Wallen's

DailyMotion is profitable

The new CEO of DailyMotion, #2 to YouTube, announced today (interview in french) a new round of financing of €15m ($22m). This follows two rounds totaling $44m in 2006 and 2007. More interestingly, he announced that DailyMotion was now profitable despite the downturn.

They plan €15m revenues in 2009 for 60m unique visitors, i.e., €0.25 ($0.35) revenue per unique. However, having launched monetization recently, he mentions that less than 10% of videos include advertising. Hence he expects a very strong topline growth going forward with at least 50% in 2010.
All in all, considering the 90% untapped videos, this means that the standard guess estimate of € 1-2 advertising revenues per user for social networks is achievable. That's good news!

They also plan to broaden their thematic channels offering, expand in IPTV and they are pondering whether to move into VOD. This could improve (or not?) their monetization potential.

A map on advertising business model

After my last post on freemium, here is a map on the advertising business model. There are so many angles and views on the topic that it's impossible to cover everything. I don't know if it's a "good" revenue model but here is the way I look at it (simplified): ads brings benefits to their buyers so it must be a recurring source of revenues... though only sufficiently high under certain conditions, the most important of which today being "massive scale"... The web is not very different in that sense than most other media sectors, e.g. the most successful TV channels are free and live mainly of advertising - size is king with ad, small niche is difficult.

Why do I think this ? Just click on the pearl below then on the play button and the arrows.

NB: if you have some relevant posts to complement this map, don't hesitate to post them in the comments.

A map on freemium business model

There is a continuous discussion about business models in the web. I’ve put together overtime a few maps on each major business model. Here is the map on freemium that gives a comprehensive view on this business model. There are 3 sections in this map.

1. The first branch gives a general perspective on the freemium business model. For those really motivated they are 2 academic papers on the value of a free customers at the end of this branch.

2. The second branch goes into the key success factors such as scale, pricing, metrics, etc.
3. The third branch focuses on benchmarking real life numbers on conversion, price points, average rates, etc. Non-EU people, may find interesting to have a look at the annual reports of Xing, a local competitor of LinkedIn that is publicly traded.

Just click on the pearl below then on the play button and the arrows to be guided through this map.

NB: if you have some relevant posts to complement the map, don't hesitate to post them in the comments, especially posts on real life numbers or experience (vs. "conceptual" posts).

 

"Share of voice" revenue model: the solution for social networks?

This tweet from Patrice Lamothe, this post from Scobleizer and the discussion around Exec Tweet got me thinking. What if, instead of pushing commercial companies’ ads, social networks helped commercial users to increase their share of voice on their platform? Could this “share of voice” revenue model be the way forward to monetize social networks’ audiences?

What do I mean by “share of voice”? Social networks in the broad sense of the term are, in a way or another, tools to promote oneself. Users write on Facebook or Twitter so that other people hear about them. They want these people to hear about them because, directly or indirectly, they want to promote themselves. In other words, it is personal PR in a given media. This is the very basic social rule of these social products. On the other hand, commercial companies also enter into traditional PR activities to increase their share of voice to get a message across.

With this context in mind, the “share of voice” revenue model is about providing functionalities and services that help your users increase their share of voice on your social network.

Let’s take Twitter as an example. Commercial companies can have an account for free on Twitter. They are users like any others. They have followers, they sometimes follow people and they send tweets.  Twitter could sell services or functionalities to help these companies get more followers and hence increase the share of voice of their tweets. These services or functionalities can take numerous forms, e.g., “sponsored suggested users to follow” (as is already the case now when opening an account but I think it’s free). The pricing could be either a flat fee for the service (as in freemium models) or a cost per follower type (as in advertising).  

On the other hand of the service, a Twitter user has the choice to follow or not the commercial user tweets: he decides whether he sees these tweets or no. In this sense, it is very different from advertising since the latter is “forced” onto the user. The format of the company’s “voice” is still the tweet hence it is naturally integrated in the platform. Of course, as always, the social property needs to strike the right balance to make sure that these "promoted voices" do not overwhelm the product. It should also notify what is promoted or not.

This approach of “share of voice” can be applied to all sorts of social products since the basic premise of most social products is personal PR in a way or another.

In an old post, I said “media channels successful with advertising have a common characteristic: an excellent fit between content format, advertising format and user’s purpose/values”. Just replace, in the previous sentence, the word “advertising” by “monetization tool” and you’ll see that the “share of voice” revenue model fulfills all these conditions. This means that it should be more productive than ads on social networks and hence command higher revenue per user. This also means that the traditional strategic trade-off between user growth and revenue generation is less stringent because the revenue model fits with the user experience. However, it probably still means that you need a big audience for this model to generate significant revenues.

Some will argue that at the end of the day, it is just another form of advertising model. Not really: instead of asking “how can I put advertising on my product?”, the question for the entrepreneur becomes “how can I help some of my users gain share of voice?”. It’s a very different framing… And, as we all know, the framing of a problem changes radically the specific solutions that come out.

The “share of voice” revenue model has a lot of potential for social networks.Time will tell.

What are your thoughts ?

The cost drivers impact on so-called freemium models

There is quite some discussion on the freemium business models these last days with Jott and Sprout killing their free services. Charles, Mark and Shai have very good posts on the topic. I had written a post a few months ago on freemium where I said that there were 4 key conditions for this model to be viable:

• A "free" service with real value to build a user base
• A good balance between "free" features and "paid" features
• Well-thought price points that match the willingness-to-pay of certain segment of the user base
• Good marketing tactics to encourage conversation from "free" to "paid"

These conditions where looking at the revenue side of the equation - not the cost side. But it is key to distinguish between two type of cost situations with “freemium” models:

1. Marginal costs of serving “free" customers is close zero (or is offset by revenues directly attributable to the “free” users, e.g., ad)
2. Marginal cost are significantly above zero

In the first situation, freemium is a "real" business model in the sense that it is an "endogenous" system that can be sustainably profitable with limited investments (provided that the 4 above conditions hold of course). This model is particularly attractive for services where free users provide indirect value to the overall product (users network effects).

In the second situation, freemium becomes an operational marketing technique: it is an investment  to acquire new users of paid services. It is actually similar to the traditional free sample/trial commonly used in numerous industries in particular the consumer goods sector. I am not judging whether it's a good or bad marketing technique. Actually, as long as you have cash and that the customer acquisition cost is below the expected revenues, it can be profitable. However, a company cannot build its entire revenue model on one single marketing technique. Free sample/trial is part of a portfolio of available marketing techniques. Various techniques maybe more suitable at different times depending on the situation. For example, Jott services necessitates the transcription of oral messages into text requiring human labor (which I translate into significant marginal cost). With hindsight, in a way, Jott executed a 2 year “free trial campaign” to acquire new customers.

In other words, when marginal cost are significantly above zero, the business model is not "freemium" - it is "subscription/payment for a service"... just as in 99% of the economy. It is vital for start-ups to keep this in mind because the way a company defines itself impacts the solutions it looks for. And in the current environment, solutions they will need. You can bet that we will see more and more companies killing their free services in the coming months.

Advertsing prices relatively stable in Q4 2008

PubMatic just released its Q4 2008 figures for eCPM advertising pricing. You can find the full report here. While it is not a fully representative benchmark, this report seems to be directionnaly correct. The main message I take out is that Q4 prices are relatively stable vs. Q3 (-3.7%, i.e., within the margin of error of such a benchmark). This is a good suprise given the economic environment but it could be due to seasonal effect (i.e., holiday advertising). There is in any case a continuous downward trend of ad pricing when we look at the figures since Q4 07.

Freemium can be a viable revenue model... sometimes

Mark Evans wrote a post two days ago claiming that freemium is not a business model. Peter Christensen followed with another post on the topic saying that it is not a business model but just a marketing strategy. IMHO freemium can be a viable revenue model... under certain conditions:

• A "free" service with real value (either directly or through network effects) to build a user base
• A good balance between "free" features and "paid" features, i.e. "paid" features really need to add value to the "free" service. Not all web products can cater with this segmentation
• Well-thought price points that match the willingness-to-pay of certain segment of the user base... and that is very difficult to get right, especially when there is no market benchmarks
• Good marketing tactics to encourage conversation from "free" to "paid"

There might be other conditions but the point is that not all web products are candidates to freemium due to their inherent characteristics. Nor is it easy to implement. It's an iterative process with trial and errors. But if a product builds successfully a freemium model, it can be an elegant substitute to an advertising revenue model, especially if the product doesn't fit with an ad model. Think about it, if 5-10% of the user base pays USD 2-4 per month, it could generate as much revenue as advertising from the entire user base. A value added service is bound to find people willing to pay the price of a coffee.

A good example is Xing (a European publicly quoted competitor of LinkedIn). Xing has 8% of it's entire user base or 26% of its unique visitors with a paying subscription. They pay an average of EUR ~55 (USD ~75) representing EUR ~15 per unique visitors vs. EUR 3.4 in advertising and job listing. Of course users have a higher willingness-to-pay for their career than for other typical web services. But still it makes the point that freemium can be a viable and lucrative revnue model and at the same time not hinder the user experience.

Web 2.0 advertising revenue model can work… sometimes

I’ve been reading a lot lately about the never ending debate on monetizing Web 2.0 products with an advertising based revenue model. There are quite a lot of skeptics out there. Why is that? Web 2.0 is after all just another media channel for advertisers along with print, TV, etc. So why would it not get its “fair” share of advertising budgets in proportion of the audience it attracts? Why would the current eRPM ratio of 1 to 25-30* between TV and social networks remain in the medium term?

Some say there are targeting issues. Others argue that advertisers are afraid of putting their brand beside content they can’t control. Another argument is the traditional media large reach. These are maybe fair points today but TV relies mostly on socio-demographics targeting – a technique that Web 2.0 companies can be very good at. In addition, given media consumption trends, there will be quite a few Web 2.0 products with large reach.

This not to say that all Web 2.0 products will be successful with advertising. Indeed, media channels successful with advertising have a common characteristic: an excellent fit between content format, advertising format and user’s purpose/values. In a fashion magazine, a Channel ad fits naturally with the content and the audience’s reason of reading it. At Google, content is a list of links, ads’ format is also a list of links and the users are there to search for links.

It is true that Facebook or MySpace have an issue of putting together these three elements at this point in time. However, other Web 2.0 sites could find this fit between the three dimensions. For example, a recent idea (read here and here) on having paid songs included in online radio could be a good candidate (though a right balance must be kept in order not to contravene to the user’s purpose). Professional networking sites are also well positioned with certain type of advertising. Xing – a publicly listed competitor of LinkedIn in Europe – manages to obtain USD ~7-8 eRPM from advertising only (including job listings). It’s not yet traditional media levels but it’s already quite good.

In other words, there are no inherent properties in Web 2.0 preventing monetization from advertising. Those companies that have a good fit between content format, ad format and user’s purpose/values will be able to generate revenue from advertising.

* Source : USD 13-15 for TV from comScore report “Online is the New Primetime” vs. USD ~0.50 for social networks from PubMatic figures assuming 2 ads per page