We hear this phrase in the financial news, practically daily: “Too big to fail”
It is asserted without question, certain companies become so large and integral to the success of the broader economy that we simply cannot let them fail, regardless of whether or not they’re actually profitable. There may be some grain of truth to this when you’re talking about financial corporations with enough loans out to keep a small country running, but when you’re talking about online business and making money on the internet with websites, there’s nothing further from reality.
I’m actually thinking of a few specific companies that all match the same profile. They’re popular online, they’ve got huge traffic numbers, and they can’t make a profit for the life of them:
- Digg
Some may have you believe that building a site like this is the paragon of internet success. I still think the best thing to do with these “too big to profit” website is to sell them off to some company with deep pockets that’s too distracted to realize why it is a bad business plan in the long run.
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Facebook is huge, its mainstream… Everyone is using it and its finally putting Myspace under in the traffic wars. Oh, yeah, it doesn’t make any money and it is probably not worth a fraction of what it had been previously valued at.
The good news is that Facebook has every type of person you can imagine. The bad news is, well, you can’t match ads to an audience that has little in common.
Digg
Most websites would be thrilled to have advertising guarantees from Microsoft and tens of thousands of loyal users and evangelists. Digg manages to turn that into a five million dollar annual loss.
Despite the fact that the users submit, manage, and create all the site content, the website still manages to employ dozens of (probably) high-paid employees. Many of them are probably necessary to keep up with the site’s backend architecture, but Digg still runs slow and that doesn’t explain what the other fifty employees are doing all day. Promotion, marketing, content editing and moderation?
More hits on the Digg front page won’t make them miraculously profitable and the attempts at moderation and editing have mostly created a backlash that diminishes the site’s stated purpose and reasons for popularity.
If IRC and instant messaging had illegitimate offspring, it would be Twitter. This is the site that’s for people who are too ADD for the 300 character replies that are so charactertistic of other social media outlets. And yes – people really are that ADD as Twitter’s traffic and popularity will attest.
The problem, of course, is that we’re talking about a huge traffic base with little in common as far as interests and spending intentions! As the site grows and they scramble to keep their hosting capacity at their traffic’s requirements, there’s still no sign of profitability on the horizon.
On the Net – Size Usually Sucks
So if your website isn’t the next Digg, don’t lose sleep over it. You don’t have to be super-sized to make money online, in fact being too big will probably get in the way of that plan. There’s a common set of problems that big websites have:
- No targeted advertising (broad audience)
- Massive server/hosting requirements
- Overemployment (especially when content is writen by surfers)
Basically, Google is the exception here. The difference is that they’ve already dominated the advertising market exchange. Adwords and Adsense come together to ensure that Google can turn its broad-based traffic into targeted advertising – and profit from both ends of the transaction. There’s just no room in the market for multiple companies to seize on this business model unless they can do so by improving on the existing exchange market so significantly that Google is suddenly the irrelevant, unprofitable one.
I say: stay small, stay swift, and stay adaptable. Keep on your most profitable keywords like a laser target. Do what you can yourself, or identify your biggest weakness and outsource that particular task to a specialist. When a great extinction is coming – sometimes its better to be a small rodent than a massive dinosaur.
I see your point. These companies build a community/customer base then think – how can I ammortize. Most just want to be sold, but they don’t consider how to profit from the technology. Its a gamble….but some succeed, look at YouTube.
I’m not entirely sure if Youtube is currently profitable! It probably helps Google that they’re getting paid directly for their ads (basically cutting out the Adsense publisher and crowd-sourcing the editing on crowd-sourced [and often stolen] content). There’s some huge lawsuits pending, so I guess the profitability of the site is somewhat at the whim of the courts.
Anyway, Google hasn’t indicated that they’re acquiring or expanding, but it is possible that they’re stashing cash and cutting costs so they can buy up more heavily trafficked domains at distressed asset prices.
I dunno, my instinct is selling off quickly to an established big fish is a good strategy for someone who makes an extremely popular website with a vague monetization plan. Unfortunately, the price they’re going for is crashing and there are fewer buyers than a year or two ago.