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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,...
Yes, this is a very difficult thing to overcome with providing content--especially high bandwidth content like video.
But maybe the third world should be looked at more like consumers with a lot of time and little money? I know it's horribly ridiculous for me to think that I work more than a poor Chinese man working 15 hours a day because I don't. But if you want to think of it as a viable market, these people have time to offer a business. So the obstacle becomes not how we can get them to click on our Amazon.com link and buy overpriced shoes like we do with fatass Americans (calm down, I am one)? But instead how can we ask them to perform some very menial task on the computer with a reward of our services?
So maybe your company would like image or video corpora tagged with words in a different language and background of a different culture? Those are becoming more of an asset. Or perhaps you want to boost a wiki in a particular language? Or perhaps you could offer premiums on translations and bother to attempt teach them a second language through cheap software? Ontology building services? Or treating each small region as a zone by population and blocking IPs until someone or some team completes rent-a-coder like challenges? Then you could host their name(s) on sites where people now have access as a kind of local hero style recognition? I mean, there are a number of things you could do with simple peer review that would keep a steady income of services which equate to time from these people. Some are more realistic than others. Who knows, you could inadvertently better their lives by doing some of the above?
My work here is dung.
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)
I was wondering from a long time whey videos on the BBC site cannot be accessed from here in India.
15 August 1947 is the reason.
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.
i run several large sites, all are very popular in south america, south east asia and middle east
but the bandwidth bills are huge as is in gigabits/s
what we started doing is capping speeds during peak hours to these places simply because not enough money is being made from sales and advertising to pay for it
i know net neutrality people say thats wrong but were not a charity and have to pay alot to carriers :(
Ok. I am south american and I have worked for years both in the computer industry and as a social worker. Now let me see if I am getting this straight: You are telling me that some web 2.0 companies can't make a profit from developing countries while cellphone companies sell millions and millions of shiny new cellphones and cellphones lines to poor people? And you tell me it is not the companies' fault? Mmmmm... I may be wrong, but could it be that sitting there in their air conditioned offices is not getting them a clear picture on how to make businesses in different cultures?
;)
PS: By the way, I haven't found an English translation for this, but we are not "poor people" but "personas en situaciÃn de pobreza". Hope you do get the difference there
Having lived for more than 2 decades in third world countries, there is more going on than you may think.
It is true that may people in developing countries do not have the funds to pay, which is why the advertisers are getting upset. However, in my opinion the biggest problem is that even when you have the funds to pay, you can't find anyone who will accept your money.
For example, how many online stores only accept Credit/Debit Cards, from their own country? PayPal is supposed to provide a solution for this, but only if you live in a western country. If you live in South America, Asia or Africa forget it, you can't use the service.
Even in the poorest developing countries there are still many individuals who have disposable income, but they are limited to spending it within their own markets, because of artificially imposed trade barriers, often set-up by the very companies that complain that they can't penetrate said market.
If you sell widgets online, and only allow payment via a Credit/Debit card with a US billing address, guess what, you will generally only make sales to people in the US. Everybody else relies on grey imports, and often the middle men\importers & smugglers will make more money than you on your own product.
I don't have a complete solution, as the topic is very complicated, but I am trying in my own tiny little way.
www.Buy-Proxy.com - A "buyer-driven" global marketplace.
I am sorry, but this is total BS. I have been developing web sites in Latin America (Mexico, Guatemala, Chile) for going on 10 years now. This might (MIGHT) apply to populations in Africa and some parts of Asia.Even there are people with money. If they have a computer, and sufficiently fast connection to watch things like U-tube, they have money.
This is the idiots fault for not doing their market research. There are trillions of dollars to be made in developing country because of demand for things that are not easy to find or limited selection. It is the advertisers fault for not being able to create mechanisms to deliver the goods and accept payment.
The problem is that what they are selling often requires a U.S. only credit card. Even people with credit cards, often have trouble buying things in the United States or Europe because they do not accept foreign cards.
Solve the payment problem, and the revenue is unlimited. There are often plenty of domestic web sites in developing countries making plenty of money.
As for advertising revenue, I have run many sites and know for a fact I can make many times the money for any given space on a popular site over what Google will pay me for it by selling to a domestic advertiser in a developing country.
The ignorance of that article is impressive.
Living in Chile