Three Ways Media Business to 50$ in Revenue

As a venture capitalist, I’m interested in investing in companies that could be big one day, that could get to at least $50m in revenue.Here are three ways to get to $50m in revenue as an online media business; indulge me in some math:

1. Be a site with a broad reach (say general social networking, communications, news). At large scale, without a great deal of targeting possible, a startup’s “run of site” or “run of network” advertising might be able to get to the $1 RPM range (Revenue per thousand impressions, including CPM, CPC, and CPA models). To get to $50m in revenue you would need 50 billion pageviews in a year, or just over 4 billion per month. According to Comscore, Bebo had the 10th most Pageviews in the US in Janurary 1007, with 3.4bn, so you would need to be bigger than that.

2. Be a site with demographic targeting (say a Latino portal, or a sports site (targeted at men) or a social network targeted at baby boomers). Although in TV and in magazines, demographic targeting can generate double digit CPMs, online at scale, RPMs tend to be in the low single digit range. Lets assume a $5 RPM. To get to $50m in revenue you would need 10 billion pageviews in a year, or just over 800 million per month. According to Comscore, Microsoft had the 22nd most Pageviews in the US in January 2007, with 792 million, so you would need to be bigger than that. [Microsoft isn't a demographically targeted site - i just use it as a comparison point for overall traffic size.]

3. Be a site with endemic advertising opportunities (say a site about movies that movie studios will want to advertise on, or a site about cars that auto manufacturers will want to advertise on, or a site about travel that hotels and airlines and online travel agencies will want to advertise on). If you have a highly targeted audience that is interested in buying a specific product, you can command RPM’s well into the double digits. Lets assume a $20 RPM. To get to $50m in revenue you would need 2.5 billion pageviews in a year, or just over 200 million per month. According to Comscore, Adelphia.com had the 125th most Pageviews in the US in January 2007, with 198 million, so you would need to be bigger than that. [Adelphia isn't an endemically targeted site - i just use it as a comparison point for overall traffic size.]

Admittedly, all these Comscore #s are US only, and all businesses will have international traffic as well, but the principle still holds.

Which do you think is easiest?

UPDATE: If you liked this post you will likely like my prior post on why new forms of advertising are hard

UPDATE II: To all new visitors, if you like what you read, subscribe to the Lightspeed Venture Partners blog RSS feed. Its at the bottom of the Right Hand Side column. We post 2-3 times per week on topics including consumer internet, web 2.0, lead gen, ecommerce, startups and venture capital.

UPDATE III: I’ve posted more on the difficulties in building a media business to $50m in revenues here.

Microsoft Geniuses

Last week, Microsoft announced it had hired David Porter, a former executive at DreamWorks and Wal-Mart, to lead its new retail division. It took about five seconds for the jeers to begin. Wait, Microsoft is opening its own stores? Seriously? Retail stinks; nearly every company on Earth is looking for places to trim, not to open more outlets. And then there's the fact that, once again, Microsoft is ripping off Apple. After the spectacular failure of the Zune, shouldn't they reconsider carbon-copying as a viable business plan?
But let the critics carp. Microsoft's plan is smart. Though the company hasn't settled on the details of its strategy—Porter is charged with deciding when, where, and how to launch the retail operation—opening up a chain of shops could revitalize the firm's battered image. Microsoft has a problem: Everyone in the world uses its products, but few of us appreciate them. We linger on the difficulties—how much of a hassle it is to connect a printer to Windows Vista—and we forget about everything it does well. Excel is a pretty great spreadsheet program, isn't it? And Windows Vista does have a nice photo-management app, right?
These sound like small pleasures, but so what? Apple's retail operation is built on such trifles—one display shows you how easy it is to manage music on your Mac while another shows you all the useful programs you can download on your iPhone. With the help of a well-trained, enthusiastic staff, these demos add up to something sublime—walk through an Apple store and you're bowled over by elegant simplicity. Apple's stores reintroduced a generation of jaded Radio Shack and Circuit City shoppers to all that's pleasurable about technology

The world's largest software company needs some of that retail magic in the worst way. Microsoft has lately been pushing the idea that many of its troubles stem from a misunderstanding—that its customers simply don't realize how awesome its products are. Last year's strange Windows "Mojave" ad campaign argued that people would love Windows Vista if only they could be tricked into trying it out. This was laughable; customers who adopted the latest version of Windows were plagued by real difficulties: It didn't work with a lot of their hardware and software, it kept bothering them about security violations, and it hogged their system's resources. But Microsoft has since fixed many of those issues, and its upcoming Windows 7 looks to be a wonderful OS. What Microsoft needs now is a way to get that message across—and without coming off as needy and defensive. A chain of retail stores is an expensive way to reintroduce your wares to customers. But if the stores are well-designed, they'll be much more effective than commercials.

Let me be clear about what I mean by "if the stores are well-designed": Microsoft ought to copy Apple. And I mean a straight-up facsimile—copy it relentlessly, unabashedly, and completely. (Some might say this has never been a problem for the software giant.) There are a few successful ways to run stores devoted to technology, and there are many unsuccessful ways. Microsoft has already sunk money into a failure: In 1999, the company opened microsoftSF, a retail location in San Francisco's Metreon shopping mall. The store, which had the sleek design of a modern-art-museum shop, was filled with interactive displays, Microsoft knickknacks (clothes, hats), and boxes of software. What it lacked was personality—especially a gregarious, knowledgeable band of employees to help customers learn about the company's products. I don't think it's a coincidence that the store closed down just two years after its debut.