What Thomas Edison teaches us about innovation (and profit)

I suggested the other day that perhaps we've been looking for money in the wrong places on the Web, and particularly Web 2.0. I still believe that's the case, but Thomas Edison, inventor of the light bulb and the phonograph, may offer an alternative argument:

Perhaps there really is no money in Web 2.0, at least, for the inventors of all the gee whiz services like Digg that give it life.

I say this because I was reminded by a recent program on National Public Radio that Thomas Edison saw roughly $0.00 from his invention of the phonograph, despite it being a roaring social success. Even as his invention lit up parties everywhere, Edison got nothing.

In fact, he got worse than nothing. Because of his failure to capitalize on the phonograph, investors went frigid on investing in his next innovation, the light bulb.

Society turned out fine and the world has since made lots of money around Edison's inventions. But it's telling that Edison, himself, saw little from his work. This may be an unfortunate lesson for those building out the future of the Web: instead of the untold riches you and your VCs expect to make, you could very well be taking a vow of poverty, the more innovative and game-changing your technology may be.

The focus, then, must be on innovating both technology and business models for monetizing it.

In a recent Businessweek the CMO for Travelocity says of advertising on MySpace, "We love our MySpace page, but we're not going to spend money just to acquire more friends for the gnome," referring to Travelocity's "Roaming Gnome" mascot. Ultimately, businesses care about what drives revenue, not what drives downloads (open source) or eyeballs (Web 2.0). There must be money flowing or your cool new invention will fund someone else's retirement, not yours.

The open-source world has recognized this and has largely moved on from obsessing over the technology, and instead splits its time between technology and business. The Web 2.0 crowd needs to do the same, moving on from shiny baubles to give equal or greater time to shiny bank accounts.

This is what will ensure that Web 2.0 endures beyond its own hype. It's also what will ensure that Web 2.0's coolest services and their founders don't get "Edisoned."

As a side note, Shivaraj Tenginakai of Amazon seems to be on the right track. He pinged me a few weeks ago to suggest that Web 2.0 falls short of delivering revenue because it's not selling good or services and lacks control of the delivery platform (i.e., iPod). To make money you must be able to meter or gate access to something: if it's not the good (i.e., you give music away for free) it has to be the platform/delivery mechanism (i.e., iPod).

Money may shift to new vendors as content and software is made available for free, but ultimately someone must control access or the Web won't be able to fund itself. Advertising is the answer for Google because it matches Google search perfectly: I'm looking for something so advertise against that implied need. This same thing doesn't work for social networking sites and much of the rest of the Web 2.0 world, which doesn't involve expressed or implied needs.

In sum, we need to figure out something beyond advertising to fund the Web. Maybe it's the ISPs, hardware vendors, and others that are still required to get people on the Web. But maybe there's something more fundamental involved....

[WeCanDoBIZ]

Fair points Matt. I started to wonder last week whether Twitter in particular is a candidate for taking the Open Source route -- or at the very least the plethora of API developers start getting charged by Twitter to use, what is in effect, their open "transport". With commercial pressures to make the applications work -- remember that something like 80% or Twitter users do so through a client of some sort rather than through the Twitter website directly -- we might start seeing some more compelling uses of the platform that could help assure its relevance and long term future.

And without an obvious revenue model for Facebook, the same could be said of also making that an Open Source platform on which central social media identities are held which can then be used on other social networking sites through Facebook Connect -- or again, website owners and developers who want to tap into a very powerful user directory be charged. I think the latter of these is more likely than the former...

I realise that with both Twitter and Facebook the Open Source and charging for API use models are either ends of the spectrum, but the commonality is that they both become platforms for other developers to use for applications, rather than the value-add applications themselves.

Ian Hendry
CEO, WeCanDo.BIZ
http://www.wecando.biz