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.
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.
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.