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“But how do they make any money?”

Ever since Facebook shot to superstardom and Instagram got bought for $1billion I’ve noticed people talking up the ‘building something online that makes you loads of money even though it doesn’t make any money’ narrative.

This is essentially a myth. For every Instagram there are thousands of failed startups that never found a proper revenue model and died an ignominious death somewhere. Ideas like Twitter are the exception – not the rule.

What lots of people seem still not to realise is that Facebook makes money hand-over-fist [1] . Sure it took a while, but any website that captures a seventh of the entire world population in less than a decade is onto a good thing.

So what about the rest of us?

I get asked the ‘how do you make money’ question the whole time. Often it’s the same person who I haven’t seen for a month asks me again. It’s as if their ‘oh but it doesn’t make any money’ judgement is so fixed that they’ve forgotten my answer from a few weeks previously (recruitment advertising and events for now).

The problem is, it’s very easy to see the high-profile successes and assume that everyone else’s business models follow suit. Or, to see the consumer-facing side of a site without having any view of the revenue engine that drives it.

The reality is that unlike 10 years ago and the infamous dot.com crashes, today there are a whole selection of very well-trodden paths towards sustainable business models online (if you keep reading, I’ll show them to you!).

It’s also incredible how long some peoples’ memories are… the failure of pets.com etc [1] has led, in the more traditionally-minded of us, to a blanket belief that nothing makes money online.

The world is online

Back when the dot-com bubble burst (say March 2001) there were 458 million people using the internet (at low speeds), making up 7.6% of the world’s population [3] . Online business models were genuinely untested, unproven.

As of June last year there are 2,405 million people online, making up 34.3% of the world’s population (and many of these are carrying the internet around with them in their pockets).

We are all now used to paying for things online, disclosing things online, finding things online. In fact, many of us would be completely paralysed without the internet. We spend a fortune online. [4]

And yet still so many people who work in non tech/web industries come out with the ‘but how do they make any money?’ challenge / question whenever they’re talking about online businesses.

It’s as if by asking that question they’re already confirming their own belief that it’s impossible to make money via a website and therefore of course it would be a bad idea to even try.

Rant over…

In any case, the objective of this post is to demystify building businesses online. Obviously this is something that we’re figuring out ourselves as well – and we intend for to share that ongoing process on this blog.

Fred Wilson, the best venture capital blogger online, has written a series of MBA Mondays posts on the theme of Revenue Models and this is as good a place as any to start. No point repeating what he has written but I’ll summarise and you can check them out yourself (you’ll need to search his site for the individual posts exploring each model).

Advertising (think Google), Commerce (think Amazon), Subscription (think Basecamp), Peer to Peer (think Ebay), Transaction Processing (think Paypal), Licensing (think Spotify), Data (think Duedil), Mobile (think all those annoying ads), Gaming (think micropayments on Zynga games).

And finally, if you’ve read this far you should definitely check out this ‘Hackpad‘ which has a full breakdown of all the revenue models online and on mobile – with examples [5] . This is a great acid test for your new website idea.

So what does all this mean for us?

We should innovate on our concepts, our products, our brands and our niches. But let’s not try to invent new business models. The ones above work for a variety of different businesses in different verticals – find the one that is right for your business and then get on with the more difficult task of building something people want and finding the people who will pay for it (in fact, you should do those two in reverse order – but that’s another post).

And finally, don’t get knocked when people ask you ‘but how will you make any money’ (you have a plan remember) and, if you’re one of the doubters, get up to speed with what’s happening online and then get building!

Have a great weekend – Rob

[1] http://fforward.co/understanding-facebook/

[2] https://en.wikipedia.org/wiki/Dot-com_bubble

[3] http://www.internetworldstats.com/emarketing.htm

[4] According to IMRG data, UK online spending in 2010 grew by 17.6% to reach a total of £58.6 billion, with Ofcom reporting that average spend online per person reached £1,031 in 2010 – Mintel

[5] https://hackpad.com/Web-And-Mobile-Revenue-Models-(final)-EgXuEtSibE7

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Rob Symington (@escroberto) is Escape the City’s co-founder. He lives on a boat, owns a double decker bus called Esmerelda and a motorbike that breaks down a lot. He passionately believes that ‘just because’ things are the way they are is no justification for accepting them.

The Escape team are hard at work over on the main site building Escape Profiles that help people make big career changes.

If you want to receive Escape the City blog posts directly into your inbox just click here. We write about leaving big corporates, pursuing alternative careers, building businesses, and going on big adventures. Because life is too short to do work that doesn’t matter.