Thought provoking article by Tim O’Reilly this past July in regards to making money off web services; he had this too say:
“.. Like every web site owner I’ve talked to, Jeff had a couple of questions. What’s in this for me? How will I make money? My answer was as follows:
1) Web sites like Amazon and Google are applications. And Microsoft has demonstrated over and over again that a platform strategy beats an applications strategy every time. Once you have other companies building added value that relies on you, you have a kind of benign industry lock in that’s a real competitive advantage. (That’s why I bet that Microsoft’s MapPoint eventually supplants AOL’s MapQuest as the dominant resource for geographic information. Unless AOL gets off its duff and supports developers, of course.)
2) Innovation will come from APIs that support “unintended consequences”. As Bill Joy likes to say, “All the smart people don’t work for us.” Giving developers a playground extends your development staff, bringing in new ideas and features at the same time as it builds your brand and image.
3) There obviously are revenue opportunities. As Google demonstrated, you can provide limited access for free to allow developers to play around, but do licensing for large scale use. So when people come to you with heavy duty applications, you can figure out the deal then. A mistake a lot of companies make when entering new markets (especially ones that are discontinuous with the current ones) is to think too hard about where the money is coming from. Disruptive innovations often don’t work all that well at first, so you have to give them room to grow before you try to harvest them. The lesson of the dot-com boom is actually the opposite of the one that people are taking. It’s not “figure out your business model first,” it’s “don’t get greedy; give the market time to mature before you rush to cash in.” (Aside: This is also part of the secret of open source. People do cool things for reasons other than money, because they solve small scale, specific problems that wouldn’t be touched by commercial vendors. (These problem spaces sometimes grow into big markets, but they don’t look that way at first.))
And of course, in Amazon’s case, there is a built-in revenue opportunity for the existing business. Third-party Amazon-based applications do lead people back to Amazon, where they buy products.
Giving something back to the industry, enriching the soil of innovation for everyone, is good like recycling is good, far beyond the direct benefits you reap. Companies need to think not just what they can get for themselves from new technologies, but how they can enable others. A marketplace is like an ecosystem. The more life there is, the more there is for everyone. It’s in monocultures that you start to have problems. “