Thursday, November 09, 2006

Making Money at Other People's Expense


So now it's time to get to the aspect of e-commerce that most people, including myself, find to be the most interesting of subjects... Money!

(Original photo found on the stock.xchng website and is royalty free *very useful site for web designers*)

Alright, so you have your team assembled and are almost ready to begin the actually design and coding of the website when suddenly you realize you forgot something... What's the point of creating an e-commerce website if the only movement of money is away from your bank account and not into it.

Now there are several ways to make money on the web (and probably more than this list here I just have no knowledge of them, feel free to comment them in):

These include:
  • Partnerships
  • Targeted Ad Based Revenue
  • Misc Ad Based Revenue
  • Selling of User Information
  • Selling a Product
  • Getting Commission for a Product
Each has positive and negative impacts on your user's experience... sometimes, actually, helping some users' experiences while, other times, hurting it.

I'm going to step through each one at this point:

Partnerships:
This is probably one of the best methods of revenue generation.
You have to make sure the partnerships benefit the user in some way (or at least don't interfere with their experience) but if you are able to accomplish that it's an easy stream of revenue.

What exactly is a partnership?

A partnership is where two companies come together for some form of mutual benefit. Such as if a recruiting site partnered with a resume building one to enhance the user's experience. Now not all partnerships generate revenue, in fact, many are based solely on the idea that they will send more visitors to both websites or at least give the user's a form of content they normally would have to look elsewhere increasing retention rates.

How Can you Make Money with Partnerships?
I would say the easiest way to make money with partnerships is by getting a partner who is less well known than yourself and offering them the ability to offer their services at a fee to you. They, assuming the use of their services will generate them revenue, may decide that they end up making a higher end profit by increasing their visits even at the expense of a nominal fee.

What's Wrong with Partnerships?
Well, partnerships usually offer some form of service to the users that you normally don't provide. This is fine when it comes to offering a resume building utility to a website but if the partnership has to do with some form of tangible item the user may believe your bias toward your partner affects your ability to show a fair view on the quality of the good. Not all users are like this, however, but the problem still exists out there.

Targeted Ad Based Revenue:
The whole idea behind targeted ad based revenue is that the user sees the ad but the ad is designed to benefit the user because it is targeted toward his/her needs. An example of this would be the use of google's adsense program.

I'm not going to get too long winded about how this program works other than it requires users to click the ad to generate revenue.

Ads, no matter if they are targeted to users or not, can be fairly annoying and make a website look less professional.

The real risk here is that you turn away a lot of users simply because they believe the site looks tacky while putting all your hope in some ad that may not even return a cent to you.

(Not to mention sometimes your competitors appear right in the ad space!)

Misc Ad Based Revenue:
This is the worst kind of ad revenue available, in my opinion.

What is it? Well, misc ad based revenue includes ads which have no connection to your content at all.

Why is it bad? Well, the users to the site, for one, aren't going to click on some random flashing ad for something they don't even need. Besides that, the ads often look tacky and take away from the professional look of the website.

Other forms of misc ad based revenue: Advertising cookies, popups, and other annoying devices.

Screw yourself over, use these ads.

Selling of User Information:
Well, this can either become an ethical concern or not. Basically, you'll need a privacy policy stating which information is sold. These are generally generic but if you want your lawyer to write it up for official concerns, go for it, it's your money not mine.

Next, you won't want to sell any user information that generally is confidential... People dislike finding out their address is now available to spam bots all over the web, or so I've heard.

When is it alright to do this? Let's say you have statistics a school could find useful about users who create resumes on your site. Perhaps the career center of that school may be willing to purchase this for a nominal fee.

Just be careful, when it comes to ethics, you need your users to believe you are at least decently ethical if you want to succeed. Otherwise they won't trust you and your retention rate will drop dramatically.

Selling a Product:
If you have something to sell, go for it.

If that's one of your biggest revenue returning items, you better market your site well and make sure the user's understand your product pretty well, as well.

There is no point on wasting bandwidth on users who have no intention of buying your product or are tricked into coming to your site.

Be wary, however, users generally will understand you have a bias toward your product and may not trust you up front. The more professional you look and whatever verifications you can make toward your legitimacy the more productive this method of selling will be.

Getting Commission for a Product:
Alright, this is almost exactly the same as selling your own product, however, in this case users, most of the time if they understand what is going on, will understand you have a bias to make sales at their expense.

Unlike selling your own product, however, the users may be more likely to trust whatever site you are partnered with to sell items (like Amazon.com partnerships) and may be more likely to purchase the item.

These tend to be more supplementary and less likely to be the main draw of a website because the users know where to get the items most of the time without your help.

Revenue
Generally, make sure you have some form of revenue generation in the works before you create the site. Also plan with the user in mind and understand how s/he may react to this form of revenue generation.

The best web developers know that the user's experience on your site is probably the most important aspect of developing and maintaining a strong website. If the users leave after one visit, there is no loyalty to your site.


-Tim

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