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Eyeballs versus dollars: What should startups focus on?

When you read about websites in the mainstream press, you often hear about two kinds of consumer Internet properties. First, there are social, high-pageview sites like YouTube, Facebook, and MySpace. Secondly, you also have high-revenue/transactional sites like Monster, eHarmony, and PayPal. The former often have high pageviews but low(er) revenue streams, whereas the latter have directly monetizable activities.

It’s interesting to examine these two groups in more detail. For every web property, there’s a drive to maximize two things:

  1. The total pageviews generated
  2. The amount of revenue per pageview

Unfortunately, the two are often inversely correlated. Let’s discuss why.

How do you generate high pageview counts?
What are internet activities that people do every day? It’s a short list. Here are a couple broad categories I’d definitely put on the list:

  • Communication: Email, IM, forums, etc.
  • News: blogs, news content, etc.
  • Entertainment: music, videos, casual games, etc.

For me, my daily activities include going to Gmail, reading my RSS feeds, and occasionally going to YouTube to check out some new videos.

Unfortunately, the very stickiness of these sites drives down the value of each pageview. The reason is that ultimately, the highest value users are the ones are the ones about to buy something online. The closer you are to the transaction, the more value it is. Thus, e-commerce, travel, mortgage sites, etc are all fantastic at driving high monetization.

When you’re in the context to communicate or entertain, the furthest thing on your mind is to buy something. Thus, the CPMs on MySpace and Facebook are quite low, often way under $1 CPM.

How do you generate high revenue per pageview?
As mentioned earlier, the easiest way to generate revenue is to be close to the transaction. Another way to describe this is to capture “purchase intent.” If you can grab people right before they are ready to buy, then you can be a gatekeeper for online revenue. This is why businesses like comparison shopping engines or eHarmony or Monster are great at pocketing money directly from each transaction.

Yet at the same time, being close to the transaction creates the inverse issue, where the site won’t be something you use every day. Or you might use it in bursts, during a short transition point in your life (like job-hunting or finding a significant other), but nothing outside of that.

The clash of stickiness versus intent
So how can you reconcile this conflict between stickiness and intent? It’s definitely very hard, and companies try to solve it in different ways.

When you’re a site with minimal stickiness but great monetization, you end up trying to become more sticky by adding things like news or social features or entertainment.

When you’re a site with great stickiness but minimal revenue, you end up trying to capture more intent by segmenting out pieces of your site to carve out commercial portions. That might look like adding a “shopping tab” or adding a search bar, etc.

Check out military.com for a site that successfully blends the two. The top bar has access to Travel, Shop, Finance, Careers, and Education, which are all monetizable things. Yet the stickiness of the site comes from the daily news and social functions.

Is search an exception?
One might say that search engines are actually an exception to the rule – actually they are not! Check out the top search queries across a bunch of different sites here. Of course, another source is the Google Zeitgeist.

What you’ll find is that the majority of searches are actually not very useful for search engines. Things like “sex” or “britney spears” are not actually very valuable searches.

Instead, you can think of search as a service that costs money for 80% of queries, which are on things like news, celebrity gossip, and other random topics. It’s the 20% of queries with commercially relevant value that also have advertisers bidding on the terms that drive all the revenue.

What’s the right approach? Focus on eyeballs or focus on revenues?
Ultimately, it seems like there are two concrete ways to approach the issue if you want to build a billion dollar, venture-fundable business:

  1. Build an eyeball company around a monetization engine
  2. Build a monetization engine on a large, sweeping high-value consumer need
  3. Build an eyeball company so huge that you win the category and get brand dollars

If you’re going to build a high-pageview “eyeball” company, then you’ll want to make sure you have a general sense on how to monetize it. Whether it’s semi-regular lead generation or virtual goods or whatever, you’ll mostly subsidizing social/news/entertainment activities with some revenue activities thrown in

If you’re doing a monetization like Monster or eHarmony, just make sure you build it in a category where everyone cares about the issue. Then although you won’t be sticky, you’ll get enough people churning through the system that they hand you lots of money. Also, in this case, you probably don’t want to use advertising dollars to support your business – charging by the transaction is probably more efficient, and people will likely pay up.

And finally, if you are hell bent to be one of the biggest websites in the world, you can eventually break into brand advertising through your sheer mass. But realize that this takes an enormous amount of venture funding to get to scale, and selling brand ads is like selling enterprise software – long sales cycles, relationship driven, and generally difficult.

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