Transaction versus advertising-based models
Mike Volpi, the former CEO of Joost and now Partner at Index Ventures, highlighted what I consider to be the most insightful point about online revenue generation in the current economic climate. Principally that investors will be much more interested in transaction-oriented models than platforms which rely on advertising.
As I mentioned previously, even though Morgan Stanley’s technology analysts recently released a report which upgrades the prospects for the advertising sector, with the exception of Google Adsense few companies will experience the same kind of ad revenue upside they did during the better years.
* http://paidcontent.co.uk/article/419-interview-mike-volpi-broadcasters-own-vod-plans-killed-joost/
Notably, the majority of tech plays I’ve been involved with have had a split broadly like so:
· transaction = 80
· advertising = 10
· subscription / membership = 10
Luckily, the transaction-oriented ones survived — and even flourished — during the vagaries of the tech cycle. One of them we originally invested less than US$5 million in, to build as a consortia play. When it floated it’s valuation was US$1.2+ billion.
Even on a content basis, the information and analysis being provided on a platform, needs to serve some kind of PURPOSE. It should be an intrinsic need-to-know-or-must-have to complete a to-do. That’s what companies and Joe Public consumers alike would be prepared to pay for. It explains how Michael Bloomberg created a US$ billion company: the BBerg terminals facilitate transactions.
The transaction component is a……….UTILITY and people have a lower barrier of resistance about paying for those than paying for advertising, particularly of the push kind.
In any case, the best thing one of my partners on Project ART did was to make me think about how the advertising stream feeds into the transaction ocean rather than vice versa.
That makes strategic sense.
JOOST
For anyone unfamiliar with Joost, here are some YouTube videos which explain its rationale and also how it works on an iPhone:
What the Joost story shows is that we can have top tech veterans (founded by the creators of Skype) and sophisticated tech investors, but some blind spots on consumer market dynamics and how media incumbents will respond — like create their own VOD capabilities, jv with a video streaming provider and/or pure content syndication with a competitor — can lead to a product / service not gaining traction or settling into its USP competitive position.
It also provides us with clues about whether and to what extent people are prepared to pay for content and what caliber of content. People overlook the fact that media giants, particularly the film studios, have decades-worth of content libraries which they own the IP of and can generate income from.
One of the strategies Joost could have deployed to risk manage itself against media giants not signing syndication agreements with them or strengthening the content library would have been to create their own digital content production arm. This doesn’t mean content partnerships but rather financing and developing an in-house team of producers who would shape content strategy and create original content.
That’s a strategic option the investors should have discussed at board meetings within the first 3 months of operations. Instead they seem to have opted for the content alliances and syndication model.
In any case, IPTV will be here. It just isn’t here right now with the likes of Joost. It’s more likely to arrive with an Apple tablet and its content syndication with media giants.
Incidentally, why else is Steve Jobs my personal business hero? Well, he’s created US$ billion businesses in completely different sectors: Apple and Pixar. He gets the technology. He gets the code + consumer + transaction synch. He gets the design. He gets the content. He gets the production. He gets the marketing. He gets the branding. He gets collaborating with people who are brilliant in their own right like Alan Kay, Guy Kawasaki, Jonathan Ives, etc. He gets it all and he can do it all: technical and interpersonal synching. Plus he manages to make it all seem cooler than any other tech geek can.
Now, THAT’s…………GENIUS.
Tags: advertising models, Apple tablet with content sysndication, content alliances, content syndication, IP monetization, Joost, Michael Bloomberg, Mike Volpi, original digital content production, paid content, Steve Jobs, Steve Jobs is a genius, transaction models, video on demand, VOD
