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.



Slide valued at $500M+, half a billion dollars

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From Today’s NYTimes:

Slide, the maker of applications for social networks, has raised another round of funding - $50 million from the private equity funds at Fidelity and T-Rowe Price, two major Wall Street investment houses. The firms have taken a 9 percent stake in the three-year-old, 64-employee Slide, valuing it at $550 million.

Most interestingly, the investors are Fidelity and T. Rowe Price.

I guess one could argue that Slide is not a widget company but an ad network.

Here is what Max Levchin said in his interview a few months ago:

Think of Slide as a giant media network for people to transmit information. The content that’s in there now has been provided by users — it’s whatever they want it to be.

But my issue with that argument is that the slide is not hosted voluntarily by MySpace and FaceBook - users put it there. It is unlikely that MySpace will let Slide monetize their presence on their pages and Facebook looks kind of dicey too. The point is that Slide is not in control of their visitor count - they rely on other networks to get the audience.

How much is a Facebook application worth? Face book is valued at $15B which equates to $250 per user. There are some, who argue that an application on Facebook is worth $250 times the number of users. That is just wrong!

Facebook applications are like little antenna balls for the car. Don’t tell me that the goofy antenna ball is worth as much as the car. Some have argued that each install of an application is worth $3 to $0.30 for each install, which is high but at least in the ball park. Again, the number is per install, not per application view.

Slide is not saying that they have 150M registered users or 150M installs - just 150M visitors. They might have 25M to 35M install base. With $550M valuation, they are valuing it at $20 per install. Also, the widgets have a short lifespan; they come and go, so active install base might be smaller.

And then there is the Facebook "tax" (rev-share that Facebook will demand), which further reduces the value.

Some may argue that the basic fallacy in this valuation calculation is that you are looking at current numbers - extrapolate to 2011 and then calculate the valuation. Its the growth potential that demands a much higher premium. I don’t fully agree with it but the argument has a certain conceptual merit. One should calculate these numbers by examining the forward flow and not the current numbers. Not sure if I can stretch my imagination to 2011, but if Fidelity with deep pockets can see farther than I can, more power to them.

This sort of reminds me of the BlueMountain network, it was valued at $780M when @Home acquired Excite for $6.7B (at $400 per user) during the period of last exuberance.

But I am glad that deals are happening, and the developers are creating more applications. And if widgets are being valued highly in the marketplace, I am giddy, incredulous but giddy nonetheless.



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.



To colorful, delicate bubbles of 2007, 2008 and beyond

bubbleThere have always been bubbles. There will always be bubbles…”

And thank god for the bubbles!

Judge Posner, one of the figures I admire the most, has written a very insightful piece on the Subprime Mortgage crisis, but the part that grabbed my attention was his eloquent description of how bubbles form.

A bubble begins when prices, in this case of housing, begin rising at a rate that seems inexplicable in relation to demand. No one knows how high they will rise. In conditions of uncertainty, there is a tendency to base expectations on simple extrapolation: if prices are rising, they are expected to continue to rise-for a time, but no one knows for how long a time. There is a reluctance to act as if they will not continue rising, for by doing so one is leaving money on the table. As a bubble expands, the rational response is to reduce risk, without forgoing profit, by getting in and out of the market as quickly as possible. The increased trading may keep the bubble expanding.

His observations and reasoning about how the housing, and subsequent investment bubble, got created are equally applicable to the web 2.0 properties and explains the valuation of many of the companies that we see around us. I have marveled over the valuation of Geni ($100M) and Tagged ($117M) and Facebook ($15B). In 2007 we saw the valuation of these companies rising at a rate that seems somewhat inexplicable.

Judge Posner also notes that the Bubbles are more likely to occur when downside risk is less than upside risk. In the Tech word, because the potential of “up side” is perceived to be very high, (e.g., Peter Thiel’s 500k investment in Facebook turning in to 1B+), the valuation of many Web 2.0 companies gets skewed.

But at the same time, as Judge Posner notes that even with the valuations that may seem skewed or inexplicable, it is not the time to walk away from the deals. The optimal thing to do might be to extract the up side from the expansion of the bubble. If the valuations of the start ups are rising, they are expected to continue to rise-for a time, but no one knows for how long a time. The bubble will continue to get fed and will continue to grow during this time. Hope you are participating in that growth.

There is a lot to be done over the next few years; open social, always on connection, moving office products to the web, more touch screen gadgets - and more specialized applications for the touch screen gadgets, HDTV, higher quality audio, DRM free music and each of these fields will spawn new startups, new Googles, and new Facebooks. There are opportunities abound and I hope the right one knocks at your door in 2008.

Happy New Year!

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