Tuesday, July 6, 2010

Clone Wars Part 4: The Advert Trap.

405617664_c77850dea9 The Clone Wars series started out in my mind as a commentary on all those Nigerian social networking sites popping up across the internet. The original idea was to speak out against them, but as you can see from the actual series itself, I changed my mind along the line. Still, I do advocate we do more than just churn out social sites.

Having said that, it isn’t just social sites that are being cloned. We are also cloning revenue models. Just like with cloning web services, there is nothing wrong in copying someone else’s successful monetisation method, but we severely limit ourselves by not giving more thought to our models.

The most popular monetisation model for internet services in the world today is adverts. Google did not invent the advert model, but they have made the greatest success out of it. They make almost all their products free to customers and get advertisers to pay for them. This has created an internet culture where users expect most internet-based services on the internet to be free.

In Nigeria, we have a history of not paying for intangibles such as services as software. While we have never had problems paying for items and products, we have historically found it difficult to put a fair price on a technical service or intellectual property. Probably every society faced this difficulty at one time or the other. When I started out, you could get a disc for a few hundred naira that had Microsoft Office, Adobe Photoshop, several versions of Windows, and everything Autodesk had on the market. When my boss back then tried to make a business of selling legitimate copies of AutoCAD at the proper price of $3,000 he was thought to be insane. Google with their free services; the Free and Open Source Software (FOSS) movement; file sharing sites and such merely cemented what was already culturally ingrained in us. On top of all that there is the long-running problem of the lack of any payment mechanism for online services. I call it a problem, but it really wasn’t because very few people actually wanted to pay for anything online, but those who did – until the last few years – couldn’t.

I said all that to say this – because we are so comfortable with free online services, the ad-based revenue model seems to be the most natural revenue model for a Nigerian web enterprise. The problem is that I don’t believe that it truly fits our society, not yet, Not as means for technology entrepreneurs to find prosperity anyway. I looked for empirical evidence to support this belief without any success. In particular I looked for information on Google’s ad revenue per country, but it isn’t out there or I’m not looking in the right places. So I have to rely on anecdotal evidence and have to say that if most Nigerians are like me and the folk I know, most do not click on ads. Another example. In two conferences I attended in Lagos with Google staff present, a show of hands was asked for of people who use Google AdSense on their sites and blogs. A good number of of folks raised their hands. Another show of hands was asked for of people who made up to a hundred dollars per month from their sites. The number of hands that went up were just 2 or 3 in each conference.

I believe that advertising, if done right would be a good business model, for the ad engine provider. However, as a source of revenue for some other service, it may not be the best model in Nigeria right now. I an open to correction on this by someone with more empirical data, but my instinct right now is that Nigerian internet entrepreneurs need to look elsewhere for monetisation. Having said that, you lose nothing by signing up for an AdSense account and having Google sourced adverts alongside what ever else you choose to use to monetise. Aero Contractors does it, why not you?

I believe that the strongest source of revenue for Nigerian internet businesses for now is to make money from things people are already familiar with – physical goods and real world services. Michael Rappa, over at Digital Enterprise lists the following models:

He goes into detail on each model in his article and it makes educative reading. I think that at the stage we are in the Brokerage, Merchant and perhaps the Utility models are the most suited for our level of development. These models definitely require a lot more work to make happen than just inserting code as provided by an ad engine into your site, but several of them may actually serve us better than the advertising model does. At least consider them in your startup’s plans.

The Clone Wars series ultimately seeks to help us break free from a mindset that builds generic products and services that do not elevate our societies, our psyches or increase our incomes. As Nigerians we must differentiate. We must apply the mental discipline that is needed to innovate. For all our sakes, we must.

Here ends the “Clone Wars”… for now.


The 3 cows are courtesy of Mix over at flickr.com