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Developing World Is a Profit Sink For Web Companies
The NYTimes is running a piece on the dilemma faced by Web entrepreneurs, particularly in social media companies: the developing world is spiking traffic but not contributing much to revenues. The basic disconnect when Web 2.0 business models meet Africa, Latin America, and the Middle East is that countries there are not good prospects for the advertisers who pay the bills. "Call it the International Paradox. Web companies that rely on advertising are enjoying some of their most vibrant growth in developing countries. But those are also the same places where it can be the most expensive to operate, since Web companies often need more servers to make content available to parts of the world with limited bandwidth. And in those countries, online display advertising is least likely to translate into results. ... Last year, Veoh, a video-sharing site operated from San Diego, decided to block its service from users in Africa, Asia, Latin America, and Eastern Europe, citing the dim prospects of making money and the high cost of delivering video there. 'I believe in free, open communications,' Dmitry Shapiro, the company's chief executive, said. 'But these people are so hungry for this content. They sit and they watch and watch and watch. The problem is they are eating up bandwidth, and it's very difficult to derive revenue from it.' ... Perhaps no company is more in the grip of the international paradox than YouTube, which [an analyst] recently estimated could lose $470 million in 2009, in part because of the high cost of delivering billions of videos each month."
Well, that explains part of the reason why online videos are really only available legally (e.g. hulu, veoh, etc) in the U.S. But I still think that they could easily make money on advertising by offering the same videos that are in the U.S. to countries like Canada, the U.K., most of Europe, Japan, etc,...
The obvious answer is to distribute videos and other bandwidth-heavy content through a peer-to-peer mechanism such as Bittorrent. Then the users themselves take care of providing your extra server capacity. I guess it just needs a Bittorrent client written in Flash (ugh), or else built into the browser, with the site's main server acting as the first seed for each file.
-- Ed Avis ed@membled.com
I don't see the dilemma here, we are talking about companies that are in the business of trying to make money. If it is prohibitively expensive / unprofitable for them to supply video to Africa they should stop doing it. Of course there might be a good business reason to do something that incurs a loss for a while but I don't think anyone would bank on Africa suddenly becoming a profitable area of the world for anyone but diamond miners.
I don't want to argue for rampant capitalism but we need to get a grip and realize that services cost money to provide and unless the consumers are willing to pay (in one way or another) they will probably have to go without.
I used to have a better sig but it broke.
You don't need to be a web2.0 savant to figure out that rampart bandwidth expenses combined with meek advertisement (YouTube) could lead to loses.
But hey, some consider this turf and establishment price. Google sure can afford it.
It's not as if this is anything specific to the developing world. The model for the dotcom 1.0 boom was "get the users now, figure out how to make a profit from them later". Now it just so happens that with Web 2.0 the new users are in developing countries, but the problem is the same - do you try and serve all these users in the hope that some day they might become profitable, or do you say that if you can't see a way to realize profit from them near term, then cut them loose. We all know how dotbomb 1.0 turned out, so the answer is pretty clear. The likes of google can cross-subsidize the poor, but less well-funded businesses should face up to the economic realities and not continue to pour money into users that will likely never be profitable for them - by the time these users might become profitable, they'll probably have moved on to other services anyway.
Oh no... it's the future.
Yes, I know.. it costs money.
But I just started thinking Internet is getting amazing again. The fact that I can stream a political discussion from the U.S. or access free e-books from Europe here in Hong Kong is AMAZING.
How can we resolve the money issue without breaking this? I feel people around the world have never had a chance like today to bridge misunderstandings. Up until 2 years ago the only understanding of Western world one could have far away was:
- Hollywood (or other typically fictional) movies
- Expensive imported books (sometimes requiring a language skill level not easily attained abroad)
P2P a la bittorrent is the only way to feed the world with vidéos. Period.
Companies like Youtube are making revenues that will not last : they occupy a temporary niche that will disappear sooner or later. Let's just hope they won't cling to their model like the **AA did.
More broadcasting power to the people ! Call for a symmetrical up/down connectivity !
The Wise adapts himself to the world. The Fool adapts the world to himself. Therefore, all progress depends on the Fool.
True. But, for instance, translation to their local language, for thier population, still gains you nothing back in financial terms.
Yes, you've gotten the value of work from them, but in real terms...nothing has flowed back to your pocket. The service they have performed is mostly useless to those who CAN and do pay.
Like advertising to dedicated music 'pirates'. They're not going to (or can't) buy from you anyway, so any resources devoted to them is money down the drain.
At some point, it has to be Money = money.
They have little money because their time does not produce anything particularly valuable. And a culture must produce before it can consume. Therefore, in the grand scheme of things, there are no poor consumers.
FATMOUSE + YOU = FATMOUSE
If there is an incentive, people will abuse it.
File sharing websites already do this, sort of. You want it for free?
watch our advertisements for 15-120 seconds.
You want more for free?
Come back later.
You want to skip advertisements?
Buy a premium account.
Then there are the people with loads of time on their hands, and start abusing the free service.
First based on exploits (javascript hacking, captcha breaking etc).
So they step up the requirements, making it more of a chore for other people.
Most of the time, if somebody gives me a rapidshare link or something of that sort, I say screw that.
People want to be entertained NOW, instead of doing stupid stuff.
The interweb is slowly becoming a MMO, and I'm sure most people just say "screw that, I'll take my stuff somewhere else".
You make a very good point. I think U.S. companies are often culturally naive about the rest of the world, and fail to exploit the international market because they simply don't understand it. I sell software online, and while the U.S. is certainly my biggest market, my sales also do very while in countries where I have been able to "localize". That means translating everything to the local language, pricing and marketing the product appropriately for the country, and not making it difficult to buy. If you sell a product or service from the U.S., with all information in English only, priced for the U.S. market in US$, accepting only U.S. credit cards for payment etc., your international sales might be limited - duh!
It's true that it can be hard to buy things overseas, but bear in mind that it is risky to accept payments from countries where the economies may be less stable and profitable and regulation is unfamiliar or ineffective
I mean no offense, but I don't believe the U.S. are exactly an example to the World on stability and profitability nowadays.
With a US credit card, the seller knows that they will get their money, and they won't have to navigate through the laws, taxes and possibly even corruption in 140 other countries and territories worldwide to get it. They don't have to calculate exchange rates, or worry about how a rate shift will devalue their ask price.
If a company wants to remain inside its comfort zone and deal only with US mechanisms, it should not complain foreign people don't buy from them. - It's not like it has some sort of "divine right" to sell to the rest of the world, anyway.
Have you considered serving relevant ads to your users in those regions?
The ads I see for all networks (including AdSense) in Latin America are: "Find sexy colombians", "Get a degree at the University of Phoenix, Arizona" and "Green Card Lottery, click here!". Maybe that has something to do with the companies not generating enough revenue.