How to really make money with Web 2.0

The launch of Amazon DevPay hasn't had the attention it deserves. DevPay will have the same incredible impact on startup economics for online applications as Google AdSense has had for online content.

One of the most significant announcements made around the turn of the year attracted very little attention at the time, despite its huge import for the way on-demand applications get created and marketed. I'm talking about Amazon DevPay. Silicon Valley's online chatterati didn't give it much of a second glance, but some of the developers I've been meeting with on my current visit here are digesting the implications with a growing sense of delight and awe.

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In essence, DevPay matters to online applications because it will have the same incredible impact on startup economics as Google AdSense has had for online content. Anyone can start up a blog or an information site on the Web today, and if they attract a bit of traffic — especially if that traffic is interested in certain valuable keywords — then they can easily cover the costs of operating the website. The most successful make a substantial profit as well, even a decent living. DevPay enables developers to charge for their online applications with the same kind of ease. It does depend on buyers actually making payment, so there's more friction than in the AdSense model. But on the other hand, it's easier to offer value with an application than it is just with content. And a look back at the history of content monetization reveals that, even before AdSense took off, some people were already making big profits from selling content online. DevPay brings online applications to the same stage.

DevPay hasn't attracted a lot of commentary because the Web 2.0 crowd is still focused on trying to grow big and then get VC funded, rather than simply earning a living from revenue that can be collected today. The trouble with get-big-and-monetize-later as a strategy is that most of its proponents are doomed to fail, because by definition only a handful will reach the top of the pile. The VC route is the one that gets all the headlines because that's where the deals are done, but in reality it's not much better than pyramid economics, encouraging people to work themselves into the ground for rewards that, in many cases, turn out to be devastatingly trivial, even in the biggest deals.

While the crowd is chasing the illusion of VC and buyout riches, a groundswell of smart developers are going to use DevPay to make money under the radar screen — the same way it's always happened on the Web. Look at the history of content and you'll see how it typically goes. The advent of hosted ecommerce services and the PDF file format in the late 1990s sparked a cottage industry of ebook publishers offering a catalog of how-to titles. None of these turned into multi-million dollar buy-outs or IPOs, but the most successful of them brought in tens of thousands of dollars a month. A second generation of content providers built websites that targeted the revenue opportunities introduced by Google AdSense and other programs such as Chitika. While the crowd chased VC-fueled fame and glory, hundreds of more pragmatic individuals built information sites designed to maximize revenue from content-related ads, again generating prosperous incomes for themselves.

DevPay will create a new generation of those never-told success stories. It's a hosted commerce engine designed to make money from applications that run on Amazon's Web Services infrastructure. Here's how Amazon described the service in its developer newsletter earlier this month:

"Amazon DevPay removes the pain of having to create or manage your own order pipeline or billing system. It allows you to quickly sign up customers, automatically meter their usage of AWS services, have Amazon bill them based on pricing you set, and collect payments. If you have an Amazon EC2 AMI or Amazon S3-based application for which you'd like to charge, please browse through the resources below, and read about companies already using Amazon DevPay."

The only missing element is support for the newly introduced SimpleDB, which DevPay doesn't yet meter. Once that falls into place, there's going to be a massively disruptive new development platform out there on the Web, which will generate enormous profits (at the same time as undercutting conventional software pricing) for those developers smart enough to stand aside from the crowd.

The way to really make money with Web 2.0 is by selling applications that help individuals and businesses either save money, save time or become more profitable. People are prepared to pay real money for that kind of utility, and with the advent of DevPay, it's now really easy for smart developers to collect those revenues.