Back in "Dot-Com" classic there was this really cool system in which companies received millions in venture capital in order to provide free services. Companies would build up a huge user base, go public, and make billions in the stock market becaue of their huge installed base.

It's not commonly known but in 1999, Neoplanet tried to acquire WindowBlinds and hire some of the core Stardock staff (myself included). When I visited there, I met a bunch of really nice guys. But what I also saw was excess. People working with budgets that I could only dream of. They had more on-staff graphics designers than we had employees at the time. All creating skins. They had a game room full of games, air hockey, ping pong, etc.

While I was there, they were celebrating their 1 millionth user and handed out special T-shirts celebrating this fact to all 40 of them (more people than work at Stardock even today). I also got one too. Very nice shirts.

They offered a salary that dwarfed what I made at Stardock (and even what I make today) along with what they expected would be millions of dollars in stock options to go there and bring the WindowBlinds team over who would be similarly compensated.

But ultimately it boiled down to this: I couldn't figure out how they were going to generate income to match their expenses, let alone make a profit. They were making less per month than we were despite us having 1/4th the staff and probably 1/20th the expenses. Their model basically, at the time, revolved around trying to get their browser everywhere and sell advertisements in a box that showed up in the bottom right hand corner along with getting people to sponser different parts of it.

I just couldn't see how that would cover those costs since most advertisers on the net back then were other dot-coms not making any money but instead trying to get a huge user base.

The dot-com bubble burst and while Neoplanet still exists, it's a very different company (And probably quite a bit smaller). All those companies funded by ads from dot-coms suddenly lost their income. eFront was one of the more conspicuous casaulties.

The real problem is that the dot-com's really screwed up the Internet (IMO). They created expectations and just can't be lived up to. The Internet was once populated by millions of tiny but imaginative sites that were very rough around the edges but were original. The dot-coms really made a lot of these disappear by doing much what they did except having the benefit of a huge staff behind them. So people got used to professional quality sites that were still free.

Now we're at Dot-Com: The Next Generation.
The first signs of life are the blogs. These are web logs that are slowly growing into many different and interesting things. They're free, they're not quite as slick as the professionaly run dot-coms of old but they are pretty good. They work at trying to keep costs down by being run by volunteers and being almost entirely text.

You also have quasi-professional sites. Sites that are pretty well designed and have considerable bandwidth costs. Slashdot being a good example of this. TheForce.net is another example. The skin sites mostly fall into this category as well.

It's the latter type that is running into significant difficulties now. That's because banner ads still don't pay anything and bandwidth costs are still very high. Some places do offer cheap bandwidth but come across sounding a lot like dot-coms (I wouldn't personally feel comfortable with such a system without having a core nucleus that was on a major provider like Worldcom or Verio or whatever that backups could be kept on).

In this new generation, different sites are trying some different things.

Here are some examples:
TheForce.net
They're part of IGN. One of the last of the true dot-coms in some respects. The site is mainly a Star Wars fan site. It's significantly more popular than WinCustomize is. They've done pretty well by distributing their content around. That is, much of the bandwidth intensive materials are not hosted there but around the net cutting costs dramatically. They also have Smart Advertising (SA). SA is what I think will become increasingly the way to go for sites - make parternships with related products. So you go onto TheForce.net and you see a place selling Star Wars posters. The question is, is TheForce.net breaking even? That would be an interesting question. With all volunteers, relatively low bandwidth requirements and IGN's backing it's tough to say. A recurring theme - volunteerism is key. If you can get the cost of ownersihp down to basically bandwidth you're in good shape. The bad news is that it's a far cry from the days where one could make a decent living running a website.

Kuro5hin.org
I met the owner of Kuro5hin before I had visited the site. We met at a bar in San Fran where there's a cool weekly trivia contest. I always go there with my friend who works at The Register. If you're in SF, you probably know the place I speak of. A bar for techies. . He was talking about how his site would basically be run by the users. Sort of like a skin site but with articles instead of skins. It's pretty successful though not as popular as WinCustomize is. They have a couple of mechanisms to try to pay the bills. One thing you will notice about them is they've pretty much given up on banner ads. They, like us, have found that only pop-up ads pay anything and that puts the site admins in a situation - do I annoy my users with pop-ups or do I just find a different route? They've taken the latter. And they have some innovative ideas:

1) They let people take out ads on their site directly as small box sized text ads. Low bandwidth use, anyone can make them. Text ads may be the next big thing(tm). Here's how they work: Would be advertiser goes onto the site, sees text ad area, agrees to pay $5 set up fee plus $1 for every 10,000 to 20,000 impressions. Advertiser decides how much they are willing to fork over per day for their ad (i.e. up to $2 per day for instance). Ad submitted to admins for approval and voila. On a site like WinCustomize, that could generate $500 to $700 in revenue per ad depending on the circumstances. Note: Kuro5hin charges $3 per thousand impressions. If we could get that on WC, that would definitely help a lot.

2) They too are making use of smart advertising. Small integrated areas of the site where related products are advertised. It would be akin to having special ads for Adobe or 3D Studio or whatever here (before someone suggests this, yes, we've been trying to do this).

3) They have subscriptions though I am not real familiar with how this works (will have to look into this more).

I'll be adding more to this in the coming days. If anyone wants to outline how other websites are paying for their costs, please feel free to add.