Why Does Profit Matter Anyway?
October 22, 2010 § 4 Comments
I was rather inspired by this VentureBeat article in which Mark Zuckerberg claims that profit isn’t a big deal for Facebook. This seems like blasphemy in light of the oh-god-we-aren’t-profitable bust of the late 90’s, but I’m noticing a trend: many startup websites taking what they call “the slow, cautious road” to profit.
For example, I recently interviewed with Yelp for an ad-delivery PM position, and I talked with them at length about the major monetization opportunities I thought they were missing. Yelp has a few problems. The ad inventory is tiny. They have ad placement issues. Worst of all, their mobile ad story is to channel users back to the mobile version of the website from the app whenever possible. Taking users from an app to a webpage is a terrible user experience, and they are literally leaving money on the table by keeping ads out of the app. After questioning the business director in detail, I got the same line Zuckerberg is throwing out: there’s plenty of time to make profit later.
It would be easy to under-think the ad experience and annoy users with Flash banner ads, or misplaced text ads. So I can understand cautiousness insofar as it means getting the ad targeting and delivery user experience right. But these days, like it or not, ads pay for the content of the internet, and barring massive innovation in the micropayment space it will for the foreseeable future. Eventually every site needs to solve the advertising problem.
While we’ve all seen ads done wrong, if done right, they can actually be useful to a user. For example – if I am a mobile user searching for sushi in my area, it would be trivial for Yelp to serve up a coupon for a sushi bar down the street. The more targeted ads get, the more users are likely to engage with them, and the more everyone profits. And if the ads are placed correctly, users can just tune them out if they aren’t interested.
So the perfect model of internet monetization is yet to be found, but there is plenty of opportunity for innovation in the ad-delivery space, and the first dot-com to get there could have the next Google adWords on their hands. I’d argue that this potential is what keeps Facebook’s valuation so high despite their lack of profit.