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Posts Tagged ‘Boston Startup’

Bizak Auction

December 12, 2008 Leave a comment

Bizak is currently up for auction on SitePoint. Any interested parties can bid directly on the site or contact me (617-947-8071 or email) for additional information.

Auction URL:  http://marketplace.sitepoint.com/auctions/53150

Online Notes from WebNotes – A Cambridge Startup

July 27, 2008 1 comment

I forgot to mention that I attended WebInno18 a couple of weeks ago.  The event was packed, which made it difficult to find anyone, however one great thing that came from the conference was being introduced (via their presentation) to WebNotes.  

Created by a bunch of MIT students in Cambridge, WebNotes enables users to “create and manage online annotations.”  In the simplest terms WebNotes makes it easy to highlight text on any web page, save that text to a folder, add sticky notes and share those highlights & sticky notes (directly on the web page) with anyone you want.  If you use the web for research, WebNotes is a terrific service for organizing your findings. Check them out at www.WebNotes.net.

In the last few weeks there has been a bunch of great tech events in Boston, including the WebInno mentioned above.  Next on the list is SummerMash Boston (Mashable) which I’ll also be attending – hope to see you there.

Website Worth & Valuation

June 25, 2008 2 comments

Rick Breslin of the Drive Thru Internet Marketing Podcast recently interviewed Tom O’Keefe about the benefits of Bizak for both startups and investors. Topics in the video podcast include:

  • What is Bizak?
  • Website Worth and Industry Data Comparison
  • Startups Can Register for Free
  • Investors Can Find Prospective Online Ventures
  • The Bizak Calculator – Earnings per Visitor (EPV)

Monetizing YouTube

June 4, 2008 10 comments

YouTube LogoEarly this week YouTube’s Head of Monetization quits the company to work at a smaller company that presumable might be easier to monetize. Since Google Inc. (NASDAQ:GOOG) purchased YouTube for $1.65 Billion in October 2006 the issue of monetizing video content has been a major issue for the company. Even though YouTube has yet to become a cash cow for Google it has become an online phenomenon and traffic powerhouse. According to Compete.com YouTube has captured a 50.4% market share of the online video market. That equates to a market share increase of 2.4% from March 2008 and 12.3% when compared to April 2007.

In terms of market share Google blows away the competition with the closest competitors being Yahoo and Fox Interactive Media which each have less than 10% of the market according to Compete.com. However even with 64 million monthly visitors (source comptete.com) YouTube is having trouble converting these videos (and eyeballs) into dollar signs. The much smaller video site Hulu.com seems to be doing a much better job monetizing their content with revenue estimates of $25 million on less than 1% of the market.

YouTube Revenue Valuation Based on Zero Costs

YouTube Revenue Valuation Based on Zero Costs

Bear Stearns estimates that 2008 revenues for YouTube will be $90 million, of which $22 million comes from InVideo advertisements. Using the Bizak Business Valuation Calculator (right) we can get a rough estimate of YouTube’s revenue valuation and EPV (Earnings per Visitor), which is the amount of money earned from each visitor to the site.

If you divide the yearly revenues by 12 you get a rough monthly revenue estimate of $7.5 million. We then enter these numbers into the calculator. At this point we’re assuming YouTube has zero costs but in actuality we know this to be false. We’ll factor in the enormous bandwidth costs of video hosting in the next section.

Based on the Bizak calculations YouTube has an EPV of $0.12 and a Bizak Estimate (business valuation estimate based on revenues) of $360 Million. This valuation is obviously a lot less than the $1.65 Billion Google paid for YouTube, however YouTube is a premium brand that must be (and was) factored into the purchase price.

YouTube Revenue Valuation Including Costs

YouTube Revenue Valuation Including CostsBack in July 2006 it was estimated that YouTube’s bandwidth costs were $1 million per month, which was based on 12.9 million visitors per month. Today (according to Compete.com) YouTube receives 64 million monthly visitors which is 3.5 times the amount it saw in 2006. If you estimate YouTube’s monthly costs on my very unscientific method that would mean their bandwidth costs them $3.5 million dollars every month.

Entering these calculations into the business valuation calculator gives you some major changes to the estimates. First off YouTube’s EPV has been cut in half to just $0.06 per visitor. This means that YouTube earns just six cents for ever visitor who goes to the site – this number is very low. The Bizak Estimate has also dipped to $318,000,000 compared to the $360,000,000 above and $1.65 Billion purchase price.

Hulu Estimated Revenues, Costs & Earnings

Hulu.com Estimates

If you remember Hulu.com makes $25 Million in revenues per year on just 821,899 monthly visitors, according to Compete.com. If you compute these estimates (without costs) into the Bizak Calculator you get an EPV of $2.53 and a Bizak Estimate of $99,999,984. This Hulu.com EPV (excluding costs) is comparable to YouTube’s $0.12 EPV. Lets factor in costs since they too host video which is costly. We’ll error on the high end and estimate that it costs Hulu $1 Million a month ($12 Million/Year) to host their videos. Even with these costs Hulu does a better job monetizing their platform with an EPV of $1.32 compared to YouTube’s $0.06 EPV.

CPV – Costs per Visitor

The YouTube calculation (after costs) has monthly earnings of $4 Million and a CPV (costs per visitor) of $0.06. For ever visitor to the site YouTube spends 6 cents in the form of server costs rather than advertising. With Hulu their CPV is much higher at $1.21 with earnings of over $1 million per month. (Both of these estimates are based on costs estimates which could be higher or lower than actual costs.)

Forbes YouTube Revenue Estimates

Forbes YouTube Revenue Estimates

The calculations above are based on the Bear Stearns revenue estimate of $90 million. Forbes estimates that YouTube will bring in $200 million in revenues for 2008. Plugging those estimates into the business calculator we get an EPV of $0.21 and a Bizak Estimate of $758,000,016 – considerable better than the $0.06 EPV and $318 million valuation (on $90 million revenues) but lower than the $1.65 billion purchase price.

YouTube EPV of $0.50 = $1.65 Billion Purchase Price

Based on all the estimates outlined above (and they are estimates) YouTube needs to earn fifty cents for every 64 million people who visit the site monthly in order to have a $1.65 billion valuation. An EPV of $0.50 equates to monthly revenues of $35,300,000 ($423,600,000 yearly revenues) which then give them a valuation (according to the Bizak business valuation calculator) equal to their purchase price.

YouTube EPV of $0.50 = $1.65 Purchase Price

Monetizing YouTube

YouTube currently generates about a quarter ($22 million) of its revenues from InVideo Advertisements. The remainder of their sales come from front page ads ($175,000/day) and branded YouTube channels which go for $200,000 each. If YouTube was only concerned about dollars they could easily expand their InVideo Ads, however this would definitely hurt their market share. Clearly Google and YouTube are treading lightly.

The InVideo Ads are very unobtrusive but I find them ineffective. I go to YouTube to watch videos, not to click on text ads. Text ads are for Google.com. YouTube is for videos. I have no problem watching advertisements as long as they are in video format.

The other 75% of YouTube’s revenues come from corporate partnerships and advertising from deep pocket companies. This is definitely essential for revenues, however I feel YouTube is shutting out the small business owners and individuals who would pay for better placement of their videos. Adwords didn’t generate billions for Google by focusing only on big business. Rather Google Adwords allows anyone with a website to place a text ad on their site. Why can’t I do the same with my videos?

We’re all familiar with the right hand column of Google that’s reserved for sponsored advertisements. Google is about textual content and so are these ads – they fit. Since I go to YouTube for video why can’t I bid my video to be placed along this familiar right hand column? Except this time on YouTube and instead of small text ads it’s a small picture of my video. As a small business owner who relies on internet traffic I would be more than willing to pay extra to have my video be seen by more people. Users would still have the option to upload videos for free but now they would also have the option to pay for additional exposure.

If only 5% of the 46 million monthly visitors opt to use this service then that equates to over 2 million people per month. If they average a monthly advertising budget of just $50 then that’s an additional $100 million+ per month. That’s a lot more than the big boys are currently generating for YouTube.

How Much?

June 1, 2008 1 comment

Choosing a revenue model for an online business is a very difficult task. Advertising or subscription based? If subscription then how much? Not an easy question and possible one that should be placed in the hands of the buyer. As Radiohead displayed last fall you can still be profitable selling music even when the buyer decides on price. For some a Radiohead “CD” might be worth $20 or $30 dollars but for non-fans the value might only be $2. In today’s digital download era the cost of selling one copy is the same as selling one hundred copies. So when the cost to sell another copy is zero wouldn’t it be better to sell it at any price rather than not selling it at all?

Radiohead brought up a very interesting business concept in determining the value of a product. The cost of a product is not the same for everyone since not everyone values the product the same. Their choose your own price experiment brings up a very interesting revenue model for internet startups. Why not let your visitors choose the price of your service? Since it costs virtually nothing to add another subscriber to your website wouldn’t it be better to get $4 out of him rather than nothing at all? $4 might be less than expected but at least you have a new customer, four dollars and the potential to sell him additional services in the future. If you lost him to price then you’re out $4, a new customer and the potential for future income from him.

It’s this up-selling that Radiohead was betting on in terms of concert tickets and t-shirt sales. Internet entrepreneurs should be thinking of up-selling in terms of consulting services and new web applications. Since musicians can’t physically play more than 365 gigs a year the choose your own price model could become far more lucrative for the internet where the ability to scale is endless.

Free or Not Free?

April 9, 2008 3 comments

When starting a startup one of the most difficult (and essential) tasks is to determine the revenue model. Today there are a lot of great Web 2.0 applications – the technology is amazing and the progress is very exciting. However, as good as the technology is a lot of them lack any sort of revenue model. The majority of them rely on Google Adsense to cover the bills and I assume rely on prayer to get bought out. Google Adsense is not a revenue model!

Building tremendous technology can be very difficult but being able to monetize that application is often a daunting task – especially for the very technical. Daunting because figuring out what people will pay for with a subscription model is very difficult. First off an application that targets a younger, non-professional, market is going to have a very difficult time generating revenues. This younger market has grown up with the web and everything has been free for them. This age group has also become immune to advertising. They know how to ignore banners and they know what Google Adsense looks like – no matter how well it blends into your design and content.

As I mentioned above Google Adsense is not a business model – it also doesn’t generate significant income for the majority of websites. I feel that if you’re targeting a professional market and you’re using Adsense then it will work against you. If you need Adsense to supplement your revenues then your business is probably not thriving and therefore I will likely go somewhere else. There is of course in-house advertising which can be very lucrative, however, it requires a lot more work, traffic, creativity and a niche market.

So when building a startup a lot of the revenue model decisions come down to should we give everything away for free and use an advertising model or should we go with a subscription model? First off I’m not a fan of giving away services for free! Once you’ve given something away for free it becomes virtually impossible to ever charge for that service in the future. You can always start off with not free and then revert to free if subscriptions don’t work. However, you can’t go from free to not free!

One of the main reasons why I don’t like free is because it diminishes the value of your subscribers. It still amazes me that people will sign up for anything as long as it’s free. They might not like the service but they like free so they’ll register with your site. Obviously this boosts your subscriber totals, however, it doesn’t create loyal customers and the quality of those subscribers is low.

Now if that subscriber paid for your service then you know he/she really values your work, finds it useful and will likely use the service again. Obviously your subscriber totals will be lower but you’ll have revenues from loyal subscribers.

So with that comes my belief that there are two types of prices – Free and Not Free. There are some people who won’t pay anything for a service – they only want it if it’s $0.00. These people don’t care if it’s $4 or even $1, if it’s not Free then it’s not for them.

The second price is Not Free and this relates to people who value the service you built and will pay to use it. Unlike free, which gives you zero flexibility, not free comes with a range of flexibility. Depending on the service offered if you’re able to target the people who will pay Not Free for your service then the actual price you charge isn’t a determining factor. For example, if you sell high end information services to professionals then it’s not going to matter if you charge $500 or $900 for that service. This person wants the service you offer and price (within reason) won’t make a difference. Just like on the lower end, if they’re willing to pay $5 then they will likely pay $10.

In sum, applications built on a subscription and/or service model which targets professionals and/or a niche market are my favorites!

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