@andrewchen

Get the newsletter · 2018 essays (PDF) · Featured · Recent

Revenue implications of non-sticky websites

Great article from Josh @ First Round Capital: “Catch And Release” Business Models. He dissects companies that are sticky enough and viral enough to spend zero on advertising, and still acquire users, and folks that have trouble getting sustained traffic. I wrote about a similar issue previously, called “Eyeballs versus dollars: What should startups focus on?

Here’s Josh on the “catch and release” model:

In sharp contrast, most social networks out there have what I call a “catch and release” model. They can generate buzz, get written up in the blogosphere, and even get 53,651 beta testers, but few of those initial users ever return to the site. There can be many reasons for this. The site may appeal to a group of people that just don’t need to communicate on a daily basis, for example old classmates, or distant relatives. They may have a cool feature set that presents data in some unique or surprising way, but is not enough to compel someone to come back on a daily basis.

Later on, he discusses Classmates and Zillow as examples of this.

In particular, Classmates is in the class of “paid advertising leadgen” companies that are basically arbitrage vehicles. They acquire traffic through lots and lots of remnant ads, which are optimized like crazy. Once they get people to the site, some % ends up buying a subscription, which they keep.

The main problems with companies, and the reason why they have low valuations ($100MM) despite 40 million users and plenty of revenue, is two fold:

  • First, they have terrible margins from buying ads – and the market is getting more competitive every day
  • Second, thousands leadgen companies compete for limited eyeballs, and long run it’s caused the industry to plateau

Long run, it strikes me that you need monetization engines, in the form of subscriptions and compelling products that capture purchase intent, yet you want to wrap that with the sticky things that make people come back again and again.

PS. Get new updates/analysis on tech and startups

I write a high-quality, weekly newsletter covering what's happening in Silicon Valley, focused on startups, marketing, and mobile.

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.