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How to fool VCs into thinking you have traction, Part 2

In my last blog, I argued that that web stats are often meaningless, and can be used to fool people (in particular VCs) into thinking that you have traction when you really don’t.

In this first blog, I’m going to talk about Widget pageviews versus destination site pageviews.

Here’s what you say
When people ask you what kind of traction you have, this is what you say:

"Last month, we got 30 million pageviews and 5 million unique users."

These are great numbers! You can then show them a graph that looks like a hockey stick, and have people multiplying CPMs by the pageviews to get big revenue numbers.

The reason why this argument is so incredibly compelling is that it’s easy to think that big numbers equals big traction. Between that and showing them a hockey stick graph, it’s easy to get seduced into thinking you have a huge company right away.

What’s weird with these stats?
Although these numbers can look great on paper, they represent a potential landmine for people who aren’t doing their math.

What’s misleading?
Ultimately, a widget pageview is not the same as a pageview on your site.

When you tell someone that you have 30 million pageviews on your site, it’s valuable for a number of reasons:

  • It shows that users are engaged with your property
  • You own real estate on your property where you can place ads
  • Normal "comps" to calculate value, like multiplying against a CPM or calculating a $/user value, all sounds great

The problem is that for a widget site, you have the opposite reaction:

  • Users may not be engaged with YOUR property, they are engaged with MySpace’s
  • You don’t own any real estate to place ads – and if you did, they might cut you off
  • You can’t multiple the pageview numbers by standard revenue multiples, since the pageviews and users may not really be yours in the first place

That sucks! That means that the % of users that exist in widget form may never be monetized – or if it is, it will be at a substantial discount to your CPMs. For more on widgets ad impressions, I wrote a previous blog on the topic called "Widgets = Ad Networks".

How do you figure out the truth?
To avoid being seduced by the huge numbers, just ask the simple question:

How much of the 30 million in traffic comes from widget pageviews versus pageviews on your destination site?

If you get them to answer that breakdown, then you can ask a couple follow-on questions to show that you get how widgets fit into their marketing strategy:

  • How well are you retaining users on your destination site? How often are they coming back?
  • Where are the widgets placed? Are you concentrated on one partner? (uh oh!)
  • How much of your destination site traffic comes through links on your widget?
  • What happens if your widgets all go away? Does your destination site still survive?
  • What are the CPMs on your destination site?
  • Do you have ads on your widget? If not, do you plan to? How will the underlying platform respond to you monetizing their traffic?

Ask these questions, and you’ll figure out how dependent they are on their potentially hostile partners. Furthermore, you’ll figure out a bunch on how smart they are about "quality of traffic" and the difference in monetization rates between their destination sites and their widget business.

Conclusion

Overall, this is a very effective way to fool people into thinking you have a lot more traction than you really have. A lot of social networking sites have between 50-150 pageviews PER SESSION. If you can pass these pageviews off as your own, you are probably going to inflate your valuation by 3-5x. Pretty sweet.

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