Business models on the web are undergoing a massive transformation. Originally mimicking the print industry (advertising revenues based on circulation numbers), we are now only beginning to explore real value adding, revenue generating opportunities which leverage the real-time, social, location-aware, collaborative nature of the web. While there are companies who are strategically concerned with building a profitable enterprise from the getgo (like 37signals, Zynga), there are many others who are concerned with building great products, attracting a huge user base and figuring out the home-run revenue streams later (most notably: Google, FB, Twitter).

There’s a ton of factors that come into play when choosing which route to take (do you have money? can you take the risk? are there obvious monetization opportunities now? by forgoing these are you putting yourself in a better position to capitalize on larger opportunities down the road?), but let’s assume for a sec you are in the user base game. How many user’s do you need to actually make some money. Here’s some back of the envelope stats (please take these with a grain of salt, some numbers here are estimates):

Site Valuation Number of Users Revenue Revenue per user per year Valuation per user
MySpace Bought for $580mil (2005) 100mil $200mil (2006) $2 $5.80
Facebook $10bil as per latest investment (2009) 300mil $300mil (2008 estimate) $1 $33.3
Twitter $1bil as per latest investment (2009) 9.8mil (unique monthly 2008) 0-not that significant $0 100/(9.8*12)=$8.50
YouTube Bought for $1.65bil (2006) 20mil (2006) $0 $0 $86
SNAP – Facebook App Maker Public Company Market Cap: $10mil (2008) 5.5mil $1.75mil (2008) $.28 $1.81
Google Public Company Market Cap: $173.57bil (2009) 144.293mil (unique monthly 2008) $21.795bil (2008) $12.58 1723570/(144.3*12) = $100.23
Yahoo Public Company Market Cap: $23.42bil (2009) 141.956mil (unique monthly 2008) $7.208bil (2008) $4.23 23420/(141.9*12) = $13.75


Some Observations:

  • There’s a big difference between market cap, investment round valuation and acquisition price, for the purposes of this exercise I combined them. There’s also a difference between registered users, active users, monthly unique visitors, etc… I needed someway to make comparisons, I’m smushing stuff up to draw comparisons.
  • I should probably add a few more companies like Skype, Paypal, eBay, Amazon, etc… to make this less search and social network focused.
  • Google crushes it $12/user/year damn dude…
  • YouTube founders are extremely lucky to get that kind of exit
  • Valuations and revenues don’t seem to be related (surprise)
  • Across all these companies the average revenue per user is: $2.87 and average valuation per user is: $35.62. Want to be a billion dollar company? You’ll need approximately 28mil users (I’m kidding… sort of)

What do you think? Is it better to play the userbase game or find ways to monetize immediately? Any way to make the above numbers more accurate? Any other conclusions you can draw from this data? Would love to hear from you…

Resources used:

http://www.comscore.com/Press_Events/Press_Releases/2008/10/Top_50_US_Internet_Sites
http://yhoo.client.shareholder.com/annuals.cfm
http://www.techcrunch.com/2009/04/15/boom-twitter-more-than-doubles-unique-visitors-to-93-million-in-march/
http://www.facebook.com/press/info.php?statistics
http://investor.google.com/fin_data.html
http://www.investorplace.com/experts/douglas_mcintyre/articles/twitter-facebook-myspace-value.html
http://blogs.zdnet.com/micro-markets/?p=283
http://mashable.com/2008/01/16/snap-interactive/
http://247wallst.com/2007/02/16/googles_revenue/

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