1.) First thing to determine:
a.) is there a market where you have an idea
b.) is anyone buying anything?
2.) Generating traffic - You need people to visit your web site. There are two ways to generate traffic that are free, and there is one way to pay, which is done after the other methods are employed.
3.) Conversion - getting people to buy. Involves copy writing and sales letters. Video and audio as well.
4.) Making a product available that people want. You can use the market to determine that.
Generating an idea is a creative process. Look in areas that you are passionate about and perhaps have a hobby. During the challenge period, carry around a notebook with you and jot down ideas as they come to you, because you may forget them when you get back to the computer. Good resources are magazines in different specialty areas, where you can find advertisements for things that people are selling.
There are niches and microniches. It is best to start in a microniche first so you can go through an entire process of marketing and will not be overwhelmed by things to do. The skills that you learn in working on a microniche can be applied to working more within the larger niche later. Example: If your passion is sell something on the Internet, "Internet marketing" would be classified as a market since there are millions of pages in that field on the web. There are many niches within this, including "web design" and "Internet marketing tips." Microniches that have good potential keyword phrases include "web promotion services" and "free web site promotion." These are all terms that can be found using the program Market Samurai.
So, start your research in an area where you have an interest or a passion. Look for things that are already being sold and then drill down and find marketable microniche keywords.