Chapter 1: Users Create Value
Web 2.0: A Strategy Guide
Amy Shuen

You don’t have to be a genius in order to understand that the more customers a company or business has, the more profitable it will be. Web 2.0 technologies hold true to that theory but also give it a slightly new meaning. Exchange customers with the more tech-savvy word: users, and replace profitable with valuable. The more users a Web 2.0 company or business has, the more valuable it will be.

Web surfers now have almost no limitations to what they can search for and read as well as the different activities they can perform, edit, and interact with. The first chapter of Web 2.0: A Strategy Guide explains the business model of the Web 2.0 photo-sharing site, Flickr.

Flickr gives users the technology to upload, categorize, tag, edit, and share their digital photography. Users can choose to share their photos with the public or make them private where only certain users in the network can view them. “By 2006, Flickr’s platform allowed more than 2 million registered users to become active uploaders of more than 100 million photos.” Of these photos, around 80% were publicly shared.

The large number of users created an increase in value for the site. Many users have upgraded from the free account to the Pro Account, $24.95 per year, which gave them “unlimited storage, full-resolution images, and no advertising.”

Advertising also brings in revenue to Flickr. Users can “benefit from free products and services” while Flickr uses “contextual advertising” that monitors the rapid-growing of its users and turns “clicks into dollars.”

Using formulas to determine a user’s “lifetime customer value,” Web 2.0 technologies and websites have found ways to create value from each user account. Even non-paying users create value for Flickr and other Web 2.0s. The two million users of Flickr averaged a “$20 per user revenue over the next three to five years” when it was purchased by Yahoo! for $30-40 million in 2005.

The larger the customer base, the better the profit. The bigger the social network, the more valuable the website. Between subscription services, advertising, and revenue sharing, Flickr’s revenue model prominently depends on a large user base.


How to Use Your Users