Originally posted on May 6, 2008 to taylordavidson.com/writing, reposted here to provide easier access to fundamental thoughts behind Unstructured Ventures. Click here to view comments on the original post.

Is advertising the only way for your web business to earn money? I hope not.

During beCamp I had a number of side conversations with fellow attendees about revenue models for web startups. While advertising is one of the most obvious models for content and social-networking / social-media, it is not the only way. Hardly groundbreaking, I know: I’m far from the first to propose thinking about alternative business models.

Should your web business really be dependent on the advertising market rather than the value you create for your users?

How is the value created?

Determine where the value is being created, who is receiving the value, and how much value is being created, and you have a first look at what to charge for, who to charge, and how much to charge.

The traditional advertising business is based on the need for companies to influence people’s purchase decisions to spend money on their products and services.

Media companies exist to deliver content to people in order to aggregate peoples’ attention, and charge advertisers money to deliver their messages to that audience.

Is that what your company does? Does your company create value by aggregating audiences?

Why does Google earn billions of dollars from advertising on search while social networks like Facebok struggle to generate advertising revenue? Think of how they are aggregating their audiences: Google is delivering an audience that is trying to accomplish a goal, and Google provides ads based on the context of what they are searching to accomplish. Advertising “fits” with this transaction between service provider and customer because the advertising is contextually and situationally relevant to the customer.

Facebook, however, aggregates audiences that are trying to socialize, communicate or share information between people. Advertising (at least in the traditional display model) is not relevant to the customer unless it has something to do with the people they are communicating with, sharing with, socializing with. Facebook’s attempt with Beacon was based on this very fundamental notion, but overwhelming public and user complaints forced Facebook to back off. While the execution was botched, the idea has merit and will be tried again by Facebook or others.

This is the problem traditional display advertising (online and offline) faces: is the advertising reaching people and delivering messages that are relevant to a customer’s situation, and thus having an impact (immediate or long-term)?

Again, how is the value created?

Consider other ways to earn money from your audience / users? What else does your audience (users) do with you? Are you facilitating interactions between people and companies? Are you connecting people? Are you providing services or products?

Advertising is not the only way.

What other options are there? Ideas are easy to find…