In an article written by Mike Clark titled "Making Money out of Selling Web Services," He makes a keen observation that web service providers often lack a clearly defined business model. He claims that because they lack a plan to exploit potential revenue generating ideas that many of these companies will remain unprofitable.
Interestingly at the time of writing this article, 2001, I would have largely agreed with his assessment. Even today he may have a valid point that some web service providers still lack a clearly defined business plan. I however would take his criticism of web service providers one step further and say that many of these companies lack a viable long-term strategy.
The reason I believe that many service providers will fail is because of a lack of differentiation, low barriers to entry (i.e. entry costs), and low willingness to pay for certain services.
In making these comments, I recognize that there are certain exceptions to the rule. One example would be GOOGLE. Because of their widely popular search engine and established brand name, very few competitors can compete with what GOOGLE provides. PAYPAL a subsidiary of EBAY is another example of a clearly established web service provider which will be difficult to compete against. Similar to credit card processing such as VISA and MASTERCARD. PAYPAL is accepted on so many websites breaking into the industry would be near impossible just as it would be as nearly impossible to start up a company that could compete with VISA or MASTERCARD.
Having a stronghold on a specific service would appear to be the most effective strategy in functioning as a provider. The more you are associated with a particular service the less consumers will go looking for another provider of that service. If small firms can enter into the arena and compete successfully against you, you probably are in the wrong web service. Many companies seem to lack the same advantage that GOOGlE enjoys and subsequently they need to find crucial differentiation and fast. Without one, they don't have long for the provider industry.
My last criticism is of the companies that rely on advertising revenue to subsidize their services. The effectiveness of web advertising is still a huge question mark hovering over the industry. I wouldn't be surprised if during a large business downturn , companies refused to continue their support of on-line ad campaigns. Relying on the cost center of other companies may not be the best way to support your own operations. If service providers want to stay in business, they need to secure a more permanent and consistent revenue source. Until then, I suppose ad revenue will have to suffice.
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