Tuesday, June 09, 2009

What if our greatest innovations are worthless?

Most of us have heard the names and many of us actually use the products every day. Heck, many of you probably couldn't slog through your day without their services.

Facebook, Youtube, Twitter....... They're everywhere from Oprah to the Whitehouse. But here's the $15 billion question - what if they can never make any money? What's their worth if they are perpetual loss-making enterprises?

1) Facebook - Facebook recently took $200 million of Russian money which valued the company at about $10 billion. The private company will somehow generate around $500 million in revenue this year, but still manage to lose money. Maybe they'll be lining up for a "Social Networking Bailout" in 2010. Facebook gets a huge valuation for it's growth, the perception that it's users are more upscale than Myspace and the number of unique visitors that hit the site. However, in my own personal experience I think the data disguises a reality of Facebook that no one wants to admit. About 10% of users are power users - visiting 5x a day and sharing every little detail of their lives. Another 50% of users check in once a day and the balance signed up and forgot about the site just as quickly. A number of feeds make Facebook users appear more active than they are on the site (for example my blog and twitter accounts feed into Facebook. I might not visit Facebook for a week but it looks like I'm on there all the time) and I wonder how advertisers account for users like myself.

2) Youtube - There is a new story out today that indicates that youtube might be streaming up to 1 billion videos per day. Roughly one video for every person on the internet every day. If any business should be able to be successful it should be one that is used daily by everyone in the world, right? Wrong. Youtube suffers from mixed messages and advertisers fears of being associated with the wrong type of content. There is talk that Youtube could be losing up to $300 million/year. YouTube's problem is an easy fix in my opinion. Stop looking at the users or advertisers for revenue and look at your suppliers (the video uploaders). A small micropayment for every video uploaded could go a long way to creating a real revenue stream that would make youtube a viable enterprise.

3) Twitter - Twitter quitters might be the phrase of the year by the end of 2009. The vast majority of twitter users have fewer than 10 followers. Twitter is being overrun by spam and I don't see a ton of long-term value in their business model. Here's how I use twitter -

twitter search: Search for terms (look for your company, a competitors name, a brand that you use, a stock you like, etc). Follow that stream and you'll gain some interesting insights....

Accessories: I use stocktwits and I find it interesting (but like other tools it's being overrun by pump and dump daytraders). I can see a model for other services that use the twitter format (but I'll keep them to myself in case I want to hire a techie to build them for me), but there is a difference between building a useful website and building a profitable business. Right now some twitter tools can be useful, but I don't see them becoming sustainable businesses.

I think youtube has a 50/50 shot at survival (particularly if they can buy or create a hulu like service). I don't see how Facebook and Twitter survive another 10 years without developing some sort of sustainable revenue stream.


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