How to Make Money on the Internet
Friday, February 4, 2000 by Dave Winer.
Goood evening! 
Welcome to the first DaveNet piece from Amsterdam! It's only the second from Europe, and if you were counting you'd care. Anyway, I'm between stops on my trip. Davos finished, sadly, on Tuesday, and I've been in Amsterdam resting, experiencing another European culture, gathering my thoughts, being a tourist, and preparing to talk to the publishing industry at the Seybold conference in Boston on Monday and Tuesday.
How to make money
The title of this piece is an answer to the most frequently asked question I heard at Davos, both in the hallways and in the sessions. Yes, the Internet is cool, but how do you make money? This is the question that the Have-Nots ask those that Have, or another way, that the Get-Nots ask those who claim to Get. I am so smug in the belief that I can answer the question that I'll ramble my way there, knowing that it's so pregnant that you'll read all the way to the end to hear what I learned and experienced at Davos just to get an answer to this question that has so many people wondering.
But first, several stories from Davos.
Klaus Schwab
Klaus Schwab, the Swiss professor who is the host of Davos, is a medium-height man, fit, always well-dressed, bald, formal in his mannerisms. Dr. Schwab is the head of the World Economic Forum and is the moderator of the most important sessions at Davos.
He has an interesting way of introducing speakers, one which I've never seen before, that I will try the next time I moderate a panel. He addresses the speaker not the audience. For example he would say "Tony Blair, you are the Prime Minister of Great Britain. In your six years in office you have had many successes in bringing your country into the new global economy. You were a Global Leader of Tomorrow, inducted in 1989. We are very proud of our association with you."
The speaker is beaming by the time he or she takes the microphone. The audience feels as if they are party to a private conversation. It may be an old-fashioned way of doing intros, I have a feeling that Mr. Schwab is old-fashioned in all his mannerisms, even if his ideas were and continue to be revolutionary.
Mit de Cherman agzent
An aside, Dr. Schwab reminds me how to speak with a German accent, a skill I learned from my grandmother Lucy Kiesler, who was as German as they come. I learned a phrase and tried it out on many of my fellow Davosers. "My name ist Klaus Schvab and I shpeak Englisch mit de Cherman agzend." When people hear me say that they say "You'll get in trouble!" (It vouldn't be ze firszt dime.) But it makes me laugh. I can totally visualize Schwab as I say it. I like phrases that reach deep into my memory in a clear way. This one touches my funny bone. Everyone else laughs too because I do it so well. I mean no disrespect to him, and if he reads this (I hope he does) this is the way we do things in America, perhaps with less outward reverence than the Swiss, but with no less respect.
Clinton
US President Bill Clinton gave a great speech at Davos on Saturday at noon. The multiple tracks of Davos merged into one. Clinton, who had little sleep in the previous three days looked tired, with big bags under his eyes. He spoke softly, but his message was powerful.
Longtime DaveNet readers will know that I am not a big fan of Mr. Clinton. I called for his resignation several times. Have I been turned around on Clinton? Perhaps.
Recall that in my last piece, Two Days at Davos, I concluded that the message of Davos, globalization, was exactly equivalent to the message of the Web. Mutual respect, inclusion, digging up the old wires and replacing them with bigger ones that go different places.
I wasn't sure that Clinton and I were talking about the same thing until Schwab asked him a question after his speech. "Mr. President," Schwab said, "do you have a message for the business leaders here at Davos?"
After a long pause he said "Find a shared vision." He expounded, telling the story of trade negotiations and economic imbalances between developed and developing nations. I felt he was stating the problems of the Internet industry using terms that made sense to him. My interpretation: Without a shared vision, something we agree on, growth can never really happen. As soon as a layer of progress is complete, the wars begin, and years of stagnation follow. This is the cycle of the software-slash-Internet industry, and it looks (thanks to patents, more on that later) as if we might be about to loop around once again.
So, a shared vision? I thought about this for a few hours. I tried to imagine the leaders of the Internet industry sitting in a room and arriving at a shared vision. Is it possible? I thought about Steve Case and Bill Gates. Case is clearly trying to steer the users into the proprietary AOL world, instead of pushing them to the Web. Gates wants to emphasize the power of desktop computers, with all their RAM and disk space, and of course Microsoft's 20+ year investment in operating system software for desktop software.
Could Gates and Case get on a stage and share a joint vision that's anything more than lip service? Not now. Maybe in a few years, but certainly not in time to make a difference in the battle to keep the Internet open and free. Add the other personalities of the industry, Andy Grove, John Chambers, Scott McNealy, Masayoshi Son, Larry Ellison, John Doerr, Jeff Bezos, Steve Jobs, the list goes on and on, and it seems clear that nothing less than an external redefinition of the purpose of technology could get these men into agreement.
Then I realized that such an externally defined vision had already been forced on the technology industry. The standards of the Internet, HTTP, HTML and URLs; and perhaps XML, which is a simple formalization of HTML. To go to the next step the leaders of technology merely have to agree to stop struggling against these standards, and to share the knowledge they have developed around them. The web is ready-made for a shared vision. All that remains is for two or more of the leaders of the Internet industry to get what Clinton, Schwab and Davos are asking them to do.
(Shimon Peres, a longtime Cabinet minister and former Prime Minister of Israel would expound on this idea later, in a very eloquent way, at the end of the Davos 2000 annual meeting. "Peace is hard work," he said.)
Media leaders
After the Clinton speech, on Saturday afternoon, I walked to the Hotel Rinaldi for the first meeting of the Club of Media Leaders. Everything in Davos has an official upper-case kind of name. The members of the Club are CEOs, publishers and chief editorialists at media companies from around the world. I was the only web guy at the lunch.
We went around the room, each person says what their main challenge was in 1999 and says what their main challenge is for 2000. The most popular answers were The Internet and The Internet.
When I spoke, I said my main challenge for 1999 was ease of use and my main challenge for 2000 is to start 1 million websites. I encouraged my fellow media leaders to embrace the web fully and not look back. Ask not what the Internet can do for you, ask what you can do for the Internet. Follow this simple rule and you can't go wrong.
Of course the "How do I make money?" question dominated, as I expect it will at Seybold, and I have an answer for the media leaders that works, as I expect it will work in non-media operations. But that will come at the *end* of this piece. ;->
The demonstrators
Now flip back to the Saturday Media Leaders lunch at the Hotel Rinaldi. We finished going around the room. Klaus Schwab appears briefly to give us a peptalk. Barbara Erskine, the leader of the Media Leaders takes the mike and says that the President of Argentina won't be able to join us because his hotel is surrounded by demonstrators. Wow! "Where?" I ask. She says the Seehof. I'm out of here, now.
I walk out the front door of the Rinaldi and immediately to the left is a police barricade with several thousand banner-waving demonstrators throwing snowballs mit firecrackers and charging the barricades. I climb on a snowbank to get a better look. Several polizei grab me, stick hard things in my ribs and push me back. The Clinton press entourage is there in force. A scene from Forrest Gump, all the publishing CEOs, editors in chiefs, CNN film crews, demonstrators crashing barriers, and it starts snowing hard, big wet flakes. On one side the haves, the people allowed inside Davos; on the other side unknowns, the ones who want to be heard. What are they demonstrating for? I never found out.
But I did document it, with the best pictures I've ever taken, which isn't saying a lot because I just started using a digital camera a few weeks ago. I think it's like writing. The first step is to have something interesting to say. The second step is to have good supporting technology. In this case a rich story of puzzles, color and contrasts appeared before my lens. All I did was click the shutter.
http://scriptingnews.userland.com/stories/storyReader$187
Gates
The next day, Sunday, was Sports Day at Davos, but it was also Blizzard Day. The demonstrators were gone, thanks to the polizei, and the departure of the Clinton entourage, so there was nothing else to do but attend the media leaders lunch with former Microsoft CEO, now chief software architect, Bill Gates. He gives a brief speech, followed by questions and answers from the cream of the journalism world.
Gates echoes many of the ideas you've heard in this column, the power of the personal computer must not be overlooked in the rush to the Internet. He debunks the "myth" of Network Computing as promoted by Sun and Oracle, he says we should check with their customers to find out if their vision had materialized. Gates is confident that it hasn't. I am too, but Bill, don't be so quick to write off Network Computing. It's the engine behind the growth of Yahoo. And while the web browser is a very limited user interface environment, it's not so limited that you can't build a powerful easy to use publishing system around it, as we have. It's good, perhaps, to promote your own company's products, but not at the expense of what's real. Network Computing is great because I can update my site from an Internet cafe in Amsterdam as easily as I can from my office. However, to write an essay like this one, I want great editing tools on my laptop. The Yin and Yang. Of course there's room for Microsoft and other software makers in the world of the Internet. It's not an either-or thing. Hey Bill I'm using your browser right now.
Before the meeting I prepared a couple of questions for Gates and was lucky to have the final word, my question came last, and believe it or not (Forrest Gump again) I had a conversation with Bill in front of all those editorialists. It can be hard to remember all that we said because I was in the middle of it, thinking a step ahead as I engaged with Gates before all those powerful people, but I'm going to try.
I referred to the previous day's challenge from Clinton to business leaders. Bill, can we find a shared vision? His eyes lit up. A well-rehearsed story. Our consistent vision for 25 years has been to bring the power of the personal computer to millions of people. "That's the past," I said, "What about the future?" With fist-pounding enthusiasm, he said that was their vision for the future too. I wasn't satisfied. "What about a *shared* vision Bill?" I kept hoping that he would say The Web, The Web that's the vision we share! In my wildest dreams he would say Ask not what the Internet can do for you. But he didn't.
He talked about SOAP, and said that the audience wouldn't understand it, and they shouldn't have to. I said it can and should be explained. He tried, I think half-heartedly and asked if that was OK. I said no. The audience laughed. He offered me the chance to do it, I did a quick mental calculation, it would take at least two minutes to explain, and this was not my forum, it was his, so I declined.
Gates closed by recommending that everyone in attendance read my column, which is one of things I find very dear about Bill, it's so hard to be critical when he's so enthusiastic about DaveNet. Anyway, before I move on, Bill I'd like to visit you in Redmond to talk about the shared vision thing. You've done something revolutionary in opening up your network to the standards of the Internet. But like the Doomsday Device in Dr. Strangelove, it does no good if people don't know about it.
I'd also like to visit with Bill Clinton to talk about the same thing. But he doesn't read DaveNet. Yet!
Dezterous
Later in the Annual Meeting, Steve Case, Bill Gates, Sumer Redstone and MIT professor Michael Dertouzous would talk about the future of the Internet. Dertouzous asks us to focus on all the new people who will show up on the Web in the coming years. An A-plus for the professor. This is where the action is, in the million websites that will start in 2000, and in the millions, if not billions of websites that will come in the next decade. That my friends is what globalization is about. A voice for anyone with something to say.
$750 million for immunization
In the Plenary Hall on Monday, Bill Gates is on stage with the head of UNICEF, the chairman of Merck, the President of Mozambique, the top people from the World Bank and the WHO, announcing that the Gates Foundation, funded with $21 billion of his money, is making an investment in worldwide child immunization. This is laudable, but weird. I felt sad that we, in the software business, might lose the spark of Bill Gates. It's rare for the sponsor of such a fund to be alive while it's being disseminated. It's also a wonderful thing. Gates, the richest man on earth, is the ultimate trial and error guy. His first ventures into philanthropy will be toe-dips, as this $750 million grant is, for sure, but this is just version 1. When Gates finds a killer app, it's nothing until you get to version 3. Stay tuned.
Patents
As you know I am very interested in Internet patents, most people aren't yet, so I was the only real dissenting voice at a lunch on Monday to discuss the subject. They had an earnest but friendly dissenter scheduled to speak, representing people from indigenous cultures whose herbal medicines are being patented by opportunistic scientists, but I was not friendly, I was horrified by the absolute, irrational, smug, unsupportable, open greed present in the room.
I learned a lot in that session, so my position against Internet patents is even stronger now. First, you should know that there are organizations whose sole purpose is to define and patent new business processes that build on the Internet. Jay Walker, the founder of Priceline.Com, has 60 full-time people working in teams to do nothing more than generate patents. No engineering, no scaling issues, no customer satisfaction requirements (although Walker's company appears to be good at this too), they just a file a claim at various patent offices, and wait for the engineering of the Internet to catch up. A land-grab business. In normal times this might not be such a big deal, but the magic of the Internet, which Walker is exploiting, comes from being free and open, as Joel Klein says, a public space.
How will the patent economy effect open source projects? I was the only member of the open source world in that room. And I was shattered by the greed. After all, isn't there enough money for people who create successful Internet startups like Priceline.Com? Why do we have patents anyway? Is this system, designed for industrial processes, still applicable given the instant gratification reward system for Internet entreprenuers? When your company has a market cap in the billions, is it anything other than unmitigated greed to ask for even more money, for filing a piece of paper with a government?
It might be possible to negotiate with them, but we're going to have to gather some power. I want to be clear on this, I'm outside, I want to charge the barricades, but I don't want to do it alone. If patent madness is allowed to continue without restrictions, the Internet could die, open source or not.
Feed
If you want to read more on this subject, check out this article on the situation in wireless web access:
http://www.feedmag.com/daily/dy020300_master.html
"WAP offers a chance to rebuild the Web, without all that annoying freedom, and without all that annoying competition." It's just one example, and is so true.
King Abdullah of Jordan
Back to politics and the Middle East.
When I went to see King Abdullah of Jordan on Sunday, I was prepared to see an immature shadow of his father, the distinguished if short King Hussein, who died last year.
Instead I heard a beautiful speech about peace and friendship. He called the Israelis and Palestinians his brothers. Then he said something that gives me goosebumps to remember. "It's not enough to strive for peace for our children and grandchildren, we must have peace for ourselves." Ahhh the perfect contribution from a young man with most of his life ahead of him. There is nothing wrong with selfishness in the cause of peace. It's beautiful.
Shimon Peres
Fast-forward to Tuesday evening, the closing session of Davos 2000. Shimon Peres, the distinguished Israeli cabinet officer in charge of the peace process says "Peace is hard work."
No doubt! He recalls with affection many late night sessions at Davos with the Palestinian leader Yasser Arafat. "That man just won't accept a night cap," he says with a big grandfatherly twinkle in his eye. We all laugh. I can't tell you what a relief it is to me, an American Jew, to see peace in the Middle East. The wisdom of the Peres' years contrasts the youth of Abdullah. This is what a shared vision looks like. This is something the high-tech industry has yet to get. I hope I live to see that day too.
Mr. Son
Softbank's Masayoshi Son is one of the least-known and most powerful people in the high tech world.
An early investor in Yahoo and the largest shareholder in E-Trade, Son also owns one of the richest VC firms in the world, and Comdex and so much else, including the Seybold Conference that I'm going to keynote on Monday.
I had never seen or heard Son until Davos. He's got the biggest damned grin I've ever seen. What's behind the smile? He's winning the game he plays, he's the perfect foil for the fear at Davos and Seybold, on stage is the man who Gets It in a 36-point font.
He asks the audience a question. How many of you believe there is an Internet Bubble? 70 percent say yes. Now, how many believe the Internet industry will be worth more than the PC industry? Every hand goes up. Now he points out the contradiction. All the dot-com companies represent $1 trillion in value. The PC companies are worth $6 trillion. So if you believe your own logic, the bubble won't happen at least until stock values go up six-fold. Of course the trick is to pick the winners, but it's sure that Son-San will win. Not only is he long on E-Trade, he's also starting his own all-electronic stock market! No trading floor. He doesn't pause to catch his breath. Right on.
(An aside, I attended an excellent panel on electronic stock markets, including Arthur Levitt, the chairman of the US Securities and Exchange Commission. He said there's no time to waste in building the all-electronic trading floor. Developers in Europe and Asia are moving quickly. I also had drinks with the chairman of the Warsaw stock exchange. He asked for advice on firewalls and NT versus Unix, which I gladly gave.)
Fear of the Internet
One of the last sessions at Davos, A Values-Added Century, was a totally inspiring and heart-grabbing set of stories told by people who are not rich or very famous, who have made a contribution to the world by helping children and refugees, or providing inspiration to women or entrepreneurialism in the developing world. A distinguished heart surgeon and the chairman of the Special Olympics were there too.
The stories were so incredible, the thoughts so deep. We learned about the aspirations of refugees, they want choice, freedom, hope. These were recurring themes throughout my Davos experience. I had lunch with media leaders from Russia, received a bear hug from a man who came in third in the Russian presidential election. They want free speech to remain in Russia, but they're not too sure about it.
I ate dinner with two women journalists from Poland who lived through the transition to freedom. I heard a stirring talk by Abdurrahman Wahid, the new Prime Minister of Indonesia, one of the largest countries on earth. He says it's not all about money; and he says it in a folksy way. "I am a poor man, but look, I'm president of my country!" Another deep laugh and sigh of relief. Indonesia, a country that needs a leader, has one.
The message of Davos is the message of love mixed with fear, which is to say it's a real message. The Internet provokes fear, I think largely because the message of the Internet comes to them from people who are scared. I heard concerns on the stage at the Values-Added session, fear of the Internet, and I asked for the floor and gave one of the best, most impassioned speeches of my life.
"I have something important to say," I said, and all the faces in the room turned to me. "The Internet is not about money. I've been inspired as you have by what I've learned from people on the Internet, from their creativity, humanity, hopes and frailty. Don't give up on the Internet, it is for you."
I said a lot more, but I honestly don't remember what I said. It was probably fairly typical DaveNet stuff, but they hadn't heard it before. I hadn't heard it in this context either. There is an Internet that wants to enable all the voices in the world, to empower people *and* help them create new businesses. I believe that the Web is not only the vision that's shared by technology leaders, it's the vision that we can share with political and economic leaders too. Just think about the Middle East. There are a few bumps, we can all make money on the Internet, and yes I do believe the soppy stuff about the Internet being the next step in the path of evolution of our species.
But now, finally, the part you've been waiting for, how you will make money on the Internet, so you can stop wasting time asking the question and get busy getting rich.
How to Make Money in the Internet
Suppose you run a newspaper in Singapore. This defines a community. Open a new server that allows people in your community to create their own Web sites. No editorial policy on these sites, except some obvious ones, don't support illegal activity as long as it doesn't relate to free speech. (I have no idea how the web can work without absolute freedom of expression, but we don't accept pornography or illegal trade on UserLand servers, and don't recommend that others do.)
Make it easy for your community members to sell goods and services on your servers. Provide a service bureau for accepting major credit cards. Of course, as a faciliator of this commerce you're entitled to a commission on each sale. But that's just half of the value equation, and I'd argue it's the less interesting half.
Encourage your community members to gather facts, draw conclusions, state opinions and organize others into action. Read the sites yourself. Require that every editorial person in your workforce read the sites. Have internal meetings where you only talk about what's happening in your community of websites. Have face-to-face meetings where you invite the leading webmasters in your community. Learn from each other. Get down in the trenches, in a sense, and listen, and then write about what you learn. Listen listen listen.
As you get to know your community, stars will emerge. Give them space on your home page and run ads on their sites. Be clever in choosing the ads. Link together problems with solutions, some commercial, others just for the good of your community. What's good for your community? You decide.
What just happened? You grew by an order of magnitude. And you grew into the Web, a business that pays a premium market cap, unlike the paper-based publishing system, and the emulation of paper publishing that most publishing websites employ in 2000. The people who run your home page are free to link to stories produced by the print publication, or not. My bet is that within several months, the community web sites will be producing content that's as interesting to your community as the copy produced by your current editorial staff.
Meet with the chairman of your local stock market, if he or she isn't already beating your door down. Issue a tracking stock, or, even better, spin out your new web operation. Collect several hundred million dollars, possibly more, to capitalize your new venture. With that money, buy infrastructure.
Wire up your best new editorialists with broadband connections. Buy them the latest digital cameras. Build a warehouse to stock goods that people can buy from your server. Lease a fleet of delivery trucks to make fulfillment virtually instantanous. Grant stock options to the best editorial people, including ones that come from your old print pub, and also give them stock that they must pass on to people whose sites they support.
Further, think in terms of a global audience. How many people want to know about Singapore? How many people in your city might want to host visitors from far away? Find a sister city in a land far away and find out what makes your communities similar and what makes them different.
Spread the new wealth around. And never ask what the Internet can do for you, always do things that just do one thing, grow the Internet, help it reach into the community you define. If you follow this formula, you can't lose, in my humble opinion, unless there is an Internet bubble that bursts before you get the money, but as Son-San says, there are good reasons to believe that there is no such bubble.
Who loses?
Again, in my humble opinion, no one has to lose, but no one gets to keep doing the same job they were doing before the transition to the Web. If you define success in terms of continuing to do the same old thing, you will lose. This is the message that causes so much dissonance at Davos and at Seybold. The people who had a good thing going before the Internet are angry. If they draw a line in the sand, as Sumner Redstone of Viacom did so insistently, sorry it's off to glue factory. But if you're willing to risk it all on your intelligence, experience *and* your enthusiasm for the Internet, you will win. But you have to be willing to change.
How this effects publishing
In the publishing environment, columnists and reporters will share their space with the people. The pros have to become ordinary people again, and let their writing and ideas compete with the expressions of amateurs. The old publishing standard "Everyone needs an editor," will soften in the age of universal publishing. "Editing can sometimes improve the effectiveness of writing" is more accurate. People who can self-edit, or have less formal editing processes, will not be held back. Judge the process by the end result. Some people can write without filtering.
We may sacrifice a little quality, both in terms of writing style and factual accuracy. This column is a good example. When I wrote for Wired the copy may have been cleaner, but the ideas were sanitized. It's inevitable when you prepare copy that must pass tests of political correctness. Let's say I was writing for a big publication whose CEO wanted to go back to Davos next year. Out goes the stuff about Speaking English mit de Cherman agzend. Now you might not miss that, but what else would you miss? Would my publisher let me reveal to all our competitors the blueprint for our growth? If I'm untethered, as I am, I am free of those kinds of concerns. If my host doesn't point to my column because of it's limited political correctness, perhaps his or her competitor will? And since I have my own community, I know in advance that this article will get flow. Even so, I don't go out of my way to insult people I like, and I will generally reveal my business model at a moment's notice because I practice the Ask Not What the Internet Can Do For You philosophy.
If the market places a high value on the cherished attributes so prized by print-era editorialists, then they will be proven right. But you must have the courage to put your ideals to the test. This isn't a choice you have. Your principles *will* be put to the test, your only choice is whether or not you want to bet against the Internet here. I recommend at least a bet-hedge. and if you really jump in, I think you'll see that the web has its own mechanism for quality. If you want people to return, you have to take the high road, the main person whose reputation you tarnish with weak opinion and incorrect fact is your own.
A case study
If you want to see this idea in action, compare Scripting News and Davos Newbies with the Davos site that Newsweek produced. This is a fair A-B comparison since we were covering the same story. We all had limited resources. Newseek had a group of writers and photographers and production people (today they're webmasters and HTML coders) -- a traditional publishing organization that dates back to the 1940s at least, perhaps earlier. Scripting News and Davos Newbies were written by sole practitioners, one the ultimate insider, Lance Knobel, and the other by an outsider who had been invited to have a look at what goes on at Davos, me. Judge for yourself. To my knowledge, nothing like this has ever been done before.
I think you'll find that Lance and I captured a personal view of the conference that goes into some depth, but there's room for improvement. While Newsweek had more resources, the result was more traditional, human interest color pieces, the kind of stuff you could get from watching CNN and reading Reuters.
I envision a Davos, maybe not in 2001, but certainly in 2002 or 2003, where every participant can have their own site, and many do. I imagine that out of 3000 possible sites, there will be 30 excellent ones and 100 very good ones. People outside Davos will be able to experience Davos real-time, from a dozen perspectives (no one person can read 130 different quickly updating sites). And the Davos process will continue year-round, as the community defined by EditThisPage.Com is 24-by-7 and roams the landscape of the web, morphs and grows, and never runs out of ideas for connecting different cultures with each other. As I understand the Davos philosophy, this is totally consistent with it.
This is at the heart of what I want to show at Seybold. We can all grow together, but first there has to be respect. At the heart of each print publication is a brand and a team that can lead a community into the web. It's completely human to not want to jump into the unknown, so being scared is OK, it's rational. But inevitably change comes, and you can't take it with you. So take off the parachute, forget what you know, and go ahead and jump. That's where fun comes. That's what we're all doing. None of us get out of this alive. It's later than you think.
Live session in Boston
As I write this it's 8PM in Amsterdam, and I'll be on a plane for London at 8AM tomorrow. There will be very little time to edit this piece. I will try to update Scripting News from Boston, and will post the outline of my Seybold keynote which is on Monday morning 9AM Eastern time. If there's a webcast I'll point to it as well.
I will also host a live session at the Hynes Auditorium, Tuesday, February 8th from 6 to 7:30PM in Room 304. It's open to the public. All DaveNet readers are welcome, bring a friend and an idea, and let's have fun!
See you in Boston!