How to Generate Passive Income Over the Internet [Updated]

[Updated 12/2/2008.]

The first phase of my Internet business adventure is to explore potential opportunities, such as knowing what marketplaces are out there and what tools are at my disposal. Since my primary interest is to produce passive income, I have excluded ideas like selling on eBay or Amazon. My goal is to continue my income streams, even when I am not at it actively.

As discussed in this post, there are several ways to generate passive income over the Internet. Although the ways vary, the bottom line of all this is content - the King of the Internet. Income is generated by traffic to your sites, and traffic is generated by the content you produce. Knowing this, my job is to keep producing content, the kind of content that produces passive incomes. I discuss a few types as an overview.

1. Royalty-Based Content

There are many types of royalty-based content; for example, books, photos, articles, paintings, images, video clips, etc. You can protect your content via copyright or trademarks. You then claim royalties when people use them or make a copy of them. To produce passive income, though, you want to avoid handling orders from customers and shipping the products yourself.

There are many content sites that can store your content, but not all of them enable you to profit from them. For example, you can place video clips to YouTube, but you do not make a profit when people view it. Luckily, some content sites have done all the hard work and all you have to do is to produce the content for them, which is what you are good at. Advantages of this approach are that the sites handle orders, production, and shipping for you, and that there are already crowds looking for you.

Here are some examples of these sites: Istockphotos is a popular market place where people look and shop for the pictures others have produced. CafePress and Zazzle are marketplaces where people shop for T-shirts, mugs, gifts, and many other things with pictures or graphics designed by artists a.k.a yourself. Lulu.com is a marketplace for self-published books, music, and videos, while Etsy.com is for things that are hand-made.

2. Informational Content

Many Internet surfers are looking for insightful information to help them make a wise decision for their next purchase or how-to for doing certain things. If you are an expert in doing certain things or domains, this is an opportunity for you to publish your knowledge or share your ideas. Surfers typically do not directly pay for informational content, but indirectly via clicking on the searching or affiliate ads at your site.

The easiest way to set up your site(s) for the information content you produce is perhaps blogging. A blog is like a journal in which you publish informational content. You can start your own blog immediately, after opening an account with popular blog sites, such as, Blogger, TypePad, or WordPress. You will have to do affiliates and place ads on your blog(s) as well as conduct promotions to get traffic to your blogs. For more information on blogs, read my post that compares Blogger and WordPress.

Luckily, there are also content sites that have already attracted huge crowds looking for your new content; such as, eHow, Squidoo, and HubPages. All these sites provide cash-back incentives to the authors, based on various factors such as, the number of readers and the usefulness of what you wrote. You can read my other post for details on this subject.

3. Applications on the Cloud

I consider software application a special kind of content. Traditionally, application developers build the application off-line and deploy it to public on their production web server. Thanks to Web 2.0, the paradigm is now shifting towards on-line development. The most successful vendor in this frontier is salesforce.com. Through its subsidiary, force.com, the company provides not only the tools (as well as the infrastructure to host the application) to build the business applications, but also the market place, namely, AppExchange. Application developers use the tool for development and testing and publish their application to the marketplace when it is ready. Customers of salesforce.com can browse or look up the available applications in the marketplace and install those that suit their needs and demands. Application vendors can either make their applications free or charge certain subscription fees based on the number of licenses and duration. The profit is split between the application maker and salesforce.com who makes this all possible.

Be aware that the customers of these types of applications are not regular consumers who browse and shop on the Internet. The customers of salesforce.com are enterprises or businesses of various sizes that demand both complexity and quality of the application. It is therefore not surprising that developers of this category must clearly understand the business needs of their customers and be equipped with a certain level of programming skills. Though, it is considered easier and less time-consuming compared to traditional application development using C, C++, C#, or Java.

Finding the Right Marketplaces and Tools that Suit You

Having seen such a wide variety of marketplaces, you may feel lost, and start wondering where to start. By now, you should understand that each category discussed above requires different skill sets. It is important that you understand your talents as well as your passions. Here are some questions to help you figure them out:

1. What are you talents?
2. What are your passions?
3. What are your skill sets? Or, can you afford to hire someone to do it?
4. Which market sectors or domains do you know the best?

While trying to answer these questions, please also keep in mind that it is important to leverage other people. They can be your family, your close friends, your co-workers, or even hire someone if you can afford it.

Read this post on eHow, HubPages, and Squidoo.