Planblog

German e-commerce blog Exciting Commerce points to an interesting comment on Techcrunch by Jeremy Liew of Lightspeed Venture Partners with regard to the recent $20 million venture round in Slide and just how they might be making money:

I led Lightspeed Venture Partner’s invesment in Rockyou, and am also a friend of Max’s at Slide. I can’t comment on the substance of this rumor, but wanted to respond to some of the comments.

Looking at Rockyou and Slide as pure technology, and considering their worth as simply the engineering time to duplicate their code, substantially undervalues them. Both companies serve up over 100 million total widgets, and create more than 100k new widgets, every single DAY. Thats a lot of adoption.

Users of social networks don’t decide who to create a slideshow with by issuing an RFP, or by doing an exhaustive feature comparison of vendors. They use what they see others using, what they see their friends using. In that sort of decision making environment, size matters in generating further growth. A great user experience and good technology are antes to play, but they are not enough to win the hand. Both Rockyou and Slide have scale and that is a key driver of the value that they’ve created.

I think skeptical comments about business model are understandable. I posted in my set of 2007 Consumer Internet Predictions that this year widgets will find a business model (if you’re interested in reading more, click my name in this comment). But it’s also fair to say that they haven’t demonstrated a business model yet.

Youtube was able to generate a destination browsing site and monetize traffic directly. Photobucket drives enough traffic through creation and editing to make very substantial advertising revenue. But many other widget companies (and I’d include both Slide and Rockyou in this category) have not yet crossed this bridge.

However, I think that there are a number of promising business model avenues that have not yet been fully explored, some ad based, some sponsorship based, some freemium models, some likely requiring a revenue share with the social networks. But I wouldn’t have invested if I didn’t think that!

In his 2007 Consumer Internet Predictions, Jeremy mentions a few more potential options:

2. Social Network widgets find a business model. Pete Cashmore and many others have proclaimed the rise of the widget economy, but there hasn’t been too much money floating around this economy to date. Widgets have been primarily a marketing tool, used to drive traffic to a destination site, with Youtube being the most obviously successful at doing this. Once there, monetizing traffic on your own site is uncontroversial. But few others have been able to build a browsing destination on the back of widgets, which begs the question as to how widgets can be directly monetized where they are embedded, and what sort of revenue splits will be struck between the three relevant parties; widget owner, social networking site, and user. I don’t know the answer to this, but have some ideas (syndicated advertising, sponsorship, micropayments for bling, freemium models etc). I think we’ll see more clarity emerge in ‘07.

Also worth reading in that context is this article on GigaOm (01/04/2007): For Social Networks, 2007 is about MONEY

Towards such ends, there are four critical success factors that any innovation in monetization scheme for social networks must adhere to:

Social networks, and online communities in general, are terrible platforms for advertising formats designed for any type of call to action. As such, Google Adwords-type direct-response PPC ads have proven highly ineffective. On the contrary, the significant opportunity for social networks is to become highly-efficient branding vehicles. In fact, it is my prediction that social networks will prove themselves to be the most effective brand communication platforms on the Internet.

As we all know by now, social networks are a new media for self-expression and communications. And since the core revolves around people (not products), it is vital that any innovation in brand communication include the active and explicit participation of those people within the process itself. In other words, people themselves are the platforms, capable of message amplification and network effects, and they should be treated as brand re-communicators, not just end-receivers. So just don’t advertise at them, advertise with and through them.

And, if you’ve been following the German web 2.0 scene lately (with Facebook clone StudiVZ having been acquired for what appears to be EUR 85 million), you’ve probably noticed that there is a German contender to Slide as well: Imagelooop — who have received a total of EUR 1 million in venture capital so far. In a recent press release, they had this to say:

At present, it is completely free to use imagelooop. A re-structuring of costs through the introduction of premium membership, exclusive third-party products and advertising will take place at a later point.

We’ll see how that goes.

This entry was posted on Sunday, January 7th, 2007 at 11:24 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.