There is some great media goings on at the moment especially the likes of Kevin Rose at Digg.com. Whilst they are a very interesting Web 2.0 company and social book marking and meta sites like Del.icio.us and Digg are all the rage, I can’t help but cast a wary eye over business models that have advertising at it’s heart. The reason for this is that there is only limited space for these sites and I suspect will suffer from the “magazine’s law of gravity”. By this I mean that the magazine business is driven by fashion and trends, and as quickly as your audience turns up, it can disappear as well.

We are very familiar with the kings of online advertising, that being Google, AOL and Yahoo. I don’t include MSN because it is not profitable and suffers from being fourth of a very short line. The other large advertising site is MySpace, whose value proposition is clear and stickiness is persuasive.

I have less confidence in sites whose traffic is predicated on social bookmarking (del.ico.us) or the latest craze “voter based bookmarking” or Digging. My reasoning is that the benefit from the user is transient. The benefit of long term participation is unclear because the system has already shown that it is open to manipulation. This has resulted in a small group controlling the bulk of the digging on the site. Over time I suspect that the audience will move away as another trend takes it’s place. Unlike Myspace I am unclear as to whether the network effect is present in Digg, Newsvine and others.

Now there are Web 2.0 companies that I really like. Companies that have a clear revenue model and path to profitability not based on advertising.

SixApart, owns the Typepad, Live Journal and Moveable Type blogging software and sell it on a subscription model based on the number of bloggers in your organization. Although we use competing products from Wordpress and Nucleus, they have had great success in building their customer base.

37Signals owns Campfire, Basecamp and Backpack among other web apps. They too sell subscriptions to the online Project Collaboration, Group Chat and Organizer. They are also the inventors of the increasingly popular Ruby on Rails web development framework. Look for someone like Google to purchase this company to add to their portfolio of online web tools.

Liberated Syndication provides fixed fee podcast hosting. It is the service that we use for Gtone and Northvoice. The premise is simple. You subscribe to a fixed amount of hosting space, from $5 to $25 per month. The bandwidth is unlimited. If your podcast takes off then you won’t be faced with a bandwidth bill you can’t afford. Askaninja uses this service and it saved their Shurkin. It is like purchasing bandwidth insurance. The downside is that this service can easily be replicated by other players such as Google or Yahoo.

All of these companies have a good value proposition for their users and have a revenue base to grow. They offer both value to both the user and to large strategic partners.

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