A web 2.0 business model can work, and work well

The term web 2.0 has been frequently misused and misunderstood, however it is more than a buzz word – it defines a very real phenomenon in which user generated content can be the driving force behind an online site / service.

Some very well known and successful online entities can be considered as such – Wikipedia in which users contribute knowledge, Digg in which users help others find interesting articles by voting and facebook which is the current golden standard for social networking (in which user generated content – UGC – is a given).

However, those sites are not thought of as having strong business models. Wikipedia, of course, is free. Digg and facebook rely on advertising, which is the fallback business model on the web – conversion is relatively low and you can only count on decent revenue when you reach the size of the aforementioned sites.

As can be guessed from the title of this article, I would like to discuss a couple of sites / services that use UGC as the basis for a viable business model:

Case 1: Threadless

Threadless is an online t-shirt retailer with a twist – the concepts for the t-shirts are submitted by users, voted on by the community and finally hand picked by the staff. A winning design will be printed and sold through the site, and its creator wins a nice sum of 2,500$. That’s the basic premise – there are several variations such as contests and reprints, but at its base – its a marketplace for ideas.

Threadless is already an established online brand, existing since 2000. It proves that you can crowd source creativity for fresh product ideas in a way that is both beneficial for the product distributor and the creative contributor. Threadless builds on this premise and succeeds because of their excellent blend of branding, community integration and good service. I have personally purchased at threadless multiple times and I’ve had nothing but satisfaction and enjoyment from the service.

Threadless currently has revenue in excess of 30$ million, and income of 10$ million annually. Not bad for a startup funded with a 1000$ seed (earned in an online t-shirt content, no less).

Case 2: crowdSPRING

I had just recently discovered crowdSPRING, an online service that mates graphical design talent with design related projects. The concept is to try to improve traditional design projects proceedings for both sides:

– Project requesting parties (called buyers) are guaranteed to get at least 25 different concepts for their needs (be it a logo, website design, print and others), with a money-back guarantee.

– Graphical designers (called creatives) are given a global stage to show their work and generate income. Also, since buyers pay in advance, the winning piece is guaranteed to receive payment – there is no scenario in which a buyer can say he doesn’t like anything and walk away.

– crowdSPRING itself takes a small commission on top of the project award money. This is the main business model for the site.

What drives the service is the interaction between buyers and creatives. Creating a project and watching the concepts improve as both sides learn more about the requirements through iteration and communication is a very interesting experience.

We’ve recently created a logo design project on crowdSPRING, and the reaction has been phenomenal. Though we have a couple of designers on board at Octabox, we felt we needed a fresh approach as we have been too deeply involved for a long time now. There are still 9 days (out of 14) till the project ends, and we already have an incredible amount of entries (over 300).

The process itself was worth the price of admission – through the interaction with the many contributors, we achieved some insights on what we want in a logo and a design direction for our new website.

crowdSPRING is not yet an established entity like Threadless, but it is well on its way to becoming one. Another example of how to crowd source creativity in a win-win situation for all involved.

Web 2.0 as a viable business model

Those two sites are just a small sample of many successful sites / services built on UGC as the driving force. I believe this market is still mainly untapped – there are plenty of possibilities to be explored. Despite that the basic premise is always the same:

– Create a community around a product / service concept
– Allow / encourage the talent within the community to offer their skills to the rest of the community
– Facilitate the interaction between the talent and the community, while trying to interfere as little as possible

What other successful web2.0 business models have you seen?

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