Chris Anderson’s recent Wired article Free! Why $0.00 Is the Future of Business reminded me of what might be real challenges in these indirect business models where your revenue comes from your non-primary identity. It seems there is the potential for pretty internal cultural clash or at least drifting away from things that pay the bills because its so far removed from the primary activities of most of the company.
The prime example in this category: Google. where >98% of revenue comes from Adwords/Adsense. The company has plenty of products that don’t have anything to do with these – like docs, earth, picassa etc etc. They make money over here (Adwords) so they can build products over there. (Google Earth) From a product management perspective it seems that creates a real tension. And potentially a disconnect.
In the traditional model where you sell what you build there is an innate corrective mechanism. If your product sucks then no one buys it. So you improve it in certain ways then sales increase. You get to learn from the market and discover what works and what doesn’t. Customers ask for stuff they would pay for (sometimes at least) and you build it. The feedback loop is direct – still incredibly challenging to actually do effectively but but direct.
Now with indirect business models its hard to say what works. If and when revenues plateau or, gulp, decline, for Google is it because they missed a feature in docs? or picassa or earth? The product development folks are so far removed from where and how the money flows it seems its easy to get off course.
Am I just old school? Or, is there something here to watch out for?
This is a really great point about the indirection. Certainly Google Search + AdWords, cash is exchanged, but not by the ‘primary’ user, heaven help quantifying what makes sense as a good-will application or not:
Maybe the reality is, they have a very simple function: If operational cost / referrals to google search > certain cost threshold (as determined by expected conversion to adsense), nix the project.