The missing feature at the heart of Web 3.0

Most Web 2.0 applications are free because nobody knows for sure how to measure and price on-demand functionality, or how to bill, collect and distribute the proceeds.

Yesterday I wrote about the transition from Web 2.0 to Web 3.0, which, in the time-honored tradition of packaged software versioning, will finally add the missing features to bring the Web to maturity.

Probably the most crucial feature missing from Web 2.0 can be summed up in one word: revenue.No one has figured out how anyone pays for this stuff Ever wondered why virtually every Web 2.0 wannabee is offering their service for free? The reason is no one has figured out how anyone pays for this stuff. The only thing keeping it going at present is the sheer enthusiasm of the entrepreneurs themselves, with the lucky ones getting funded by VCs who hope to cash in when they flip the concept to a well-heeled trade buyer like Google, Microsoft or eBay. Even the big guys are funding their beta services out of their own pockets, hoping the money will eventually start coming in but with no certainty yet of exactly how.

That's why I made such a fuss about Amazon introducing the charging model for its Alexa Web Information Service last month. Someone needs to get this sorted, and fast, because as I wrote then:

"The per-user, per-month model used today by most on-demand application vendors works well enough for discrete applications, but the more mash-ups of individual services there are, the more essential it will be to devise a successful model for billing services based on actual usage."

Regular readers of this blog will know that advertising isn't the answer. Applications that happen to produce or run alongside a lot of traffic-generating content — such as blogging tools, search engines and website traffic analysis — can perhaps be funded by monetizing the content with ads. But they're the exception rather than the rule. Everyone else is going to have to use one or more of the other revenue models I outlined in my post on How to fund on-demand applications.

But what I neglected to say in that post is that the techniques for doing this are still at a primitive and elementary level because so little experience and best practice has been built up. Nobody knows for sure how to measure and price on-demand functionality, and even when that has been resolved, there still needs to be an infrastructure for presenting the bills, collecting payment, and distributing the proceeds. This is the biggest headache facing the pioneers of Web 3.0 and it's not going to get resolved overnight. I suspect it's a topic I'll have to carry on asking awkward questions about throughout 2006.