[k-mcgrady]

>> "My rule of thumb is that if you can get 100,000,000 users you can sell for $1,000,000,000. You don't even need revenue! Crazy, but that is a shit load of users. How many 2000 dotcom companies had a hundred million users? Hell did even Google have a hundred million users back then?"

You could have 6 billion users - it doesn't mean anything unless you can monetise them.

And nobody can come up with a smarter way than advertising? It's the only thing to fall back on because of how the companies start. If you get 100,000,000 users and charge them nothing they will leave you if you try to start charging. They may get pissed about advertising but that will fade. I would love to see more companies focussed on monetising from the start.

Whatsapp seemed to be doing a pretty good job of that (99¢ per year) but they took on a ton of funding so had to sell. I understand the mentality of take all the funding you can get ('free' money, why not?) but nobody seems willing to struggle for a bit. They want high paid employees with lots of nice perks from day 1.

[kyledrake]

Advertising revenue is not stable! I'm alarmed that nobody is talking about this.

I used to run an abandonware game site when I was in high school during the first dot com bubble, and we would get paid $100-300 per month from advertisements on the site, which paid for us to run it.

After the dot com bubble crashed, we were getting paid $20-30 for the same ads and more traffic. It forced us to take the site down, as we didn't have enough revenue to fund it anymore (we kept the ring up though, it's still in operation today, probably with some of my code still under it's hood: http://abandonwarering.com).

Here's my question: Let's assume this is a second bubble for the sake of my question. After that bubble crashes, if advertising revenue tanks with it, how much does that tear into the profitability of these companies that depend exclusively on advertising?

I'm not a gold bug, but I remain highly concerned about the heavy burn rates and artificially high private valuations in the industry right now. Something I've learned from experience is that if it feels too excessive, it usually is.

[bhouston]

Very interesting. I think that a lot of these companies are dependent on advertizing revenue, but so is both Facebook and Google. I guess one has to see which companies are dependent upon advertizing from start-ups rather than established companies to figure out who is most vulnerable in a downturn -- although you said that overall ad rates decreased during the last correction across the board.

I wonder to what degree that would happen again. I think percentage wise it is likely to be less severe than last time, but it could still be significant.

We have no real data form Google on pre-bubble/post-bubble advertizing as they were not advertizing at that time. But it probably would be a horrible hit to them this time around -- even 30% correction would be severe.

[DougN7]

It will be different this time. Last time it felt like the whole internet thing was just a fad, so advertisers went back to their normal channels. But this time they have metrics and probably find that no other advertising channel can compete against online advertising as far as ROI is concerned (well, for many companies).

[lotsofmangos]

Last time they had metrics. It was looking at the metrics that made them pull the money.