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Technorati: Valuation Without Revenue?

Posted on Thursday, Feb 23rd 2006

Here is a great article by Dave Winer: How much has been invested in RSS? Besides the large company driven investment cited in the article (Microsoft, Yahoo, …), it also cites examples like venture investments in Technorati, Feedburner, Newsgator, Pheedo, etc.

Let’s take the example of Technorati. It’s Alexa traffic ranking is quite high (561 today), and it is the unquestionable center of the Blogosphere. The obvious revenue model of Google AdSense generates some money. The question is, does it generate enough?

Skype has recently proved that Valuation Without Revenue a la Hotmail, is alive and well. Will Technorati be able to follow suit?

According to Dave Winer’s calculations, more than $8 Billion has been invested in the RSS and Blog eco-system. However, as both Skype and Hotmail have proved in the past, these were businesses without business models.

In the Web 2.0 era, it appeared in the beginning that investors were gun-shy about such businesses. There was much talk about “fundamentals”.

Are we shifting gears again, and getting carried away on the wings, this time, of RSS?

There are proven models in the advertising industry, one of the most important of which is Segmentation. Advertisers like to advertise to demographics and psychographics that are likely to buy their products. Today, Yahoo is a portfolio of haphazardly organized content and services which don’t clearly align with segments desired by advertisers. Neither, for that matter, is Google. For sure, not Technorati.

For the moment, due to lack of viable alternatives, Google and Yahoo continue to reign supreme in online advertising. The rise of MySpace, however, is not going unnoticed by Madison Avenue.

Technorati, especially, needs to ask itself the question: What is my segmentation strategy, around which I can offer my advertisers a compelling marketing vehicle?

The answer is the secret to monetizing their enormous and invaluable traffic momentum.

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[…] p class=”MsoNormal”>Dave Winer writes that billion of dollars has been invested in RSS, a technology he so tirelessly champions. Sramana Mitra picks up on his theme, and points out that the big dollars are being spent by big giants, and wonders what it really means for Technorati. […]

The Daily Om : » Billions Already Invested In RSS? Sunday, February 26, 2006 at 5:35 PM PT

Google ties advertising to presentation context, search keywords. True, because the context is dynamic, it is not segmented in a traditional way, like print and broadcast media. However, there is potential to target advertising far more precisely than traditional mass media. I think Google’s perceived value comes from this ability to target advertising to high yield click streams — the “database of human intention”. Whether Google’s particular approach is effective or not, the advertising market has to deal with the shift to dynamically generated content presentation that has occurred with the transition from mass media to personalized media in the Web.

Sophos Wednesday, March 1, 2006 at 11:07 PM PT

[…] Sramana Mitra on Strategy » Technorati: Valuation Without Revenue? via Om Malik » Are we shifting gears again, and getting carried away on the wings, this time, of RSS? […]

Vinny Carpenter’s blog » Blog Archive » Daily Del.icio.us for Mar 01, 2006 Thursday, March 2, 2006 at 6:39 AM PT

Right on “Google’s Perceived Value”. And a great deal of that perceived value is actually “Real Value”.

But they also need to bridge the gap between “Random Search Based Targeting” and “Segmented Personalized and Behaviorial Targeting”.

Sramana Mitra Thursday, March 2, 2006 at 9:16 PM PT

Yes, and this is why I think Google’s current mechanisms are not as effective as they could be. Arguing using a physics analogy, position (x), velocity (dx/dt), acceleration (dx2/dt), and jerk (dx3/dt). If analysis of the immediate page context is a first order derivative, then analysis of the click streams leading to and from that page are a second order derivative. The third order derivative might be locating trends of change in the click streams patterns. Though moving down this path of detailed analysis might have diminishing value due to decreased statistical significance, I don’t think anybody has yet found the sweet spot. These sorts of analysis might arrive at the “Segmented Personalized and Behavioral Targeting” you are describing.

I guess one important question is whether click streams and web site context are the right raw materials to work with. They are certainly the most readily available with today’s web technologies via cookie tracking. I think Amazon clearly has a different angle on this by doing active experiments rather than just passive observation like Google. Amazon probes the audience by suggesting things and figuring out which ones excite interest and which ones result in sales. This approach moves from the limited statistical click stream analysis to actually discovering the tastes of individuals. iTunes music store is attempting a similar analysis with the “Just For You” feature.

Sophos Friday, March 3, 2006 at 10:00 AM PT

[…] http://www.time.com/time/globalbusiness/article/0,9171,1565540,00.html http://sramanamitra.com2006/02/23/technorati-valuation-without-revenue/ […]

» Technorati’s total funding revealed - $21.6 to date in 3 rounds Web 2.0 Money: The Money & Business Behind the Web 2.0 Innovations Sunday, January 13, 2008 at 9:19 AM PT