Wednesday, February 6, 2008

Monkey see, monkey do

Sure, YouTube cashed out big when Google bought them. Since then, has anyone paid anything for a video sharing site? There's gotta be 200+ YouTube wannabes out there, and all of them are dying on the vine. Revver was thought to be the next YouTube, but CNET reports today that they're on the auction block for $300k-$500k + the assumption of their $1M pile of debt. The picture here is a grab from the bottom of Revver's website. I think its a monkey. After all, monkey see, monkey do. And that's all that Revver did. Copy YouTube. They not only copied, but the business model ended up being the same even though they claimed/planned otherwise.

So, what happened? Nothing. Both YouTube and Revver are doing the same thing - NOT MAKING MONEY.

The problem is that a generic video sharing site that doesn't appeal to anyone makes ad dollars difficult to come by. Sure you can sell on shear volume of impressions, but the real money is in placing advertisers in front of their primary markets. Look at Revver's website - nothing but Google ads. If the network was valuable, you'd be able to see your own ad inventory. But alas, this isn't the case when you have scattered content that's across the board.

Google said they missed their last quarter numbers because social networks aren't monetizing very well. Go figure. I ,for one, am not surprised in the least.

This also relates to Facebook - to which I've blogged about before. Sure they got a $15B valuation, but what's the REAL numbers behind it? Anyone care to guess? Try $150M in ad sales last year. Seems that problems around monetizing social networks isn't isolated to just Google.

Sure the network is huge, but the costs are too. Facebook plans to spend $200M in 2008 just on infrastructure upgrades (ie. servers). The cost to revenue ratio is a little out of whack. The cost of scale isn't working for them. Google has that nailed better than anyone, but they can't build a social network to save their asses. They'll have to buy one. (BTW - an acquisition should be announced soon)

[UPDATE : Don't get me wrong - I don't think YouTube and Facebook (sorry, I should also include Myspace) are doomed. Because they are the big dogs and have proper investments behind them, they'll do just fine. Even if it takes time to work out the monetization issues, they've got the money in the bank to get over the bridge to the promised land. I'm really critical of the wannabe's : Its difficult to breathe when the big guys are eating up all the oxygen in the room.]

So, where is all of this leading? It's leading to the simple fact that being everything to everyone doesn't pay very well (unless you make it BIG). The revenue stream comes from finding a niche/vertical and living in it. This way you can implicitly know your audience and plug in ads that not only pay well, but more importantly, are effective. The advertisers keep coming back and the long tail gives and gives.

Enter stage left - Howcast. Just the sort of thing I'm talking about.

That path will lead to solid revenues, albeit with a smaller user base. (smaller, but still good numbers) But in the end, small fast and profitable beats the heck out of a fire sale any day.

Anyone want a banana?


Neil Mix said...

Isn't the counter-argument that a social networking site has more than enough demographic info to provide finely tuned, high value ad targeting? For example, YouTube could generate a demographic profile based on the videos you watch, and OMG Facebook is swimming in useful ad targeting data.

I think there are two problems these companies typically encounter, one in their control, the other not:

1) They just don't get around to building the necessary infrastructure to do demographic ad targeting. Between scaling like crazy, the fact that it's crappy dev work, and salespeople speak a different language from engineers, engineering somehow manages to keep shuffling the advertising tech infrastructure to the back burner. Crazy, I know, but few companies make a priority of that.

2) The advertising world is stuck in the mode of demographics == age, gender, and sometimes zip. At least the big-time Madison Ave advertisers, the ones that do multi-million dollar deals. Smaller companies, as is their nature, tend to be scrappy and find the niche sites that yield higher conversion, so they rely less on demos. So there's a chicken-and-egg there, because social sites are sitting on *tons* of value in "behavioral demographics", but they're so big they have to do ad deals in bulk, thus their primary ad clients only care about age, gender, and zip.

Thus, there's *huge* inefficiency in the marketplace.

The interesting thing about Google is that they care about #1, and their goal is to knock out #2. They'll do that by a) scaling ad sales out to the "long tail" of smaller advertisers through automation, b) gathering enough click-to-purchase stats to *prove* that their behavioral profiling is more effective than rudimentary age/gender/zip, and c) "growing the gorilla" to become so big that they change the ad market itself. a) is done, b) is underway, and c) is a long way from finished.

David said...

Yes, there is revenue there. But if you aren't the BIG DOG, can you make it being everything to everyone? Nope.

While the big guys like YouTube, Facebook, etc. can monetize given their massive size, the smaller players either find a niche or are toast. Trying to play the game of being everything to everyone isn't a position of longevity.

I think you got hung up on my "not making money" comment - and I still stand by that because with the size of the network, their revenues SHOULD be a lot higher. I agree with you that they CAN be higher, but that isn't the case.

If Mark Z is so smart, then how come revenues are so crappy with membership and page view numbers in the stratosphere?

If Facebook can properly monetize that, they'll roll in cash and back up those crazy valuations.

For the wannabes - the clock is ticking on them, expenses are piling up. Its either find a place in the world or be roadkill.

Neil Mix said...

Oh yeah, totally agreed that the me-toos are toast without some kind of hook, AND that Facebook should be pulling in more revenue. ($150mm buys heckuva lot of banners...makes one think that it pays to expand the creative repertoire a bit. ;)

Ross said...

I also agree that howcast is a good example of finding your niche within the larger scale.
You can't be everything to everyone if no one is there, and if you aren't the biggest, you need a reason for people to wander your way.
A simple, easy to understand hook (like "it's a site that shows you how to do stuff") works better than a comparison to a program that someone is already using (we're like youtube). The niche is inherently more logical to reach for, because you have a simpler explanation to your target market, and an easier way for your satisfied users to convince others to try it out.