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More on online media sites with endemic advertisers June 3, 2007

Posted by jeremyliew in advertising, business models, Consumer internet, Internet, social media, social networks, user generated content, web 2.0.
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I’ve posted in the past about the three ways to build an online media company to $50m in revenues. One of the three ways is to focus on a topic with endemic advertisers – because RPMs are higher, you don’t need to be as big to reach the same revenue target.

Friday’s Wall Street Journal had two articles about user generated content websites with endemic advertising potential.

The first was an indepth review of Tripadvisor (subscription required), mostly from a user’s point of view. The key takeaway was that you need to look at the backgrounds of reviewers to know how to weigh how relevant their review will be to you – not exactly breaking news. However, there was an interesting nugget about Tripadvisor‘s financial performance that highlights the power of endemic advertising:

The company’s revenue is still small, at $105 million in 2006, compared with sites like Expedia and Travelocity. However, with profit margins estimated above 50% and a growth rate thought to be over 50% a year, the site offers potential at a time when hotels and airlines are trying to take back online bookings and get consumers to go directly to their sites, says Aaron Kessler, an analyst at Piper Jaffray Companies.

While the WSJ may consider $105m in revenues “still small”, it seems pretty good going to me, especially with 50% profit margins! The company was founded in 2000. Another interesting tidbit in the article is that the company has 173 employees, which underscores the point that even user generated content companies have substantial overhead.

The second article was ‘Design by Committee‘(subscription required) and namechecked HGTV’s Rate My Space and Apartment Therapy as it talked about how users are turning to the web to show off their homes or to ask for advice and feedback about decorating ideas. This is more true of Rate My Space, whereas Apartment Therapy is more of a blog/micro publisher focused on apartment decoration, with occasional posts soliciting user feedback or advice on other users homes. Both sites, while vastly smaller than Tripadvisor, show the potential for endemic advertisers.

Automotive is another category that has similar characteristics, and its no surprise that after leaving TripAdvisor, its co-founder Langley Steinert, founded CarGurus.com

This thesis was part of what drove our excitement about our investment in Flixster, despite the team being second rate. (Just kidding! ;-)). The intersection of highly social media and endemic advertising potential is very powerful. As an aside, and an indicator of how quickly social media apps in areas of user passion can grow, Flixster is now the #1 “recently popular” app on Facebook.

Flixster currently #1 “recently popular” app on Facebook

I’d be interested in hearing from other teams taking a similar approach in the intersection of social media and endemic advertising potential in categories with high advertiser spend.

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1. More on online media sites with endemic advertisers  »Technology News | Venture Capital, Startups, Silicon Valley, Web 2.0 Tech - June 3, 2007

[…] Source:Lightspeed Venture Partners Blog I’ve posted in the past about the three ways to build an online media company to $50m in revenues. One of the three ways is to focus on a topic with endemic advertisers – because RPMs are higher, you don’t need to be as big to reach the same revenue target. Friday’s Wall Street Journal had […] Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages. […]

2. Arul Sundaram - June 3, 2007

great set of posts, jeremy. this also dovetails with they NY Times article on NaturallyCurly.com (http://www.nytimes.com/2007/05/21/technology/21ecom.html). I wonder what the advertising mix will be for these sites – % branding vs. lead gen vs. listings. I think the rise of vertical networks (e.g., what Glam.com is doing in the fashion space) could really help sites that need branding-based advertising in order to survive.

3. matt coffin - June 4, 2007

endemic is also more sustainable. to build on earlier posts, i think that u can see endmics on some of these highly targeted sites easily reach over $100 cpm from a total monetization per page basis (pre ajax, etc)

4. Greg Tseng - June 7, 2007

Whoa, that is a ridiculously valuable company. 50% profit margins on over $100M revenues with 50% yearly growth! They didn’t say if it’s gross or net profits but wouldn’t those financials and growth rate imply that TripAdvisor would be worth over a billion dollars if it was a standalone company?! And I only heard of it in the last six months…

This must be one of the most valuable UGC sites out there! What other UGC site has 9-figure revenues besides MySpace and Facebook? Do you know how much IAC paid for them in 2004?

Who knew you could build such a big business on ratings and commentary by 2006. I guess the answer has got to be endemic advertisers. Do you think Yelp has endemic advertisers? (I’d say no.)

Flixster definitely has endemic advertisers. We gotta make it the leading UGC movies site out there and SEO it so it comes up at the top of movie search results alongside IMDB and Rotten Tomatoes.

P.S. You have a typo here: “While the WSJ may consider $105m in revenues “still small”, it seems pretty going to me”


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