How to Make Money Online

Dec. 27, 2008 — -- Suleman Ali needed a change. So, in mid-2007, he left his programming gig at Microsoft to start a company--any company. On a whim, he wrote an application for Facebook, the social networking Web site, called Superlatives, which lets visitors rate their friends as the smartest, best-looking and such. It immediately caught fire.

"I basically started building it out of boredom, and people started noticing it three days after I launched it," says Ali. So did interested suitors: Nine months later, the 26-year-old sold his hobby-cum-enterprise, called Esgut, to Palo Alto, Calif.-based Social Gaming Network for "several million dollars" (he's not allowed to share the exact purchase price).

For all the troubles in the economy, the Internet continues to be a hotbed of innovation, entrepreneurship and, as development costs continue to decrease, stiff competition. Some of the most lucrative ideas have yet to hit the drawing boards. "I could almost make the case that the idea you think is really stupid is [the one that will] succeed," says Guy Kawasaki, partner at Garage Ventures.

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Ali financed Esgut, with an eight-employee roster, by selling advertising that runs alongside its applications. By the time he sold the business, the company's six apps had attracted some 14 million unique users. Now Ali is ready for round two. Despite the downturn, the young entrepreneur says he's in "brainstorming" mode with a high school friend and MIT graduate.

There are plenty of ways to make a buck online. Some ventures require only a few hundred dollars in equipment, while others demand significant hardware and even a warehouse. Some might make you rich, others might just cover groceries and all involve various levels of time, capital and technological skill.

Take traditional advertising-supported sites. While a slew of random eyeballs won't cut it anymore (especially in a recession when ad budgets are tight), sites that demonstrate proven, direct links to coveted consumers can still thrive.

"Targeting techniques dramatically improve [advertising rates] and make businesses viable that might not have been," says Howard Morgan, a partner at First Round Capital, an early-stage venture fund in New York that invests in Web-based companies.

Entrepreneurs can make money either by running Web sites that appeal to specific demographics or by writing nifty software that captures information on how people shop on the Web. 33 Across, a Manhattan-based start-up, is developing software that sniffs out online "influencers"--folks likely to share an advertisement with other, larger groups of people--whom advertisers can target directly.

Niche e-commerce plays work too. The best of these generate revenue by taking a cut of every sale and by selling advertising. One unique twist on this model is Avelle.com (formerly BagBorroworsteal.com), which takes a Netflix-style approach to luxury accessories. Customers can rent Chanel earrings, Balenciaga tote bags or Hermès watches at a monthly or weekly rate. The company also charges $60 for an annual "membership" that offers discounts on those rates.

Yet a third model: Be an online broker and take a cut of the business you scare up. Or simply make it easier for customers to make purchases, as Opentable.com does, by peddling restaurant-table-management software that lets consumers search for reservations and book online. Diners make reservations for free, but the restaurants pay per lead.

Mint.com offers users an online bookkeeper that can categorize and graph all spending, as well as outline ways users can save money (strategies provided, of course, by Mint advertisers). For instance, Verizon might offer a combination package of cable, cellphone and landline service that could save Mint.com users a $100 per month; Mint.com then captures a fee for each referral.

For all the free stuff online, people will still pay to enter gated communities--and with the rise of social networking (Facebook, Twitter, et al.), the options for virally marketing those sites are myriad. The challenge: offering such valuable content that people are willing to shell out for it.

The Ladders.com manages to pull it off. The site charges $30 per month to list open jobs paying $100,000-plus salaries. Meetup.com charges "organizers" a monthly fee to arrange meetings in U.S. cities for groups devoted to any imaginable interest.

Even in this tough economy, if you can wrap a compelling video around useful, practical information that appeals to a specific audience, large sponsors will pay good money for it. Example: Foryourinformation.com, founded by Paul Kontonis, has multiple online video networks devoted to infotainment (and one comedy network) on which advertisers buy space. Companies can also buy shows created around a particular brand--an even more lucrative model, in terms of revenues per view, says Kontonis.

As layoffs mount, so too has the interest in making a killing on the Web. Gary Sharma, founder of Garysguide.org, a newsletter that compiles lists of networking events for Webpreneurs around the U.S., says the number of shindigs has more than doubled over the past six months, to about 90 per week.

"People once were siloed," he says. "Now they participate and things start rolling. Going to events, it stirs the waters." And that's certainly what the economy needs right about now.