Business Model Focus: Finding the Right Path to Profitability

To say that finding the right business model on the Web is a work in progress would be one hell of an understatement. Nobody, meaning nobody, has discovered a surefire way to make money just yet. And as the casualties of the economic downturn continue to mount, those that are left behind are scrambling madly, experimenting with new strategies and trying to find a business plan that works.

But, really, it seems like a no-brainer. If your original business model isn’t coming up with profits, try a new one. To some – say, venture capital firms, which now expect profits in a matter of months, as opposed to years – this may seem like changing horses in midstream. But to those caught up in the current, it’s simply a matter of staying alive.

In recent months, many in the streaming media realm have gone through this kind of metamorphosis. Slow ad sales, and slower-than-expected uptake of online entertainment offerings, have forced many companies to focus on what they consider to be their core competencies. Companies that once coveted consumers and built business models around advertising revenue are now aggressively marketing their services to other companies who need streaming media.

It’s Lonely at the Core

Last fall, Spike Radio, a moderately popular indie-music destination site, made a dramatic shift in focus to provide media services as its core business. The company announced a top-tier first customer: Nike. The project with the shoe-and-apparel giant would be to program, host, and stream a 24/7 online radio station for the Nike 2000 Olympics site. Though it was buried deeply in the site, Radio Free Sydney represented a high-profile example of how a destination site on the Web could offer, and deliver, services to big name clients whose expertise lie outside the streaming media realm.

Unfortunately for Spike, more than six months later, Nike still represents the only customer for the new business services division. "We went back into beta mode," says Ashley Farr, founder and chief executive officer of Spike. "The Nike thing highlighted some weaknesses within our deployment, so we’ve gone back into development to perfect the process." Spike spent some eight weeks building Radio Free Sydney, and devoted nearly a half million dollars in resources. But according to Farr the project represented a "proof of concept" and has supplied Spike with future contacts.

Earthnoise, a company that realized shortly after launching that its original target audience was slightly off-target, has gone through a similar evolution. Founded in June 1999 as a community destination site for digital film enthusiasts, the company soon found a consumer-only model fraught with challenges. "Customer acquisition is a high-cost endeavor," says Elan Dekel, one of the co-founders of Earthnoise. "We found customers were not willing to pay for services, and advertisers were wary of being associated with some of the user-generated content."

So last summer, Earthnoise announced a partnership with TheKnot.com to video-enable the wedding and bridal site. The deal marked a decidedly new direction for Earthnoise that has since grown into a full-blown application service provider (ASP) model. Now, the company has become a commercial hosting and software licensing company for small businesses. Earthnoise offers video enabling services and storage for small businesses looking to integrate streaming into their sites.

But while Dekel says input from investors and the market has been "optimistic" about his company’s new direction, Earthnoise is still struggling to build a client list.

More recently, streaming video site Eveo launched a division targeting the professional services market, moving away from its user-generated roots. By announcing a deal with stalwart travel site Expedia.com to video-enable vacation and travel packages, Eveo may have tapped into a healthy niche market. Travel sites show relative promise in the uncertain world of e-commerce. According to research firm Harris Interactive, online travel sales reached $1.2 billion in January — the only e-commerce sector to rise that month. Forrester Research is even more bullish about the future of the online travel industry, predicting that it will be worth $28.9 billion within three years, up from $16.7 billion this year.

Olivier Zitoun, founder and chief executive officer of Eveo, is confident that Eveo is well positioned. "Ninety-seven percent of Web sites don’t have video," says Zitoun. He emphasizes that the streaming media services market is still very new and not dominated by any major player. "Let’s regroup in six months and see who the survivors are," says Zitoun.