In this post I look at Google’s revenue model to see how alternative billion dollar revenue models can be derived on the same principles, using Facebook and Twitter as examples. I say alternative because advertising, which basically is Google’s prime product serves only one of many business needs – gaining exposure. There are several other needs that businesses have and at least one that is arguably even more fundamental and significant than gaining exposure. This post explores this need and others.

What’s Great About Google’s Model?
Few would doubt the brilliance of what Google has achieved but you appreciate it even more when you break it down as follows:

1. Google drives traffic by meeting a fundamental consumer need (information) for free through its Search product.
2. It then drives revenue by leveraging that traffic to meet a fundamental business need (advertising or gaining exposure) for a fee and in doing so provides added value to the consumer in a way that is consistent with and complimentary to the original consumer service. It does this through its Adwords programme.
3. Finally, it then makes even more revenue by meeting a fundamental need (making money) of a third group of people – publishers, through its Adsense programme.

Do you notice a pattern here? It is all about meeting the needs of multiple groups of entities using complimentary products. In particular, my take-away from this is that a proven strategy for building a billion dollar web-based company is to get consumer traffic by offering a consumer product for free and then charge businesses a fee for using that traffic to meet a fundamental business need – one that they will be willing to pay for time and time again. In addition, if the company can generate an ecosystem that enables a 3rd party group to make money like Adsense does then even better.

Some Other Consumer and Business Needs
So Google gives away information to consumers and sells exposure to businesses. Are these the only consumer and business needs that are worth meeting? Absolutely not. Below are a few others, not all of which can be as profitable as the needs Google targets and meets very well, but at least one of the business need is worth even more to businesses – can you spot which one?

Basic Business Needs

• Hiring People
• Selling Products and Making Money
• Reducing Costs
• Retaining Customers / Generating repeat Business
• Managing Risk (financial, reputation, legal, regulatory etc)
• Training and Developing Employees

Basic Consumer Needs

• Communication
• Making Money
• Shopping
• Entertainment
• Self Improvement
• Information

So can you guess from the list above what’s even more important to a business than gaining exposure? Selling their wares of course. In fact, selling products/services and making money is the whole point of gaining exposure. So if we accept that Google has cornered the online advertising market and that unseating it is almost impossible, why not focus more on meeting some other business needs that may be profitable? LinkedIn for example is doing just that, focusing on the self-improvement / earn money consumer need and the hiring people business need. OK, LinkedIn is no Google but it sure isn’t doing too badly.

So What About Facebook?
LinkedIn is no Google because it doesn’t have the traffic that Google Search does and this itself is because the consumer need it meets is not as fundamental and frequent as the need for information is.

Facebook on the other hand obviously does meet one or more fundamental needs or wants, if its traffic is anything to go by. It provides entertainment, communication, a way to keep in touch with friends etc. Not needs in my book but 120 million active users and counting say different.

So Facebook has the consumer angle covered. What it needs now is to find a good business need to meet. Like many other companies and to some extent the whole industry, the mistake Facebook is making is in focusing on advertising. Zuckerberg should face facts and realise that Facebook will never do as well in advertising as Google does. As a website it simply isn’t as conducive for it. Facebook should instead seek ways in which it can enable businesses to sell directly on its platform and charge them commissions for it. In a previous post, I described an idea that I named Profile Party, which might be one way of achieving this. Read the post for details but in summary, the idea is to enable users to host ‘profile parties’ on their profile pages and amongst many other activities that can go on in such parties, let the host sell partner companies’ products to their friends at discounted rates, earning the seller a commission as well as Facebook. After all, a user is more likely to know what his/her friends would like and by offering the goods at a discount, you might even fool users into thinking they are doing their friends a favour, thus getting around the I-won’t-sell-out-my-friends problem.

What Can Other Companies Learn from All This?
If you are not Facebook and therefore do not already have huge traffic, perhaps you are not focusing on the right consumer need. See if you can extend the list of consumer needs above and pick one that has a complimentary business need that you can charge for.

If like Facebook you have traffic but do not yet know how to monetise it, forget advertising for a minute and look at one of the other business needs. The list above is not exhaustive of course. Come up with a bigger list of needs and pair them with your consumer need in turn until you find a winning formula. You won’t always come up with one mind you, in which case you may want to accept that you are screwed and move on to something else. I tried applying this to Twitter for example, whose consumer need is communication I guess. I kept getting stuck on advertising as Twitter’s business model. Good luck competing with Google in that space Twitter. That said, I did come up with an interesting idea for Twitter in the advertising space a while ago.

Finally, I should point out that I am by no means suggesting that all businesses should aim to be a billion dollar company. As our friends over at 37 Signals reminded me in a video I saw recently, there is absolutely nothing wrong in making a few million dollars a year. Many, including I would settle for that.