High Value or High Volume?
It’s easy to monetize through advertising. But it’s hard to make a lot of money monetizing through advertising. You need to be high value, high volume, or both. Here’s a chart that helps illustrate why.
The numbers are rough, but the model is a useful one. (I’d welcome feedback on the numbers and the model.)
The (somewhat dated) estimates of YouTube’s revenues, for example, range from the high ($15+ RPM) to the possibly under-valued ($0.50 RPM). (RPM = Revenue per Thousand Impressions, whether CPM, CPC, or CPA based.)
It’s also helpful to consider this model when painting a vision of your startup, regardless of whether you are the ultimate monetizer or volume driver, or someone else is.
Sites with high volume recognize that they need to monetize better. This is one reason for Yahoo’s acquisition of RightMedia, and Fox Interactive Media (FIM)’s acquisition of Strategic Data.
One more MySpace user or a few more impressions doesn’t do much for MySpace revenues. But better monetization works across the entire user-base. By monetizing a little better, for example, MySpace could go from say $200M a year in revenue to $400M. That’s by “just” adding 10 or 20 cents per thousand impressions.
A high volume site would love to become a high value site. There’s more than one way to make this happen. Keep reading to find out how.
High Value
In contrast, sites with high value (such as those related to finance, IT, health; and lead generation - mortgages, debt consolidation, etc.) focus on increasing their user-base. Adding a few cents to their RPM won’t matter much. But adding more users really matters a lot. That’s because these sites are already doing a good job monetizing.
High value sites do a good job monetizing because they are serving some kind of highly valued niche. A niche by its very nature has a smaller number of users. It’s vertical, rather than horizontal.
High Value AND High Volume
Nirvana would be a site that is both high value and high volume.
Adding another monetization mechanism could also really change the game for high volume sites. That’s because additional monetization applied across a huge user base really matters. High volume sites are primarily third party – paid today. That means the sites and its users interact, but the site makes money from advertisers: the traditional media model.
But if a high volume site can get its millions of users to take out their credit cards, cell phones, check books, or cash, they can add a large amount of revenue. Such a site can move from being ad-supported only to user (customer) supported. Users might pay for a wide variety of things, from virtual or digital goods, access to additional features, or even products.
It’s not just the high volume sites that can try to get there. High value sites can too.
High value sites can broaden their user base through a variety of mechanisms. They can add more capabilities to their site to make it more broadly appealing. They can add more sites and create a network, then try to get their users to cross-over between sites.
Or they can simply do more marketing, advertising, and lead generation activities to drive more users. The risk is churn: many coming in, but few sticking around or monetizing.
Conclusion
This volume-value equation is not a new one. Enterprise IT die hards and old line media companies have understood it for years. The infrastructure — broadband adoption, technology building blocks, low cost of entry, monetization methods — has changed. But the model hasn’t.
What kind of company are you building?
Great thoughtful read.
One could also say that many “high volume” sites — such as those listed in the bottom right quadrant of your chart - are generally low value right now because of the novelty of the medium (social media, for lack of a better term). Their rapid volume growth was fueled in part by product development decisions which led to mass, word of mouth, and viral adoption.
Deep analysis of their users has therefore just begun to occur, and for such analysis to be really effective in moving these businesses to “high value” businesses I think it needs to account for new ways that users interact with the media. For example, CNNMoney is high value based on its content and assumptions about its users — but the starting point is the content.
The high volume sites you list will never have the advantage of “premium” content like finance. They will have, with the right data analysis, something I think which will be just as valuable — data about their users interests, what they ae doing, what they like to do, etc. When that data can be digested, I believe we will see high volume sites move to high value.
Comment by AW — May 22, 2007 @ 9:51 am
Feedback: I like the stick figure people, they are kinda cool….otherwise, good stuff.
Hope you are well.
Comment by Lance — May 22, 2007 @ 10:29 pm
loved the details, but seems the valuations in the current market are going a bit crazy or maybe the vision of buyer is too far fetched I am talking abt Google - double click, AOL / third screen and WPP 24 / 7 kinda deals reminds me of the olden days again!
Comment by Mehul Patel — May 27, 2007 @ 1:44 pm
Good observation.
You can be rest assured that the publishers will try to maximize monitization in additon to their core competency, and eventually want to get better at it, as you have pointed out. So all the more reason to invest in an ad network.
Validates why companies like Amazon are scrambing towards making their own adnetwork like clickriver.
Comment by Karthik Ram — June 20, 2007 @ 10:30 pm