Developing World Is a Profit Sink For Web Companies 203
The NYTimes is running a piece on the dilemma faced by Web entrepreneurs, particularly in social media companies: the developing world is spiking traffic but not contributing much to revenues. The basic disconnect when Web 2.0 business models meet Africa, Latin America, and the Middle East is that countries there are not good prospects for the advertisers who pay the bills. "Call it the International Paradox. Web companies that rely on advertising are enjoying some of their most vibrant growth in developing countries. But those are also the same places where it can be the most expensive to operate, since Web companies often need more servers to make content available to parts of the world with limited bandwidth. And in those countries, online display advertising is least likely to translate into results. ... Last year, Veoh, a video-sharing site operated from San Diego, decided to block its service from users in Africa, Asia, Latin America, and Eastern Europe, citing the dim prospects of making money and the high cost of delivering video there. 'I believe in free, open communications,' Dmitry Shapiro, the company's chief executive, said. 'But these people are so hungry for this content. They sit and they watch and watch and watch. The problem is they are eating up bandwidth, and it's very difficult to derive revenue from it.' ... Perhaps no company is more in the grip of the international paradox than YouTube, which [an analyst] recently estimated could lose $470 million in 2009, in part because of the high cost of delivering billions of videos each month."
Part of the online video problem . . . (Score:5, Insightful)
Let the users pay the bandwidth bills (Score:5, Insightful)
The obvious answer is to distribute videos and other bandwidth-heavy content through a peer-to-peer mechanism such as Bittorrent. Then the users themselves take care of providing your extra server capacity. I guess it just needs a Bittorrent client written in Flash (ugh), or else built into the browser, with the site's main server acting as the first seed for each file.
Business or Charity? (Score:5, Insightful)
I don't see the dilemma here, we are talking about companies that are in the business of trying to make money. If it is prohibitively expensive / unprofitable for them to supply video to Africa they should stop doing it. Of course there might be a good business reason to do something that incurs a loss for a while but I don't think anyone would bank on Africa suddenly becoming a profitable area of the world for anyone but diamond miners.
I don't want to argue for rampant capitalism but we need to get a grip and realize that services cost money to provide and unless the consumers are willing to pay (in one way or another) they will probably have to go without.
Bad business model, perhaps? (Score:4, Insightful)
But hey, some consider this turf and establishment price. Google sure can afford it.
No paradox (Score:5, Insightful)
It's not as if this is anything specific to the developing world. The model for the dotcom 1.0 boom was "get the users now, figure out how to make a profit from them later". Now it just so happens that with Web 2.0 the new users are in developing countries, but the problem is the same - do you try and serve all these users in the hope that some day they might become profitable, or do you say that if you can't see a way to realize profit from them near term, then cut them loose. We all know how dotbomb 1.0 turned out, so the answer is pretty clear. The likes of google can cross-subsidize the poor, but less well-funded businesses should face up to the economic realities and not continue to pour money into users that will likely never be profitable for them - by the time these users might become profitable, they'll probably have moved on to other services anyway.
In fact a censorship (Score:4, Insightful)
Yes, I know.. it costs money.
But I just started thinking Internet is getting amazing again. The fact that I can stream a political discussion from the U.S. or access free e-books from Europe here in Hong Kong is AMAZING.
How can we resolve the money issue without breaking this? I feel people around the world have never had a chance like today to bridge misunderstandings. Up until 2 years ago the only understanding of Western world one could have far away was:
- Hollywood (or other typically fictional) movies
- Expensive imported books (sometimes requiring a language skill level not easily attained abroad)
P2P (Score:5, Insightful)
Companies like Youtube are making revenues that will not last : they occupy a temporary niche that will disappear sooner or later. Let's just hope they won't cling to their model like the **AA did.
More broadcasting power to the people ! Call for a symmetrical up/down connectivity !
Re:In fact a censorship (Score:5, Insightful)
How can we resolve the money issue without breaking this? I feel people around the world have never had a chance like today to bridge misunderstandings. Up until 2 years ago the only understanding of Western world one could have far away was:
- Hollywood (or other typically fictional) movies
- Expensive imported books (sometimes requiring a language skill level not easily attained abroad)
You really have this arse about face. The issue is not the inability of people in the developing world to understand Western culture, they get it all the time. With CNN and the BBC broadcasting globally its easy to get "Western" news and the BBC in particular has very strong cultural link communications with the world service. Then you get the propaganda stations like Voice of America
In addition governments spend loads on organisations to spread the cultural message (e.g. the British Council) to these countries.
These countries are voracious consumers of western media and fashions and have been for 50 years, this is why they are massive users of this content.
The real issue is that in the Western World, especially the US, there is bugger all going the other way and bugger all knowledge of non-Western cultures (or even countries).
Re:Time = Money, Right? (Score:4, Insightful)
Yes, you've gotten the value of work from them, but in real terms...nothing has flowed back to your pocket. The service they have performed is mostly useless to those who CAN and do pay.
Like advertising to dedicated music 'pirates'. They're not going to (or can't) buy from you anyway, so any resources devoted to them is money down the drain.
At some point, it has to be Money = money.
Re:Time = Money, Right? (Score:3, Insightful)
They have little money because their time does not produce anything particularly valuable. And a culture must produce before it can consume. Therefore, in the grand scheme of things, there are no poor consumers.
Re:Time = Money, Right? (Score:2, Insightful)
If there is an incentive, people will abuse it.
File sharing websites already do this, sort of. You want it for free?
watch our advertisements for 15-120 seconds.
You want more for free?
Come back later.
You want to skip advertisements?
Buy a premium account.
Then there are the people with loads of time on their hands, and start abusing the free service.
First based on exploits (javascript hacking, captcha breaking etc).
So they step up the requirements, making it more of a chore for other people.
Most of the time, if somebody gives me a rapidshare link or something of that sort, I say screw that.
People want to be entertained NOW, instead of doing stupid stuff.
The interweb is slowly becoming a MMO, and I'm sure most people just say "screw that, I'll take my stuff somewhere else".
Re:Business or Charity? (Score:2, Insightful)
I believe that the problem is less to do with the fact that it may be charity to supply access to content for these companies and all too often the case of business personnel saying our advertising works in the US why are the Africans not buying it. To put it in perspective, I am an American my culture roughly equates to some European cultures and Australian culture. If I see an advertisement from one of these cultures I generally get it. There may be pieces missing but for the most part I get the gist of the humor or intent of the ad. Now show me a ad from Japan or Sweden and I am left wondering what the hell was that. I am not trying to slight those cultures but some of the stuff I see produced from their cultures is just plain weird to me. I would not know what the hell to buy even if I understood the message of the ad half of the time. Conversely I am sure that it is the same for other cultures watching US / UK / Australian cultural advertisement. Some of the stuff we spend money on probably seems foolish at best to them. If it was delivered in a context they could relate to you may get better conversion. In business some times itâ(TM)s easier to brand a group of people freeloaders, wait till a startup captures that market and then consume them.
Re:Here in South America... (Score:3, Insightful)
Re:Let the users pay the bandwidth bills (Score:4, Insightful)
Based on my experiences in a couple of 3rd world countries, I'm pretty sure that 99.9% of these users are at internet cafes - they spend the local equivalent of a couple of quarters for a couple hours and then the next user gets on.
"3rd world country" is a very wide definition, but I live in one of those country where we pull a lot of content but don't click on ads.
Here in Serbia, many people have good enough broadband connection, either at work or home, to watch a lot of videos.
However, we have no incentive whatsoever to click most of the ads. Paypal doesn't work here, and I wouldn't trust our post to ship any goods anyway. Also, most of the stuff to buy online (like premium memberships) are way too expensive for most of us.
I think countries like this are the problem, not the real 3rd world where hardly anyone has the bandwidth to watch videos and download music.
Re:Business or Charity? (Score:2, Insightful)
Re:In fact a censorship (Score:2, Insightful)
I know that terrorism is the only major concern of the western world together with the Swine flu and Obama's puppies + the funniest tricks cat do.
What I meant is it is hard to stumble upon the things like western debates like those presented on http://www.youtube.com/user/HauensteinCenter [youtube.com] while walking around Hong Kong. You would have to fly to the U.S. and attend debates if youtube was cutting you out.
Also the West is taking more and more advantage of Internet to share their much better funded research like what you can find on:
http://www.ted.com/index.php/talks/bonnie_bassler_on_how_bacteria_communicate.html [ted.com]
Also access to Nietzsche's or Socrates work in a digitally divided world is simply more difficult. Western philosophers are not studied much at all in most of the world's schools. You don't just stumble on them in every bookstore out here. And if you do order them, they are overpriced and take weeks to access.
So let us be clear:
- There are more than two civilisations on the planet
- Very few people on the planet care about Obama's puppies or the Bailout of AIG
- Internet is bringing us a much wider range of information much less filtered than through just CNN and BBC. It does mean there are flying cats on youtube which are probably as popular to watch in Beijing than they are in NYC. But there is such an amazing opportunity building up that should ideally not be cut between whether you are in Europe/North America or not.
I wish we could find a way to fund this new digital world in a way there are not "mini-Internets" where depending on where you are, you will only have a restricted access to your areas information.
Re:There is NO way for them to pay (Score:3, Insightful)
It's true that it can be hard to buy things overseas, but bear in mind that it is risky to accept payments from countries where the economies may be less stable and profitable and regulation is unfamiliar or ineffective
I mean no offense, but I don't believe the U.S. are exactly an example to the World on stability and profitability nowadays.
With a US credit card, the seller knows that they will get their money, and they won't have to navigate through the laws, taxes and possibly even corruption in 140 other countries and territories worldwide to get it. They don't have to calculate exchange rates, or worry about how a rate shift will devalue their ask price.
If a company wants to remain inside its comfort zone and deal only with US mechanisms, it should not complain foreign people don't buy from them. - It's not like it has some sort of "divine right" to sell to the rest of the world, anyway.
Re:Business or Charity? (Score:3, Insightful)
There is a huge potential market but the people who put this fantastic technology together can't take advantage of the situation??? If the customer comes to the door but can't get in, don't whine about losing money.
If they drive away customers, someone else will take up the business. It's just a matter of selling them something they want.
Re:high bandwidth (Score:2, Insightful)
The ads I see for all networks (including AdSense) in Latin America are: "Find sexy colombians", "Get a degree at the University of Phoenix, Arizona" and "Green Card Lottery, click here!". Maybe that has something to do with the companies not generating enough revenue.