Stephen Baker

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Data hostages: The emerging business model of Web 2.0

June 16, 2010General

For years, as growing millions blogged, Tweeted, posted videos on YouTube and updates on Facebook, we in the press wondered about the business model of what we called Web 2.0. It didn't matter too much as long as investors bankrolled these companies. But now, as Jessi Hempel writes, the Web 2.0 party is over, and revenue is a must.

The new model is coming into focus for me, and I'm not sure I like it. But I think I'm stuck with it--as are most of you. The idea is a variation on the Freemium model that Chris Anderson writes about. But instead of offering us free basic services and then tempting us to pay for upgrades, the new model is to tempt us with free services, lure us into pouring our data into it, and then to pull the plug if we don't start paying. This Web 2.0 business model could be called data extortion.

As I've written before, I'm suffering through this with Ning, the social network site. A year ago, I set up a private social network for BusinessWeek staffers, past and present. It has more than 400 members. It's a way we can find each other now that only a few of us work the new Bloomberg incarnation of the magazine. Content on the site includes updates and blog posts from a tumultuous year. For us, it's valuable data. And now we learn that if we don't pony up $200 in July, we lose it.

But here's the thing. I can only assume that if Ning weren't suffering financially, they wouldn't be laying off 40% of their workers and revamping the business model. If I pay the $200, I'm betting that the extortion model will work, and that Ning will survive. Otherwise, I'm a two-time loser. I haven't yet decided what to do.

In any event, I see this business model spreading (though in many cases with fewer broken promises). A few months ago I paid Google a measly $5 for 20 gigs of data storage. It sounds like chump change. But for Google, I'm an annuity. There's a good chance that in a year or two, I'll need to upgrade to a bigger and pricier plan. But even if I stay under 20 gigs, what am I going to do if they inform me next year that the annual price is now $20, or $40? Do I attempt to retrieve all my photos, documents and email from the cloud and store it elsewhere? Fat chance.

This is the emerging business model: Get us to invest our data and then jack up the price.

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