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"How will they make money?" is the wrong question

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Re: "How will they make money?" is the wrong question

#11

Post by kintamanimatt »

It's far from cynical to ask how a business proposes to make money, especially if it's non-obvious! Yes, there are other challenges beside this, marketing, engineering, and others, but the whole purpose of a for-profit company is to make money. Asking how a business plans to do so isn't naysaying, it's a sensible question.

Also, a valuation is more or less a made up number that suited the VCs and others. The words, "okay, we'll change the valuation to..." seem to be uttered quite commonly when the previous valuation is inexpedient.

Re: "How will they make money?" is the wrong question

#12

Post by ronilan »

tmandarano wrote: post #3

Excellent summary by Ev at the end of the post.

True. But the "monetize THEM" is not the perfect choice of words.

You don't monetize the users. Either a third party pays for their attention, or, they pay for their own access. No one owns the users. That's why they are so valuable.

Re: "How will they make money?" is the wrong question

#13

Post by amirmc »

InclinedPlane wrote: post #10

I contend that monetizing social software is actually very much easier than most people believe. However, the trick, I think, is to look at assistive rather than extractive models. Rather than looking at how to interject ads into social media, or to otherwise hijack a fraction of the collective attention span of your userbase that you can then sell to the highest bidder, instead look at how to leverage social functio…

"... but it's more common for companies to go to the advertising trough because it's seemingly so easy."

Easy and lucrative once you're big enough and to get big enough, you probably have external investors (who've trodden the path before and know the likely outcomes).

The sad thing is that while we may see lots of disruptive innovation in tech, we see much less innovation in the business models that follow (though please do correct me if I'm wrong!).

Re: "How will they make money?" is the wrong question

#14

Post by prof_hobart »

dylangs1030 wrote: post #7
TamDenholm wrote: post #6

I beg to differ, if you dont make a profit, youre not a business. I dont care if you raised tonnes of money from investors, built a talented team, built an amazing product and sold it to facebook/google/yahoo for a huge sum. Thats failure because you couldnt make more revenue than the costs you had.

You effectively missed the point of the blog post. The author isn't suggesting that revenue is insignificant compared to a user base; this is an extreme example of undercutting competitors via price slashing, and it's historically not necessarily a good idea. That said - Tumblr has so many users that it's difficult not to be valuable. A social network can be a currency of its own - having ownership of a platform that…

I'm not sure he's missing the point - more that he's disagreeing with it.

There's clearly a few high profile examples of companies with massive user bases who have either found a genuine way to monetise their users, or at least sold/floated their companies in a way that's been massively profitable for the initial investors.

But it doesn't automatically follow that it's always going to be easy to monetise them. There's always only ever going to be a handful of social sites that manage to attract huge numbers of users, and even some of those fall flat on their faces when it comes to making real revenue.

Even Facebook is struggling to find a way to get actual ongoing profits out of their users, and the longer it takes them to figure out how to do this, the more nervous investors are going to be about big IPAs for future social media companies.

Working on the assumption that "because site X has managed to monitise their user base, we will automatically be able to" sounds like the kind of baseless assumption that led to the first dot com crash.

Re: "How will they make money?" is the wrong question

#15

Post by mijustin »

InclinedPlane wrote: post #10

I contend that monetizing social software is actually very much easier than most people believe. However, the trick, I think, is to look at assistive rather than extractive models. Rather than looking at how to interject ads into social media, or to otherwise hijack a fraction of the collective attention span of your userbase that you can then sell to the highest bidder, instead look at how to leverage social functio…

Everybody seems to keep forgetting about Geocities.

They had millions of passionate users who built over 38 million pages on the site. They introduced ads in 1997 and two years later became the 3rd most visited sited on the web.

Yahoo acquired them in 1999 for $3.57 billion.

Yahoo was unable to further monetize those users. There wasn't some magic money tap they could turn on to make money from the site (despite it's popularity). Geocities never made a profit.

What's Geocities worth today?

Re: "How will they make money?" is the wrong question

#16

Post by ahoyhere »

mijustin wrote: post #15
InclinedPlane wrote: post #10

I contend that monetizing social software is actually very much easier than most people believe. However, the trick, I think, is to look at assistive rather than extractive models. Rather than looking at how to interject ads into social media, or to otherwise hijack a fraction of the collective attention span of your userbase that you can then sell to the highest bidder, instead look at how to leverage social functio…

Everybody seems to keep forgetting about Geocities. They had millions of passionate users who built over 38 million pages on the site. They introduced ads in 1997 and two years later became the 3rd most visited sited on the web . Yahoo acquired them in 1999 for $3.57 billion. Yahoo was unable to further monetize those users. There wasn't some magic money tap they could turn on to make money from the site (despite it'…

cough Myspace cough

Quite a lot of dotbombs, too, relied on… advertising. Back when it was banners. Punch the monkey!

Re: "How will they make money?" is the wrong question

#17

Post by bfgmartin »

mijustin wrote: post #15
InclinedPlane wrote: post #10

I contend that monetizing social software is actually very much easier than most people believe. However, the trick, I think, is to look at assistive rather than extractive models. Rather than looking at how to interject ads into social media, or to otherwise hijack a fraction of the collective attention span of your userbase that you can then sell to the highest bidder, instead look at how to leverage social functio…

Everybody seems to keep forgetting about Geocities. They had millions of passionate users who built over 38 million pages on the site. They introduced ads in 1997 and two years later became the 3rd most visited sited on the web . Yahoo acquired them in 1999 for $3.57 billion. Yahoo was unable to further monetize those users. There wasn't some magic money tap they could turn on to make money from the site (despite it'…

I think Josh has it mainly right in his Medium post https://medium.com/i-m-h-o/a5890c2c2cc0 - it's not just about traffic but engagement.

I was one of those passionate users on Geocities, to the point where I was given shares in the Yahoo acquisition for my work in the community. GeoCities died on the vine because they didn't continue to innovate on the site building and community they had. They certainly could have been so much more - foreshadowing blogs, social networks, everything myspace became, etc and could have found a way to build the kind of sticky (and huge) audience that monetises better - if they'd continued to develop.

Re: "How will they make money?" is the wrong question

#18

Post by stevetsuida »

mijustin wrote: post #15
InclinedPlane wrote: post #10

I contend that monetizing social software is actually very much easier than most people believe. However, the trick, I think, is to look at assistive rather than extractive models. Rather than looking at how to interject ads into social media, or to otherwise hijack a fraction of the collective attention span of your userbase that you can then sell to the highest bidder, instead look at how to leverage social functio…

Everybody seems to keep forgetting about Geocities. They had millions of passionate users who built over 38 million pages on the site. They introduced ads in 1997 and two years later became the 3rd most visited sited on the web . Yahoo acquired them in 1999 for $3.57 billion. Yahoo was unable to further monetize those users. There wasn't some magic money tap they could turn on to make money from the site (despite it'…

I wonder if it's just that the folks who convince their bosses and boards to make bad moves just don't care. It's a subsidized party. Acquisitions mean travel, splashy events, big budgets, and no one remembers who did what or who's to blame for it as long as you stay a few pay-grades outside of the spotlight, and have a new job before the last one craters.

Picture generals and arms dealers seducing politicians into voting for a war, keeping themselves just outside of the consequence field-of-fire.

Re: "How will they make money?" is the wrong question

#19

Post by mijustin »

bfgmartin wrote: post #17
mijustin wrote: post #15

Earlier quoted context omitted.

Everybody seems to keep forgetting about Geocities. They had millions of passionate users who built over 38 million pages on the site. They introduced ads in 1997 and two years later became the 3rd most visited sited on the web . Yahoo acquired them in 1999 for $3.57 billion. Yahoo was unable to further monetize those users. There wasn't some magic money tap they could turn on to make money from the site (despite it'…

I think Josh has it mainly right in his Medium post https://medium.com/i-m-h-o/a5890c2c2cc0 - it's not just about traffic but engagement. I was one of those passionate users on Geocities, to the point where I was given shares in the Yahoo acquisition for my work in the community. GeoCities died on the vine because they didn't continue to innovate on the site building and community they had. They certainly could have…

I think it had more to do with the fact that Yahoo needed to start making money with Geocities... and couldn't.

The sequence seems to always looks the same:

1. Big social network needs to change privacy settings and TOS in order to make money: users start to leave.

2. Big social network is under increased pressured to make money and introduces paid accounts (or more advertising): most of the users leave.

3. Big social network is no longer cool (because everyone's left and it's full of ads) and can no longer innovate (because there is no more money).

4. Big social network dies

We've seen this play out before: Digg, MySpace, Geocities.

I'm willing to bet this will play out with the current crop of consumer networks: Facebook, Twitter, Reddit.

Re: "How will they make money?" is the wrong question

#20

Post by mijustin »

ahoyhere wrote: post #16
mijustin wrote: post #15

Earlier quoted context omitted.

Everybody seems to keep forgetting about Geocities. They had millions of passionate users who built over 38 million pages on the site. They introduced ads in 1997 and two years later became the 3rd most visited sited on the web . Yahoo acquired them in 1999 for $3.57 billion. Yahoo was unable to further monetize those users. There wasn't some magic money tap they could turn on to make money from the site (despite it'…

cough Myspace cough Quite a lot of dotbombs, too, relied on… advertising. Back when it was banners. Punch the monkey!

Exactly! And Digg. And Friendster.

Advertising can be a good business, but it still needs to follow the same formula: Revenue - Expenses = Profit

In my mind, Google is the only real B2C internet company that's proven itself.

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