Hot or Not Valuation - $20M is way too low and is very likely wrong

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I am intrigued by the metrics and the factors related to the valuation of online enterprises (see here, here and here). Every time there is a new major acquisition, it gives us a new data point to calibrate the dynamics of the current market conditions and expectations.

Blogosphere is reporting that Hot or Not was acquired for $20M by a Canadian company, Avid Life Media. HotorNot is an online photo rating site that has a dating component to it.

HotorNot’s web strategy gives some insight in to the free vs. paid service models. HotorNot had a paid "premium services" model and they claimed that the conversion rate was very high (as much as 15%; typically it is 1 to 3% for similar sites). Then last April, in a very bold move, they changed their business model and decided to go the completely free route.

The site did see a huge jump in traffic; from 6M visitors per month to 10M visitors/month; the revenue from advertisements and virtual gifts increased, but not to the level that would make up for the lost receipts from the membership plans. Of course, a period of few months is not enough time to gauge the effect of a major transitions, but it was interesting to watch them go through the transformation.

With the free service, came spam; and I understand that they have gone back to the paid premium service model, mainly to protect the users from getting junk mail.

From the Alexa traffic graphs, it seems that they did experience a huge traffic boost but it was not a sustained one; the traffic is back to the pre-free-model levels.

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There are reports that HotorNot was acquired for $20M but I hesitate to believe these figures.

Some of the available stats about the site are as follows: Annual Revenue(est.) $5M; profit (est.) $2M; the current visitor count has stabilized to around 5M visitors/month. They also have an established brand and a significant presence on Facebook.

Given these numbers, where would one peg the valuation of HotorNot?

As a comparison, Face book has about 100M monthly visitors (theoretically valued at $15B) and Plaxo has about 2M visitors/month, and was looking for a valuation in the range of $200M.

Another variable that goes in here is that HotorNot is a risqué dating site, and traffic on similar sites does not monetize well.

Even after taking this in to account, I find it hard to believe that HotorNot would receive a valuation of $20M, I think there are some multiples missing here.

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If I were to throw out some numbers, I think the total package that HotorNot sold for, might be about $40M, may be $50M (but definitely not $100M).

Well, we will know in a couple of days.

You can add your estimate of the valuation in the poll (current poll is on the sidebar, see here for the results of past polls)



Predictify the Presidential elections

Question: Who is going to win the Democratic primary nomination
Prediction: Barrack Obama

That is according to Predictify, an online site crowdcasting site that uses the wisdom of the masses to "predict" the outcome of events.

image The Preditify process is simple. On the site, you can either predict the outcome of events, or pose a question along with multiple choices, and let the global crystal ball steer you towards the truth.

Posting is free if you want up to 200 responses (after which that poll is closed), or you can post a premium question for which you get charged $1 per response up to the maximum number responses that you want to generate. Premium questions ask for some personal information from users. The overall demographic information is available online and also shared with the poster of the question.

The following were the responses to the predictions for the Oscar for best picture.

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Questions range from politics and current events to sports and pop culture.

So can the wisdom of the crowds be trusted? You be the judge

Question: What position will Hillary Clinton finish in the 2008 Iowa caucus?
Prediction: 1st
Actual: 3rd

Question: Who will capture the most delegates in the Republican primaries on super Tuesday?
Prediction: John McCain
Actual: John McCain

The first poll (at the top of this post) which places Barrack Obama as the popular choice for the democratic primary nomination might be suffering from population bias at this point (as they say, time will tell). Young, energetic democratic voters who spend a large part of their time on the web would be expected to support Barrack Obama in large numbers.

Which brings us to the next question; is there any real money to be made on the site? The answer is yes but it depends upon your definition of real. Part of the pot in premium questions is shared with the predictors. The amount depends on their accuracy, level of expertise and how quickly the users responded to the question (ie before the wisdom of the crowds became apparent).

The current top winners on Predictify are listed below. the #1 predictor’s payout is $154 or about $0.05 per question. There are respondents who have higher accuracies and are generating $0.50 per poll. Meanwhile, it would be safe to predict that the users of the site are hanging on to their day jobs!

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Question: Would you trust the wisdom of the crowds to make business decisions?
Take our poll (current poll is on the side bar; see here for past polls).



Notes from the AlwaysOn OnMedia NYC : Content vs. Connections

alwaysOn Onmedia NYC

Do you go to the internet for the content or for the connections?

Drew Lipsher of Greysoft says that “The perceived economic value of content is approaching zero.” Jim Spanfeller of Forbes.com says that the reason people come to the internet is the content.

People get fired up about one or the other concept, and there is a big debate going on. Jeff Jarvis has a good wrap on it.

I don’t see it as “either-or” proposition. One needs content, one needs connections, one needs content generated by the connections, and one needs connections generated by the content.

Today I spent more time on the internet reading WSJ and XKCd then visiting my LinkedIn or Facebook profile page. I also know a person who spent all her time today on Myspace, reading and writing and drafting clever messages and posting animated gifs. I went online for the content, she went there for connections and, I would argue, the content generated by the connections.

There are various forums and bulletin boards that I frequent. I have never posted in many of them. Forums are THE place for user generated content; but I don’t go there for connections, I visit them because of the high quality content that the users generate on the forum.

The main reason why one even needs to make a distinction between content and connections, is that the old way of serving ads on the internet are not working as well. For the longest time, the ads were tied to the content. There was a website with specific content, which attracted a particular type of reader and the ads were served from the webpage to the user. Publishers always thought it was too risky to trust their brands to “user generated” contents.

In new social media environment, the ads need to be dissociated from the content and need to follow the user. Don’t follow the content, follow the connections.

Each method of advertising, TV, radio, Print, content, or connection, presents a different slice and blend of the user base. Different demographics follow different trends and different media. Once you know which group you want the exposure to, an optimized ad strategy will tell you which media, or which content or which connection to use.

Coming back to the notes from the AlwaysOn OnMedia, AbleBrains has a summary of the CEO pitches. Most notable presentations were from AzoogleAds, which is a performance based ad network and relies on CPA (cost per action) to generate revenue and not on CPM or CPC.

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and UnisFair which provides virtual events and virtual worlds for marketing or virtual interactions with a user group. Cisco has “Cisco Partner Space” where facilitates collaboration between customers, partners and Cisco.



$425M invested in Virtual Worlds and that’s just the last quarter.

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Virtual worlds (and their ecosystem of game developers) have attracted a great deal of attention, both by the VC firms and by the technology and media companies.

During the period Aug-2006 and Sep-2007, the amount invested in the Virtual worlds was close to $1B.

Two notable acquisitions last year were Club Penguin ($600M) by Disney, and Havok by Intel ($100M).

Prominent investments in the Virtual World sphere were: Trion World Network ($30M) by Rustic Canyon Venture Partners, Double Fusion ($26M) by Norwest Venture Partners and others.

If you do not recognize some of these names, that is because these companies provide backend support. Havok’s product line includes tool sets for physics, animation, and character behavior. If the waves in the water, or the trees in the Second Life look realistic, it is because of the software written by Havok. Double Fusion provides in-game advertisements, a clever way to capture the attention of the gamer.

During the last quarter 4Q07, the investment in the virtual worlds has been about $425M. Most of the investors in the Q4 are venture funds. For example, ZeniMax Media, publisher of original content for gaming consoles, received investment from Providence Equity Partners.

The most crowded segment is probably the virtual worlds for teens. Some of the Teen Virtual World games that received funding include Gaia, Hidden City, Numedeon and Star In Me.

Virtual World Management Industry forecast contains predictions from several Virtual world luminaries. Many have suggested that the virtual world will become common place in a group collaboration.

Even though there are companies like Quaq and Unisfair, offering attractive solutions for group collaboration, I do not believe that we will see any significant level of adoption of Virtual Worlds in a business setting any time soon. I also think that many of the group coloration suites offer a great deal of “eye-candy” in terms of what can be done, but the hardware is not ready, bandwidth allocation is not there and masses are not waiting for real time collaborative tools.

Unisfair might offer online conventions but trade conventions are much more than just electronic booths with LCD displays.

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There is no doubt that Virtual Worlds will see massive growth. It is not mainstream yet, but it will become so. It took years before businesses adopted the Instant Messaging technology. Similarly, once virtual worlds start permeating and pervading everything we do, THEN the business folks will jump in.



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