We’re back in the days of speculative investments, frothy acquisitions, monopoly money and valuation without revenue. The biggest ‘phenomenon’ to emerge out of this mood in Silicon Valley is Twitter. Among other things, it has helped reshape entire nations’ political histories. Nonetheless, it has trouble with mundane things like revenue and profits. Of course, it has no trouble whatsoever with valuation!
Instagram is a 100% valuation without revenue deal that just yielded a billion-dollar exit into Facebook. Pinterest is next in line, with vastly higher traffic and even a bit of monetization with an affiliate model (how much, we don’t know). Nonetheless, I bet their revenue level is extremely low still, mainly because these businesses do not have reasonable business models.
On the Internet, there are two business models that make real money: Commerce and Subscription. A third, Advertising, has been facing lots of difficulty due to an overflow of inventory that cannot be sold at decent prices. Case in point: LinkedIn. Yes, LinkedIn wants to get more ad revenues, but to this day, over 70% of its revenues come from subscriptions. Google and Facebook are two notable exceptions, and search advertising IS a powerful business model.But display advertising is not for sissies!
Contrast that with Cableorganizer. A husband-wife team in Fort Lauderdale, Florida has built an e-commerce business selling cable organizers and closed 2011 at $16 million. No venture capital. Not even any kind of bank financing. Just blood, sweat, and tears. Read their story. I find it a great deal more inspiring than the speculative stuff the market is full off these days.
Yes, it’s mundane.
Business, fortunately or unfortunately, is terribly mundane. And for some, terribly exciting when hard work yields revenues and profits!