The Bubble Burst Today

13 comments

March 10, 2000 The Nasdaq hits 5,048.62, the high-water mark of the dot-com boom. It's all downhill from here. Full Story

Founders Note:
If anything, it's a good reflection for us..

Question: How does Digg make money other than Google Adsense?

Comments

As someone that lived

As someone that lived through it, I'm always surprised that collateral damage is never really discussed in much detail. My reseller/affiliate model was just peachy back then but some of my upstream partners and their partners weren't, and when they blew apart and phones went unanswered and checks stopped coming, it screwed up a bunch of us downstream (even though we were grounded in virtual reality) in a complex domino affect. These articles are just too two dimensional to really convey what it was really like when things fell apart all around us. It was a much more dynamic process then anyone ever makes it out to be, and some companies went down not because they were founded on fluff but because the ripple affect took them down.

I think that most of us lived though it

My first job out of college was for a startup webhosting company in Florida back in the mid 1990's.

They got their first round of funding of 1.1 million, then a second round for 3.5 million, then a third round for 4 million.

I think their revenues were horrific, couldn't even break even.. At the time I was like 23 years old or so, in short I had no say in how the company was run, my job was to rank the firm in Altavista, Webcrawler, Yahoo, Hotbot, Infoseek, Excite (all the mid 1990's search engines).

They were ranked got tons of leads, but their cash burn rate was so high that it really didn't matter what they sold.. nothing they could ever sell would make up for those TV commericals.

'Eyeballs!! Eyeballs!!' that is all everyone kept saying in the office.

there was a small group of us that got more worried each day, we would see this bills of 50 grand for a magazine ad... 200,000 for a few TV spots... and this went on for about 2 years..

I eventually quit as well as the other people that had concerns over their business model and found a more stable webhosting firm that actually had a business model, doing SEO for them paid off, they got bought.. and I got a decent paycheck that day roughly 1/2 a year's salary.

The point I am trying to make is that with all these Web 2.0 companies, how are they making money? Other than Google Adsense how is Digg making money?

I just don't want to see another 1990's repeat... it gave all of us a bad name.

Yeah, it was all irrational

Yeah, it was all irrational bubble bursting. Like my IBM stock, my Sun stock, my Microsoft and Cisco stock. Oh and my Amazon that went from high 80's to almost $10 a share. I guess I was foolish to have invested in those flaky tech companies.

Like most of what we talk about in the media, this was not as it is reported to have been. It makes good press I suppose to call it "the bubble" and blame the losses on fools investing unwisely and whatever, but truth is a trillion bucks was taken "back" via that slide and that's not just high risk money.

The US economy has been working what I call a domestic theft model for many decades now (build momentum, gather "investment", gather more, gather still more, and take it all away). It's happening now with mortgages (just watch as people lose their "investments" in the real estate system.... the down payment, the fees, the initial capitalization).

Someday someone will explain what a trade deficit really means, and how much value innovation really has, and John Q. will stop dreaming and pay better attention.... maybe.

Headhunted

During Bubble 1.0 I was a "lifer" working for the man building their ecommerce engine from scratch. I can remember getting calls from headhunters on a daily basis sometimes offering crazy stupid money. You'd ask questions and realize it a house of cards ... but man 4 to 5 times what your current salary was sure sounded attractive ...

The weak perished

Those relying on other peoples money died that day. Those living on their wits and their talents were given an opportunity of a life time.

Aside from a greedy

Aside from a greedy investment in a tech fund (that included all the tech stocks JAmentioned, plus Lucent) that had gone up 70% in the prior 12 months and then never made another dime after I bought, my only "loss" was the sale of a domain for $250,000 that didn't go through after the buyer had his 2nd round of funding pulled the day before the transfer was to occur. Sold the domain last year though for $225,000 so patience won out in the end, albeit with a little help from the greed of fools and the mirage that is Web 2.0.

>>and John Q. will stop

>>and John Q. will stop dreaming and pay better attention.... maybe.

Doubt it. It's been like this since the first bubble.

Youth always think they know better than their parents so until we can breed kids with genetically modified brains to adjust for the arrogance of youth we're going to be stuck with this phenomenon.

>The point [is] all these

>The point [is] all these Web 2.0 companies

sorry, I missed your 2.0 twist. That said, I think the very first thing that should be addressed then, is not to approach this the same way 1.0 was approached, with blanket statements. Not all the 1.0 sites were fluff and unprofitable, without (any) business models (other than getting more VC)... same with web 2.0. I think some care should be given that you don't group every 2.0 company into the same cat. In fact, the term 'Web 2.0' is really only being used by people somewhat 'in the know' these days, and honestly I'm not sure many of them REALLY know what they are talking about; or, they know what THEY are talking about but don't know what others are talking about, because of their narrow definitions and understanding of what is going out there.

Without getting too much farther into ontology, I just think some care should be given to maybe focus more on individual companies business models, and let go of the generalizations. If you are interested in digg, lets talk digg. Just like not every 1.0 venture was fluff, not all 2.0 companies are BS, and if anything at all was learned from 1.0, it should be not to make blanket generalizations across an entire industry and assume that a few corporate examples of profitability represent the entire industry, the same way that you are implying that all 2.0 companies have nothing but adsense to save their asses.

@dogboy

Quote:
If you are interested in digg, lets talk digg. Just like not every 1.0 venture was fluff, not all 2.0 companies are BS, and if anything at all was learned from 1.0, it should be not to make blanket generalizations across an entire industry and assume that a few corporate examples of profitability represent the entire industry, the same way that you are implying that all 2.0 companies have nothing but adsense to save their asses.

Other than Adsense, what other serious revenue stream does it have?

I am not trying to be a jerk, I am just pointing out that Digg looks alot like a few companies that had valuations in the billions a few years ago.

Not all "web 2.0" companies are crap... but there are quite a few that appear at least at face value to have a Web 1.0 mentality.

If you were an investor.. and you only had X amount to invest for your kids future, would Digg be the company you would put your money in? Think about it before your answer.. because about 10 years ago I had the same argument with a guy that put 200,000 into Pets.Com

I am not saying that Digg is doomed to follow Pets.Com, I am saying if you had that money, is digg where you would invest it.

> How does Digg make money?

> other than Google Adsense?

i agree with The Founder that a battle-cry of "Eyeballs!!" was a mistake for most Web 1.0 businesses.

but that's because most had no idea how to convert eyeballs into money.

that said, not every company's exit strategy is an IPO.

in silicion valley back in 2000, it was more common to hear about startups getting gobbled up by cisco - at the time cisco was a monster with a soaring stock valuation whose technology and services underpinned a large amount of the boom around them (sound familiar?)

however, where cisco sells hardware, google sells curiosity. they've created a marketplace where you can find things that interest you, and their conversion is easy - a click - so it makes sense for them to acquire other companies that have already acquired an audience. the YouTube acquisition speaks to this.

i don't know what digg's financials are, but i doubt that improving page yield through aggressive monetization strategies is high on their list of priorities. if i had to guess, i'd say they're waiting for a company with deep pockets to come calling.

>> Other than Adsense, what

>> Other than Adsense, what other serious revenue stream does it have?

For the moment, what other revenue stream does it need? AdSense is a marvellous way for new start-ups to generate some rapid cash these days. During the 1.0 bubble, a lot of companies went under because there was no way for them to make any money early on - they had to achieve total market dominance before they could achieve revenue.

AdSense (and their competitors, lets not forget them) provide a way for smaller companies to quickly and easily access a large number of advertisers, and to monetise just about any site. One day when a given company has a better business model genuinely available, ie they can afford a sales team, internal tech team, even just have enough branding to charge for access or whatever other resource is required, they can displace AdSense, and move to the "real" biz model.

Note that AdSense is backed by a company with multi-billion dollar revenues and double digit growth. I'd say thats an indicator that it isn't a flash in the pan, not after this many quarters. I don't think AdSense etc are a good long term monetisation model, but it's a hell of a better starting place than anything that existed 7 years ago

>> i'd say they're waiting for a company with deep pockets to come calling.

Possibly. I'd say that might actually be a reasonable biz model, albeit a bit all or nothing

>I am not trying to be a

>I am not trying to be a jerk
And you're not coming off as one, and I'm hope I'm not coming off as one either... at least about this. Ok, that said, let me try to better explain where I was coming from. I understand your big picture concern, and there is something that definitely rings of truth here, but I think it is kinda clouded in an awkwardly postulated argument, and as such, it seems to be taking an unwarranted pot-shot at 2.0... and since I'm a big fan of the new technology, I guess I feel obligated to play devils advocate and defend it, at least for the sake of this discussion, so here it goes again....

I think you are comparing all the right pieces but maybe not in the best way to lead everyone to your conclusion. Basically one MAJOR component of the argument presented, that was not really clear, is this: Web 1.0 companies failed back then NOT because of their 'technology' but because of their revenue models. And this is important. In the same way, Web 2.0 companies will not fail because of their technology, but because of THEIR revenue models. If you look at these 2 points then it is logical to come to the conclusion that it is NOT a company's 1.0/2.0 designation that determines success or failure, but simply rather its revenue model. You get me? The comparison that was originally made seemed to be focused not on what was the true underlying causes for concern, but rather on the classification of the technology being used, which really isn't where one should focus, in my opinion.

ok, trying to get away from the abstract and back to the example at hand, I think TallTroll summed things up spot on when he said:

"For the moment, what other revenue stream does it need? AdSense is a marvellous way for new start-ups to generate some rapid cash these days. During the 1.0 bubble, a lot of companies went under because there was no way for them to make any money early on - they had to achieve total market dominance before they could achieve revenue."

...that right there is a critical and defining distinction. My experience with adsense is that if you get a monkey to place it on a page that doesn't contain a massive outlay of bandwidth, that page is going to be 'profitable' to some extent. Add to that sticky traffic and that is a valid and proven business model in this day and age, albeit an 'eggs in one basket' strategy. And adsense works just as well on Web 1.0 sites as it does on the 2.0 sites. Is it the best, most profitable, ingenius use of traffic? No. Does it result in a substantial, quantifiable, revenue stream (deemed to be so white bread mainstream its boring)? Yes. Is this one revenue stream enough to separate it from other hyper-inflated companies of the past? Probably so.

...so BIG PICTURE, this is what I see: a new Web 2.0 company, obviously successful in increasing its sticky, passionate member base, using a proven Web 1.0 advertising model, namely provide free useful information and paste ads on it. Every search engine we spam has exactly the same business model, basically, and what has decided who was successful and who lost market share had nothing to do with 1.0 or 2.0, or revenue models, but who had the best, unique content that kept more and more users coming back there instead of their competitor's site. So to me, what I see here might be a case of leaving money on the table for now but in no way raises the red flag that they are shaky ground any which way.... on the contrary; all directions point up, as any revenue stream added will not only bring in more money, but increase stability.

Speaking of AdSense, I am

Speaking of AdSense, I am really expecting a day to come when the payouts are phenominally ridiculous, for a short term. For some reason I just expect it to happen. One day, some stuff happens, and some terms go to $50 and $100 per click *payout*. Not for long, but for some time. And then it becomes history.

I was making $14 and $18 unqualified clicks back in the early days, and that was way cool, but for some reason I feel like there's some bubble-like whackiness in the future of AdSense. Or maybe I'm just disappointed that the best stories I will have to tell will be of those $14 and $18 clicks. It could be so much more colorful!

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.