Tech, Startups, Capital, Ideas.

What’s after Web 2.0? People have been asking that question for a long time and the answer is crystal clear: Revenue 2.0.

What’s changed since Revenue 1.0?

High speed Internet. The Internet and widely available ecommerce resources have made it infinitely easier to reach the consumer. According to the Pew Internet study, some 55% of Americans now have high-speed internet connections at home. At the height of the last dot com bubble in mid 2000, fewer than 5% did. In June of 2000, only 22% of Americans had ever bought a product online. As of September of 2007, about 50% had. Simply put, the location of where the battles are fought has changed, from the desktop to the browser.

Whether it’s the local camera store, the mid size retailer, or WalMart, every business is now online. These merchants need the tools to reach their customers, sell to them, and have an on-going relationship with them that keeps them coming back. Better email marketing, the presentation of more relevant products for the customer to buy, and more automated customer service and selling tools are the kinds of solutions every business is looking for.

Hosted delivery. Hand in hand with high speed Internet has come hosted delivery. In Revenue 1.0, hosted delivery was a thought but buyers were far too wary of vendors to rely on it. Now Salesforce is in practically every organization and businesses are integrating consumer and business Internet services into all levels of the organization. Acceptance of hosted delivery is a reality.

Hosted delivery has also dramatically changed the services model. In Revenue 1.0, on the ground services teams had to be at the customer, and much of their learning was lost. With hosted offerings, on the ground teams are still necessary, from time to time, but because all changes are made across a single hosted product, service learning is captured and reflected to all customers.

Hybrid pricing model. A compelling, hybrid pricing model is emerging to support hosted delivery. The challenge with Software as Service businesses has been the high up front cost and relatively slow payback to companies delivering service (the vendor has to deliver the service up front, but the buyer only pays for it over time).

But now startups and large companies alike are bringing to market a hybrid model that takes the best aspects of the old licensed software model (that is, charging up front) and combines it with the best aspects of the SaaS model (recurring revenue independent of product upgrades). While SaaS companies don’t typically charge for two or three years of use up front, many have started charging up front for minimum usage or a period of service – say the first year.

Open source. Open source has changed the landscape not only in terms of lower cost of initial delivery but also in terms of customer adoption. That a startup can get a beta up and running by leveraging a lot of pre-existing, low-cost building blocks that were unavailable just a few years ago is not news. But what is news is that open source has become a viable, effective sales model. Open source is the Trojan horse way into IT buyers, even in a down economy. IT can try out, pilot, and use products available on the open source model, but delay paying for them until budgets stabilize. And in some cases, IT can continue to spend on services to support and manage existing offerings, without committing to capital expenditures.

Efficient customer acquisition mechanisms. Hosted delivery, open source trials, and key learnings from the consumer world have found their way into the business of Revenue 2.0. Forms of viral user acquisition, pioneered in the Web 2.0 world have become embedded in many business products. Whether it’s a simple link to refer a friend, a full affiliate program, or offerings that are more and more specifically designed from product inception to leverage existing customer bases (once jump started) to upsell and cross-sell, today’s business entrepreneurs are learning from consumer offerings.

In Revenue 1.0, product engineering and product marketing and selling were, in most cases, independent. In Revenue 2.0, marketing, sales, and customer feedback mechanisms are considered up front and built right into the product.

Customer acquisition cost – the cost of the channel – is where startups spend the majority of their venture dollars. These dollars, unlike product investment, cannot be leveraged if a company is trying to sell product consumers or customers simply don’t want to buy. Revenue 2.0 provides opportunity to innovate not just on product itself, but on marketing approach, sales model, and sales efficiency as well.

New consumer monetization approaches. 10 years ago it would have been hard to imagine consumers spending money on things like virtual goods or using their mobile phones as payment mechanisms. In 2007 there were over 2.7 billion mobile phones in use (compared with just 850 million PC’s) and some $1.5 billion spent on virtual items. The reality is that the consumer market is a world-wide one, and consumers now have multiple ways to spend small amounts of money – an especially desirable fact in a down economy.

Entrepreneurs have seen this movie before. Perhaps the biggest difference from Revenue 2.0 is that many of today’s entrepreneurs have seen the boom/bust movie before. Many of today’s founders were at other startups during the crash and have been running lean operations all along. One entrepreneur at a growing company recently emailed me asking what the real motivations were behind some of the recent messages to startups. “We have been doing these exercises all along, but especially for the last 9 months.” The magnitude of the market changes is shocking for many, but the response of entrepreneurs this time is swift, smart, and prudent. They recognize the value of operational experience and capital efficiency.

What hasn’t changed?

What hasn’t changed since Revenue 1.0 is just how difficult it is to build highly compelling offerings consumers and business customers want to use and pay for. While products have become easier to prototype, the fundamental challenge of creating innovative, unique, and pain-solving solutions remains the same.

Opportunities abound to deliver cost savings, produce incremental sales lift, or simply give consumers living in uncertain times a place to find a little refuge with their friends.

Panicky messages from investors not withstanding, many of today’s Revenue 2.0 entrepreneurs have all along made operational and capital efficiency a core competency. Even in a challenging market, they will continue to thrive.