At the recent Future of Web Apps, Kevin Rose, founder of Digg and Pownce blessed us with his thoughts from open standards to Digg’s future.
What caught my attention was:
Are you concerned that if economic conditions get tougher and the ad market tightens up, that you’ll feel forced to sell?
Rose: Digg has 25 million people a month coming to the Web site. We’re not going anywhere. We have very strong financials, we have a very clear path to profitability, we have a small team. We’re 50 employees.
That’s Morse code for “We are not profitable now”.
Markus Frind, CEO of Plentyoffish.com, who is famous for raking in millions on the back of Google Adsense, one known official full-time employee and maybe 2 hours of work per week, recently blogged about his rough estimate on the running operational cost for Digg to be around USD$ 420k per month. Markus was also highlighted that Digg is nothing more than a collection of links to news stories that are indexed by Google – i.e. not as bandwidth intensive as media serving sites.
This got me worrying.
Digg teamed up with Microsoft in Advertising in 2H2007. The combined factor of an exclusive provider of display and contextual advertising deal with the timing when Microsoft was desperately searching for partners to extend their advertising empire means Digg probably got a great deal (Yes, I am speculating here). If under those circumstances, Digg is still on a very clear path to profitability, are advertising-only-supported web businesses sustainable?
What about sites like MuSMo who are expected to be rather bandwidth intensive? Are we doomed?
Or worse, what about sites such as Last.fm who are shouldering the burden of not just the high bandwidth cost but also the content licensing cost? Or are such sites, in general attractive acquisitions for mega companies such as CBS who can fund these projects under loss-leadership.
And content providers, do you really care? On the recent blog entry of David Porter who guess-timated the new internet radio royalty to be around 78% – David showed that the math doesn’t add up. Maybe content providers really do not need these internet radio sites…
My take, I sure do not want to be in a non-profitable non-sustainable business. But is it irrational of me especially when clearly, the new 2.0 mantra is to scale first monetize later? Can the mister who runs the Ad-supported-music blog point us all to an example of a well run, i.e. in profit, ad-supported music site – yes, it has to combine the twin evil of intensive bandwidth usage and licensed content?
