- Google is pressuring developers to use their payments service. This makes an increasing amount of sense if Google can share data across services.
- Google has cut their cloud storage prices again, perhaps in response to Amazon cutting prices for their cloud services the previous day.
LinkedIn Users Building LinkedIn Workarounds
LinkedOut is a service that automatically accepts LinkedIn connection requests, on the grounds that logging in to LinkedIn is a pain. LinkedIn is still investing in better content, so they recognize the problem—users who don’t log in daily won’t remember to log in monthly to accept friend requests and update their profile, and if users don’t log in that often, the entire site will gradually go out of date.
For now, LinkedIn is well ahead of competitors, and they could likely break LinkedOut on their own. But that won’t fix the fundamental problem: that LinkedIn is not a daily visit for anyone accept HR and job-seekers—of those groups, job seekers are hard to monetize, and HR derives value from the site directly in proportion to the activity of users who don’t fit into one of those categories. So, LinkedOut illustrates one of the biggest risks to LinkedIn’s success. Right now, the market is pricing this in as either a solvable problem or not a serious problem; that deserves some reconsideration.
Reid Hoffman has mused about this exact problem.
Amazon’s Billion Dollars in Ad Revenue
Henry Blodget claims that Amazon is earning a billion dollars in revenue from its ad business. While this may be true, it’s important to note that these are product ads on product pages, so they’re necessarily competing with other Amazon revenue sources. While their measurable margins are high, the opportunity cost is a factor. (Amazon almost certainly optimizes for product sales over ad sales, so it’s not as if the cost plus opportunity cost exceeds the ad businesses’ revenue.)
Amazon is also allegedly getting into original TV, though this is much smarter as a negotiating ploy against content providers than as an actual business.
Pew on the State of Going Digital
Pew has some survey data on how newspapers are making the transition to mostly-digital models. It’s quite close to the conventional wisdom: digital growth doesn’t nearly make up for print’s shrinkage—the study doesn’t guess at how much of that is due to macro factors (i.e. ad dollars moving away from print) versus micro factors (a given news outlet monetizing a given reader worse through digital than through print). One heartening statistic: “Almost half (44%) of the newspapers sharing data for this study reported that they were trying to develop some form of nontraditional revenue, such as holding events or consulting or selling new business products.” As we’ve argued before, strict separation between news and ads is largely an artifact of the ideal scale of print-based companies, so seeing that dissolve is good news for the news business.
Somewhat related: an ‘anti-display’ blog network just raised $3.2mm. They plan to monetize through the usual non-traditional means.
Klout is a meaningless popularity contest, but it’s also making a market in influence. Since buying influence is a pretty big chunk of what marketing budgets are designed to do, this turns out to be a big deal. Klout is now helping Gilt offer discounts to more popular users. The main near-term impact: Klout now has a much bigger reason to care about the accuracy of their popularity estimates, rather than the tweetability of their Klout score updates.
If Netflix Partners with Cable Companies, What Does Netflix Do?
Netflix is considering partnerships with cable companies, which may end up looking like their Apple deal. While that’s a bold move, it begs two important questions: first, what is Netflix actually doing? And second, are users willing to pay for it?
If Netflix is in the distribution business, the value proposition is simple: rather than dealing with multiple studios, users and partners can deal with just one company. If they’re in the content business, the value proposition is the classic content value proposition: watch this with us because you can’t get it elsewhere.
But if Netflix’s content is mostly outsourced, and with a cable deal they’ll also outsource distribution. It may not be easy to maintain double-digit operating margins when they’re negotiating with a couple dozen major distributors on behalf of a couple dozen major suppliers.
Spotify Leans Towards Platform
Spotify is recapping one of the more popular billion-plus-valuation templates: explore a consumer need through a product, abstract out the hard parts as a platform, and run that platform.
Facebook is also turning location into part of their platform. It’s a popular strategy.
Are Subscription-Based Businesses More Viable or More Fundable?
The NYT profiles several subscription-based sites. These companies all look interesting, but the subscription-based model has one feature that could make it dangerous for investors: it’s very Series B-able. Subscription-based businesses are temptingly easy to model: churn rate, gross margin, and customer acquisition cost are all you need to get started. Compare that to a truly transformative business (anything whose best-case scenario involves owning a platform).
It’s comparatively easy for transformative companies to raise early rounds based on potential, or larger late-stage rounds based on realizing some slice of that potential. But early-stage subscription model-based businesses look a lot like later-stage versions with fewer zeroes after the numbers. That massively magnifies the effect of any measurement error, and also magnifies it in the direction of investors buying into less transformative companies.
Twitter’s Revenue Allegedly Leaked
Gawker (of all sites) has some estimates of Twitter’s revenue, showing 150% growth in revenue run-rate from 2010 to 2011, albeit with high losses throughout. This is lower than some of the numbers and estimates that have been floated before, though Gawker’s spin is more negative than is really justified. Twitter’s ads seem to show good numbers when they’re deployed; even accounting for clicks driven by novelty, they have room to grow.
Green Dot Suddenly Gets Into Mobile
Green Dot has suddenly become one of the best ways to bet that credit cards won’t always be the main user interface for consumer credit. They’ve purchased Loopt, and are using it to add mobile marketing and payments to Green Dot’s existing prepaid debit card business. Apparently the right way to get a big financial company excited about mobile is to start with a financial company funded by Sequoia.
How Zynga and EA Buy Firms
Inside Mobile Apps has an enlightening summary of a panel on how major game companies run acquisitions. Most of this is broadly applicable, but the piece does point out one inefficient kink in the market: overlapping deals with other companies can kill an acquisition, so game studios may get rapidly less attractive once they have more than one major game on the market.
How Subscriptions Destroy Massively Multiplayer RPGs
Star Wars Galaxies was apparently destroyed by massive tweaks to gameplay, which irritated lots of established players. But those players had been chipping away at the game for a while by runningmassive gold-farming operations. This seems to indicate an online gaming opportunity, not a problem: if players are willing to spend money to advance in a game faster—so willing that they put their progress at risk and turn gaming the system into other players’ full-time jobs—then it’s clear that game companies can price discriminate by giving away the early game and selling players advancement for either lots of time or lots of money.
The long-term lesson is that any game with even a weak interface to the real-world economy will eventually develop an economy complex enough to support manipulation. The best pressure valve on this behavior is to have game companies aggressively participate in the game economy. Game companies can sell extras that balance out gameplay, which closes the loop on tracking user behavior: they’ll know some players are beating the system when it shows up in their P&Ls.
(This doesn’t apply to legacy games whose model is largely determined and whose fan base is incredibly loyal. But World of Warcraft is the only major game to face such a strong innovator’s dilemma at the moment. Everyone else is either evolving towards price discrimination or already heading towards extinction.)
Digital Due Diligence Weekly