future?

Hit the read link for more on the services we all hold dear and their uncertain future.The current trend for Internet start-ups that provide new free services is something that anyone who reads this will have benefited from. In this day and age we increasingly rely on, and take for granted, free services that in the past one would have paid quite a large premium for. Email is the obvious example. Gmail, Yahoo mail, Windows Live mail and many other services are provided free of charge, some in a more limited fashion, some totally without charge. The freedom to use these services has made sure that not only are they extremely popular but have become a staple of personal communication. The Internet is all about communication; be it ideas, caring thoughts or, more and more frequently, inane chat. All these free services are provided at not an insignificant cost however. The bandwidth, software engineering and storage all have a cost. Currently most of that cost is absorbed by online advertising. Google, the internet’s largest ad broker knows a thing or two about leverage it’s advertising money to buy services that people can build their lives around. This in turn provides a captive audience for more adverts and therefore more profits. The real trick here is to build something so good and so interconnected that it’s truly becomes something that people rely on. At that stage you have something that has real earning potential. For a lot of people (a vast majority of the general populous) that’s email. Newer communication methods such as social media and networking, things like Facebook, MySpace and Twitter are becoming ever more popular with tech savvy users making it the corner stone of their net based social lives. This total integration with a persons life again provides a captive audience for revenue generation.

The problem comes from how to make that leap to a profitable business from a free and interesting service. There are currently a couple of companies that are struggling to capitalise on market share and turn a profit in an increasingly tight space. Facebook has been trying all sorts of things in an attempt to secure a real viable income from it’s enormous user base. The real problem, at least in Facebook’s case is that whilst users are quite attached to the service they provide, should something upset the current status quo, they are quite likely to switch to the next cool, new thing. For instance, imagine if Facebook started a subscription service. I use Facebook quite a lot with photos, messages and friends, but if it was made a paid service requiring a subscription I would jump ship. Not all users are like me, but the problem Facebook has is that there is a significant proportion that would indeed follow my trail of thought. This makes a subscription based service non-viable for this type of business model. After all what’s the point if Facebook if none of your friends are subscribed? So the true test is in providing some way to make money from your users without disrupting their service enjoyment. No mean feat and not a problem I would want to face in the current economic climate.

Markets and GDP down

Recession and economic down turn is said to be a good promotor of innovation. Companies must streamline and innovate to survive in an increasingly tight market. The problem with the current state of the global economy is that there is an ever decreasing amount of money to fund that innovation. To this end companies like Twitter and to a certain extent Facebook might struggle to get the funding required to survive. Twitter, the fastest growing communication network, is looking for more funding on top of it’s last funding run of $15m in June last year. They’re looking for another $20m to continue the service and develop a viable revenue stream. Twitter as a business has been valued at $250m but currently doesn’t generate any meaningful revenue from its service. The old paradigms of business models were thrown out the window for last couple of years with companies creating services without a business plan or revenue stream. Some say that this kind of operation has created much more innovative and creative utilities, however one things for sure, the almost limitless venture capital money that was banded around for these things is gone. Only viable businesses with a business plan and either revenue stream or clear path for a revenue stream are likely to get funding. This means that unless your a late stage business with good prospects, you’re unlikely to find outside funding on a large scale and will either have to ‘go it alone’ or find some sort of way of supporting your company or service. Competition is always seen as a good thing for the consumer but when competing services are tied to a limited funding source then like the Circuit Cities and Woolworths of this world, we may see our favourite new toys on the internet fail and go under.

Is this inevitably a bad thing for the free services and creative communication solutions we’ve been enjoying for the last couple of years? I would say yes. I hope that truly innovative and creative solutions still manage to get the funding they need to survive, but with Google and Microsoft laying off people along with almost every major company on the global scale. the future may be bright but the current term, dare I say it, looks a little dim.