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How to tell the difference between eyeball companies

I recently wrote on the difference between Eyeball companies versus revenue companies.

I’ve been thinking about the issue of "eyeball companies" AKA companies with lots of users without any revenue. First off, if you have one right now, good for you :) Right now those companies are worth a lot of money, as old media companies are still trying to figure out what to do with this whole Internet thing.

Ultimately, I’d evaluate the future success of eyeball companies according to the following criteria:

First, the basics..

  • Have they proven users love it? (100k+ users is good)
  • Will additional growth be cheap/viral or expensive? (>50% growth M/M is good)

Then, the interesting strategic questions:

  • Are they doing something for free that someone else is doing for $$$?
  • Are they taking "attention" from another big, ad-based platform?

The first two I won’t address in much detail, except to say that you’re not an eyeball company until you have eyeballs :) But the second two are interesting questions in the sense that the public markets aren’t open right now, so you need someone to step up and pay a LOT of money to take you out, if you’re VC-backed.

Because of this, you basically have the big Internet conglomerates (AOL, Google, Yahoo, Microsoft, IAC, and FIM) and old media companies to turn to, in terms of an exit. You ultimately have to look at their businesses and figure out if you’re doing something strategically interesting enough to them. So to reiterate, if you are doing something related to internet radio, video, calling, etc., you pose a disruptive innovation to big companies. Other people make a  lot of money from that, and they will get nervous if you get really big. They will probably think about buying you if you get really big, either for themselves or to keep you away from a competitor.

However, if you are an eyeball company that has a lot of users that no one cares about – and I don’t want to do any finger-pointing but I have my ideas – then even if you get big, no one will get too excited about what you are doing.

Just my quick theory looking back at Skype, MySpace, YouTube, and such.

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