A long list of Web business models

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Chris Anderson, Fred Wilson and Dave McClure have created a great list of Web business models. The list includes:

  • E-commerce
  • CPM ads
  • CPC ads
  • CPT ads
  • Lead generation
  • Subscription revenues
  • Affiliate revenues (think: Amazon Associates)
  • Rental of subscriber lists
  • Sale of information (selling data about users-aggregate/statistical or individual)
  • Licensing of brand (people pay to use a media brand as implied endorsement)
  • Licensing of content (syndication)
  • Getting the users to create something of value for free and applying any of the above to monetize it. (Like Digg)
  • Upgraded service/content
  • Alternate output (print/print-on-demand, t-shirts, etc)
  • Custom services (installation, support services)
  • Live events
  • Souvenirs/”Merchandise”
  • Co-branded spinoff
  • Cost Per Install (popular with top Facebook apps)
  • Sponsorships
  • Listings
  • Paid Inclusion
  • Multimedia ads (video ads)
  • API Fees (charging third parties to access your API, like Alexa)
  • FeedSense
  • FeedSearch
  • FanPageApps

To this, I have a few more to add:

(i) Donations. Several sites that I visit frequently, do not charge for the services/software they provide, but rely on donations from the user base. Many of the torrent sites follow this model as well.

(ii) Domain name value appreciation. This is a modern version of Sears, where the operation of the company lost money but the real estate owned by company appreciated significantly. Example - spark.com; the site lay dormant for a long time but the domain name appreciated in value. Spark Networks, a collection of dating site, purchased it in 2004; I know because I negotiated the deal for the purchase of spark.com and worked with Spark Networks on the IP side of their re-branding strategy.

(iii) Ad exchange credits. I haven’t seen this used recently, but this method involves showing ads from an ad-exchange and accumulating reciprocal ad credits, which can be sold to third party.

(iv) Sale of traffic. Example - BlogOhBlog.com gave away free wordpress themes for about 6 months with very limited monetization. At the end of the 6 month period, it had 100k visitors/month and the domain name BlogOhBlog.com was sold for $10k.

I am sure there are others. Please leave a comment here or at Fred’s blog if you would like to add it to the growing list.



IncrediMail, Google, Adsense and Powerful Entities (Natural Monoplies)

ImageIncredibleMail is an e-mail client, which produces multimedia emails, screensavers and wall papers. I do remember giving it a try when it initially came out in 1999. It allowed for beautiful “stationary” in the emails, when the the stationary concept was somewhat new.

IncrediMail was in the news yesterday because Google disabled their Adsense account, and since adsense revenues are a significant portion of their total revenue, the market reacted negatively to the news and the stock dived by 41%.

It seems that Google didn’t like IncrediMail’s “opt-in” policy of how the search results were being served to the IncrediMail’s clients. In fact, I see that one of their products, Magnetic, claims “The product offering includes pages generating keyword searches, resulting in revenue for the company.” I can see how this might violate Google’s TOS. IncrediMail doesn’t know exactly why their account was disabled.

And when Google turns off the Adsense account, you not only not get any future revenue, but all the “earned” money gets frozen too, and you permanently lose it.

There is a whole mob complaining about why IncrediMail didn’t prepare for the loss of Google and that they shouldn’t have put all their eggs in the Google basket.

To me it seems that IncrediMail didn’t rely on just one source of revenue- they had three sources:(i) subscription service, (ii) licensing revenues and (iii) Adsense.

I think this is more of an issue with Google. It has become so much more powerful and so much ahead of it’s competitor, that one has no choice but to use them. Google has become defacto monopoly or natural monopoly.

I am not suggesting that Google unfairly cancelled IncrediMail’s account; IncrediMail probably pushed the envelope on serving search engine results without getting full consent of the consumer.

In the current state of Internet web 2.0 environment, one does not have any choice but to rely on Google. You can go with Yahoo or use some other widget, but the results won’t be as good as Google without spending incredible amount of time - so why bother? In fact, till recently, if you used Google Adsense, its TOS prohibited you from having any other ads that provide contextual ad content on the same page.

I agree with an unknown senior executive at Time Warner:

Sometimes I don’t know what to think of Google. We have the best relationship of anyone with Google. On the other hand, you always have to worry when someone gets so much more powerful than all the competition out there. This is why I come down to this: I hope the government starts understanding this power sooner rather than later.

GoogopolyI admit that I have multiple Google/Gmail account. I am sure it is against their TOS and I worry that one day I will turn on my laptop and try to check my mail, and I will get a message “your gmail account has been disabled”. I wouldn’t know for sure as to why it was disabled and I would have no place to turn to get my data. Google doesn’t tell you why it is punishing you - and that scares me!

The one company that I love the most is Google and one company that scares me the most is Google!

We all need to understand the power that Google has.



Tesla motors- growing pains, transitions & stealth bloodbath

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A little background on Tesla: Tesla Motors is a silicon valley automobile startup company, and has promised an electric car that goes 0-60 in 4 seconds, gets 135 mpg equivalent, has a range of 200+Miles and has the top speed of 125 mph.

Total investment so far - about $105M. A prototype was unveiled in 2006 and production is expected start in the first part of 2008. The company has about 250 employees. As of August, there were 500+ roadster reserved, each paying anywhere from $5k to $100k to reserve the car.

The company was started by engineer Martin Eberhard and others in 2003, and Eberhard served as the CEO till very recently. Amid production delays, Eberhard was given a new title and in December 2007, Ze’ev Drori took over as the new CEO.

ImageTesla also announced that they were seeking $40M of additional funding and are experiencing transmission problems. A one speed transmission system, that will deliver max speed of 80 mph is available but since the expectation is to have the top speed of 125 mph, they are looking to get a two speed transmission. The company claims that it is a “logistical” problem and not a technology problem.

It is no secret that Eberhard was less then pleased with the way he was treated during the transition to the new CEO.

In his blog, Eberhard claims that there is a stealth bloodbath going on at Tesla and that 27 people that he knows of, have been let go, including some people in the transmission team, a few very knowledgeable engineers and several vice president.

Ze’ev Drori (CEO) and Elon Musk (Chairman of the board) sent an email to customers saying:

Tesla is a company of many extraordinary individuals. To succeed, we must continuously develop a top performing team. Since resources are very precious, this also means that we must make hard decisions where need be and part ways with those whose performance has not matched expectations. These actions were taken after careful analysis by the leadership team, and not by a shotgun approach.

At the same time, we continue to look for extraordinary people, with or without automotive experience, to join our team. If you know such people please send them our way.

I have no information about the inner workings of the Tesla Motors; but I do know that at times, you want to go in and you are so angry at the state of affairs at a company, you want to fire everybody who had any hand in getting to that stage.

When I moved to NoCalifornia during the tail end of the Internet boom, and join a business incubator, one of my first tasks was to close down two of the companies. Some of it was related to the general state of the investment and some of it had to do with the people involved. Sometimes, you need to let the whole team go, so that the new team is not contaminated with the old way of thinking that did not work and precipitated the need to get a new team! Yes, I have been there.

In 2006, when the prototype of Tesla motor was unveiled, the company was ahead by at least 2 years compared to other competitors in the field of electric vehicles. To lose that precious time and not having a car on the road even in the early part of 2008, is something that probably troubled the investors and possibly called for drastic measures.

The company is not in the start-up phase any more; right now the focus of the comp may is in getting the production effectuated and increased. The needs are different, the skill set required is different, and I am not surprised that the new CEO wants to start with a new team.

Tesla says that these are not layoffs, they are ‘firings’; the whole team was probably in some sort of funk and certain mode of thinking that was holding them back in getting the car on the road and having “logistical” transmission issues.

The new CEO has even taken the bold step of suggesting that in order to get the car on the road, he might consider putting in an “interim transmission” in the car that will be swapped out after a few months when the production for new transmission is moving at the full throttle.

Transitions are always difficult, this one seems even harder. But I do not see anything other than a “transition” here; for ex-CEO who was forced out, to suggest that there is a “blood bath”, and obliquely suggest that the project might not survive, is not in the best interest of the company.

Tesla motors has great plans, they want to produce an electric car that is further enhanced by solar power, they want to produce a sport sedan and they are ahead in terms of technology. Let us give the new CEO time and lee way to get the system in place to focus on production.

True, the layoff or the transition has not been handled in the best way, but at times, when the participants are reluctant, there is no good way to handle transitions.



Let’s play the Plaxo valuation game.

plaxoYesterday Plaxo put itself on the block for sale. They have hired investment boutique Revolution Partners to assist in the sale.

They have had two notable successes; the first one was that have been able to overcome the (well deserved) bad reputation of being "spammy" and the second one is that the tool called Plaxo Pulse is a great hit.

Plaxo Pulse enables sharing of content from multiple different sources across the social web, including blogs, photos, social networking services, rating services, and others. It is based on Google’s open social container.

The down side is that they still do not have a good revenue model. The revenue numbers for Plaxo are hard to come by and that probably means that they are really anemic.

They currently have about 15M users (20M if you look at the forward trend and not the trailing trend).

The company has so far raised $28 Million in four rounds, from Sequoia & Ram Shriram (Series A; 2002 $3.8M @ $7.5M post), Globespan Capital (Series B; 2003; $8.5M @ $33.5M post), Cisco (Series C; 2004; $7M @ $64M post), and ; 2006; $9M @ $122M).

So, let’s talk about the valuation and how much would Plaxo sell for. I know, these could be, and in this case they probably are, different numbers, so let’s play the game as to how much do you think Plaxo is worth and how much would it sell for.

As a data point, remember that in 2006, DAG already valued them at $122M.

My take: at $5/non-paying user, it is worth about $75M max, and it will sell for about $225M. The $225M purchase price will be justified by saying that one should look at the forward extrapolated user base, and the expected improvement in the revenue, to come up with the current purchase price (!). Assume 25-30M users next year, that gives about $150M as the allocation for the user base and rest as multiplier for the potential revenue improvement. There is some double counting here, but what is a few tens of millions between friends?

Leave a comment if you have a different method of valuation or have a more creative way to justifying $200M+ purchase price.



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