MappingTheWeb //

Looking ahead to 2013, I wonder who will still be around (and thriving) in the online world. Obviously, the major players (Google, Yahoo, Microsoft, eBay, Amazon) come to mind initially. Will this be the case? It is hard to say. But I can’t see any of those names dropping off the radar in an abrupt, dramatic fall. An acquisition, however, may eradicate one of those names from the list.

From a more interesting and debatable perspective, which current start-ups may become the major players of tomorrow?

Twitter? Joost? Pownce? Mahalo? Tumblr? Who are the true “game-changers”?

I could share my picks, but I’d rather hear yours… Keep in mind that we’re thinking about long-term sucess, not short-term hype.

Choosing a target market for your product or service may not always be as simple as it seems. For example, creating a photo-sharing site for “anyone who takes photos” is a risky proposition. Difficulty targeting and high competition are two main downfalls of this approach. Having said that, the upside is a larger potential target group. Nevertheless, I’d recommend the former option as the chances for success are much more realistic. 

Trying to conquer a big market equates to a high risk-to-reward situation. Conversely, choosing a smaller subset usually leads to a lower risk-to-reward opportunity. A common misconception with the latter approach is that you may severely affecting your chances for success. In most cases however, such a tactic is not as risky as you may think (especially on the Internet). Niches are often still large groups.

Two advantages to niches include:

1. Better opportunity for revenues
2. Ability to create a stronger community

A quick example can be seen in the video-sharing space. A few start-ups (including ExpertVillage, Video Jug, Sclipo, and SuTree) chose NOT to compete against YouTube. A smart choice indeed. Instead, these video sites showcase “how-to” videos, a potentially lucrative niche. Obviously, users can upload and view “how-to” video on YouTube as well, but it is not their main focus. Staying small creates potential barriers, which can be good and bad. Also, as we can see from that small list, even niches are susceptible to competition.

Competing against the “big guy” in a given space is a long shot. The potential rewards may be handsome, but the likelihood of failure is also high. Place your bets and weigh your options carefully. Keep in mind that different industries may present different opportunities.

For more information on this topic, please read previous MappingTheWeb posts: Dethroning the Internet Giants and The Proliferation of Verticals.

Once again, the eBay M&A machine continues to churn out potential takeover candidates. YouAre.TV has put itself up for sale on the popular auction site. This isn’t the first time a company has done such a thing, and it definitely won’t be the last.

The company doesn’t go into much detail about the sale on their blog. However, in the auction description, the founders go on to say, “We are only selling b/c we have moved on to new a project, and we don’t quite have the resources to support both anymore.” I’m not a cynic and I hate to jump to conclusions, but it sounds like this project didn’t pan out. If the site is indeed growing like they say, then they should still be hammering away at it.

One big downfall of the site, in my opinion, is its close semblance to YouTube. Both share the term “you” in their names. Both share a similar TV-like logo. Both compete in the ‘video community’ space. I’d wager that many new visitors immediately come to the conclusion that YouAre.TV is simply another YouTube clone. It’s sad, but true.

Kiko was one of the first small start-ups (that I can remember) to put itself up for sale on eBay. It received a huge amount of PR and press, and was eventually sold to Tucows for over $200,000. Not bad. My guess is that YouAre.TV is trying to capitalize on the same type of PR scenario. The difference is that the novelty is gone - it’s been done before. A new way to sell your online business is via Sitepoint Marketplace. This is how TechCrunch bought InviteShare.

What’s most interesting of all is that the company claims to have received a $100,000 offer for the domain itself by a major media firm. The company says they refused that offer. That seems like a ridiculously high offer for a mediocre domain. If indeed the offer were legitimate though, why would the company turn it down?

Currently, the whole package is up for sale on eBay at a starting price of $25,000 and there are NO bids thus far. Perhaps they should have just taken the $100,000 and cut their losses…

Do you think eBay is a legitimate, respectable way to sell a company? Or do you think that such a strategy takes away from the brand value and perception?

I know it’s a bold statement that isn’t entirely true, but let me explain. Obviously, a large number of successful companies can call advertising their revenue model, but this is only after siginificant traffic growth. The number of new start-ups that launch with an advertising model in mind, compared with the number that can actually sustain such a model is minimal. I would consider it a generous estimate to say 1% or so can do it.

Let’s do a little math experiment (using some basic assumptions)…

Company XYZ has 3 full-time employees. Let’s also say that they have no other expenses as they run out of a makeshift basement office. Assuming an extremely modest salary of $50,000 a year each, the company needs to generate revenues of $150,000 a year just to break even. Keep in mind that we are assuming no other expenses exist, even though hosting, bandwidth, and other factors should (in theory) play into the equation.

So, in order to break even, the company needs to generate $150,000, or $12,500 a month, or $417 a day. That doesn’t seem too unrealistic. Now, let’s assume that the website can achieve a $5 CPM, which is relatively good for a small company. The company would need to generate 83,000 page views per day just to break even. This is where many begin to realize that monetizing via advertising is much harder than it seems. From a monthly perspective, that’s 2.5 million page views per month. That’s a significant number. Once again, keep in mind that this is assuming no other expenses and doesn’t include a lifestyle of luxury.

[Please feel free to rip apart my math, point out any inaccuracies, or add any relevant commentary.]

On the whole, what I’m trying to say is that an advertising model is possible to sustain, but it’s rare. Other forms of monetization are much more effective and attainable. With such high levels of competition in every area of the Internet, your ability to capitalize on ads has been greatly diminished. 

As we all know though, many of these companies never intended on monetizing via advertising like they say. Their sole intention was to build traffic and sell off to a major player (Google, Yahoo, Microsoft). This is the typical web 2.0 revenue model. This “hope for the best” strategy is risky, but has paid dividends for a small minority. I wouldn’t recommend it though.

Historically, if you’re looking for a mortgage, you head to your local bank to get the best available rate. Next you may visit several other competitor banks to find out their rates. Some people even make use of a mortgage broker. In any case, the purchase of a home is usually the single biggest purchase in a given individual’s life. For that very reason, the research and due diligence leading up to the decision cannot be taken mildly. In many cases, people don’t put enough time and effort toward the cause and end up with an inflated rate that puts a severe damper on their finances for years to come.

SmartHippo wants to change the way we think about and deal with mortgages. The goal of the company is to bring transparency to the financial services industry by providing an unbiased look at mortgage rates. How so? Essentially, the site is powered by users. These individuals post rates depending on their profile and geographic location. Banks and mortgage companies can also post rates (SmartHippo becomes a marketing outlet for them). When a user wants to ‘compare rates’, a snapshot of current conditions is generated based on the user’s geography, credit score, equity, etc…

So how does one know if a rate is accurate? Rates receive votes and comments by the community, akin to Digg submissions. Assuming a community-controlled system works, the bad rates will be weeded out and the good rates will rise to the top.

Users can also ‘get a quote’. This is different from comparing rates. In this case, a user enters their criteria and contact information, and instantly gets matched with up to four lenders who will contact them with a personalized offer. Strict security and privacy policies are present site-wide. This allows users to remain anonymous at all times if preferred.

Because the site is geographically-sensitive, users can discuss their experiences with other local mortgage hunters. A forum provides a great place for vent or recommend a given financial service company.

I had the pleasure of chatting briefly with the CEO, upon which I had one issue in particular. It went something along the lines of this: for the most part, people only buy one house during their lifetime. Assuming they use SmartHippo to capitalize on rates and the purchase has been completed, why would they want to come back to the site? In other words, SmartHippo no longer serves a purpose to that individual. “Not so fast…”, he tells me. The company is planning to diversify in other financial services areas, including insurance, stocks, mutual funds, etc… This helped answer my question concerning repeat visitors and site “stickiness”.

Interestingly, the service is free to use. If I’m not mistaken, revenues will be generated via targeted advertising. In addition, SmartHippo is only available to US consumers at this point in time. Ironically, the company is based out of Montreal. Plans have been made to enter the Canadian market in the near future, although the US provides a much larger base at the present time.

I think SmartHippo is a great idea that merits further scrutiny. I look forward to a time when it available in the Canadian market and I can make use of the service. The concept and basis are very new and fresh. It will be interesting to follow adoption and acceptance of the service as the industry progresses from a traditional model to a more current, innovative one.