The scary math behind Web 2.0 | Hacker News Reader

The scary math behind Web 2.0

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8 pointsgibsonf16 comments

Ok, so we won't be trading Justin.tv on the NASDAQ... did anyone really expect to?

I think we should be more focused on profitability - not IPOs. Honestly, the chances of any of us creating an IPO-worthy company are pretty slim. But, as long as we create profitable companies, then we're set. And you don't need 1B page views / month to be profitable.

If you're generating cash, there's no pressure to find an exit strategy. And if you do want out, there will ALWAYS be investors willing to buy you.

I spoke on this topic at the Web 2.0 expo on Wednesday and have blogged on it in the past.

presentation available here:

http://lsvp.wordpress.com/2007/04/19/presentation-at-web-20-today-show-me-the-money/

The result presented in this article is fascinating.

If you're going to support your business through pure advertising, you need 1B hits/month to make $5M/month. Clearly there's a linear relationship.

This is an interesting fact.

If you're going to support your business through pure advertising, you need 1B hits/month to make $5M/month.

You need $5 m per month if you've accepted a large funding round and/or have large overhead.

You don't need nearly that much if your overhead is low and/or your funding is relatively modest.

It might not be quite so solid a fact. I've worked on websites with closer to 20m visits a month, and they've been able to swing deals for slightly better CPMs. I suspect that many sites with over 100m visits would probably see advertising opportunities open up if they're aggressive enough, especially if they've been able to collect even a small amount of demographic information on their visitors. So the linear relationship is probably not definite.

1B views=5M$ is an approximation to first order. I'm sure I could be convinced the CPM is off by a factor of 5. However, there's got to be a fairly hard minimum sales/month for an IPO: I didn't know it was $60M/year.

If your goal is to form a business that will make the founders rich, it's good to have some numbers floating around in your head. Maybe I was the only one, but I didn't have these numbers in my head, and I felt they were educational :)

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