In a recession what’s real in terms of sustainable business models comes to light. I lived through the dot com boom and there were any number of companies that were “changing the rules” or creating a new economy. Economics, unfortunately, is a lot like gravity. It’s pretty difficult to change the rules.
YouTube and Facebook have changed the world online. It’s hard to remember how hard it was to post a video online before YouTube. Facebook has successfully created the first global scale online community and seems to becoming one of those sites that just about everyone visits and engages with on a daily basis.
The problem is that neiter one is profitable. Although YouTube has seen tremendous growth its still yet to come up with a way to monetize that growth into profitability. The number of ads that Facebook would have to display based on their own tool is staggering. Both are in desperate need of a new advertising model that can either show direct correlation to sales or one that proves that brand awareness can be built on these site more effectively than through other vehicles, say TV.
At the peak of economic growth, like in 2007, companies are willing to invest in what hasn’t been proven. In the depth of a recession, however, the hard questions get asked and just like during the dot com boom, many companies cease to exist.
I don’t think this will happen to either of these companies. However, something has to change with both of them in order for them to be sustainable for the long term. I’m just not sure that anyone, including those inside the company, know what that something is.
– Paul Herring