How to build a $50M online company?

Updated revision is also available at RWW

Interesting post over the weekend by Dan Mitchell at the NYT. He took the cue from Jeremy Liew of Lightspeed, who pointed out a few weeks ago the scale a business has to achieve to get $50M in revenue. I have summarized the scenarios from Jeremy’s post in the table below:
jliew2.jpg

(RPM – Revenue per thousand impressions, including CPM, CPC, and CPA models)

Scott Karp of Publishing 2.0 has an interesting take on Jeremy’s piece:

Jeremy’s analysis is correct, on one level, but it also exposes a deep flaw in the way online media is currently valued and sold to advertisers.

At that rate, you could reach 1 million people for $1,000. Now, granted most thousand page views are generated by less than a thousand people (in many cases far less). And granted we’re talking about untarget advertising. A highly targeted site can earn a revenue per thousand pages of, say, $20. But still, $20 is a pretty good deal to reach as many as a thousand people with your advertising. And if you assume that $20 is from multiple ad sources on each page, then each source is paying less than $20 to reach a highly targeted audience of up to a thousand people.

Compared to other media, online publishers are pretty much giving it away. Because the reality is that EVERY page view is in viewed by someone who has some value to some advertiser. The problem is when you DON’T KNOW who your users are. This is the problem with all the focus (particularly in Web 2.0 circles) on total traffic numbers — 10 million uniques is great, but not so much if you don’t know who these people are.

I think Scott is onto something here…Google shows ads based on keyword. These keywords provides valuable context for targeting ads. But still Google doesn’t really understand the user. Let’s look at an example…Two users – one interested in football another in politics – each search for “defense strategy” will be shown same products/offers from Google. Instead, by understanding user’s interests, a system should clearly be able to do a lot better and more optimal targeting. (It looks like Google is trying to personalize the results now – see this piece from RWW about Google Search).

So by understanding the users and context a whole let better, a system will be able to generate ads that reach the level of relevancy and thereby value approaching mainstream media. Which of course would mean that businesses with a lot fewer users or page views (page views is really the wrong to look at these things) but a good understanding of those users would become viable…and all of us will be better off for it.

Some of the systems that are being developed to address this issue are based on attention data and Google personalization. I think the market could use a bit more innovation in this area.

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