Monetizing Web Services with WidgetBucks (and Others) at the Westin
I’ve always thought “Web services” is a boring name for one of the most lucrative areas of tech-business innovation. The term encompasses many interactions on the Internet—everything from Web-based software to shopping to social networks. A big question these days is how to monetize these Web services, and how to get revenue from all the various Web 2.0 applications that have emerged. Sure, there are traditional business models based on advertising, subscriptions, and transaction commissions, but what are cutting-edge companies doing with these models?
I had a feeling last night’s Washington Technology Industry Association (WTIA) event at the Westin Hotel in Bellevue, WA, would provide some unique answers—and I wasn’t disappointed. (The drinks and dinner, which I hadn’t expected, didn’t hurt either.) I’ll give a straight recap here, and try to follow up with more insights down the road.
The title of the WTIA panel was “Cashing in on Web services: The display ad model and beyond,” and it packed an all-star lineup of Seattle-area Web companies. The moderator was Scott Jacobson, a principal at Madrona Venture Group. Perhaps the most striking thing about the panel was how young everyone looked (I’m starting to feel old around these entrepreneur types):
—Matt Hulett, chairman and CEO of Mpire, maker of ad network WidgetBucks
—Andy Liu, CEO of BuddyTV, the largest TV destination site
—Mike Metzger, CEO of PayScale, the largest salary comparison site
—Spencer Rascoff, CFO of Zillow, the second largest real-estate site
—Tony Wright, co-founder of RescueTime, a time-management software site
Jacobson opened with some brief remarks about online advertising versus other revenue models. “You have to have massive scale to build a business on advertising,” he said. “But there are other ways…to make money, and we’re going to explore those here.” Indeed, it was interesting to see the different approaches taken by the five companies, based on each one’s product and size.
Mpire, though small in workforce (18 employees by the end of this year), has the sort of scale to make advertising work (1.2 billion impressions a month). Hulett explained his approach with WidgetBucks, an online ad network used by some 20,000 publishers, including many small bloggers, where the ads run alongside the content. “The state of online advertising is still in its infancy,” Hulett said. “The bar is pretty low right now. Publishers are looking for other solutions that monetize better than [Google] AdSense.” Jacobson asked whether advertising budgets are shifting away from display ads. “I don’t think anyone’s going to say online advertising is dead,” said Hulett. “There’s a little softness in display, but overall the area is strong.”
Liu spoke a bit about BuddyTV’s traffic (over 30 million pageviews a month), content, and user behaviors. The site includes news, videos, and trivia games for TV fans. “We always wonder, when do people spend time on our site? Most of it comes during the workday,” he said, to laughter from the audience. “We always build two things into the products. One thing is make sure the game is fun for more than one person. How do we get you to invite five other friends to play that game? The second thing is, we try to pull you back to the site. We use e-mail marketing tools and surfacing tools.”
All of that is supported through conventional online advertising. But because BuddyTV has user-generated content, including articles, comments, and celebrity ratings, Liu said, “We’re very sensitive to advertisers’ sensitivities…We sacrifice short-term traffic [as necessary]. Fortunately, we have a lot of traffic. We rely on the community to flag content for us, they mark it as inappropriate…We are very vigilant to make sure that [objectionable] stuff doesn’t stay on our site.”
In terms of new sources of revenue besides advertising, Liu brought up the example of market research, and BuddyTV’s ability to tell TV advertisers how their ads are working. “If there’s a Ford commercial on ‘Heroes,’ we can tell how well it’s doing. Or give immediate feedback to a studio on how their new show is doing…The research model is something for down the road.”
Metzger’s approach at PayScale is different. “It’s a give-get model—users give us information about themselves, and they get information back,” he said. “We also package aggregated info and sell it to businesses…We can put together education offers and generate some revenue in that fashion too. It’s not just about the money sometimes [for users]. It’s about advancement, sometimes certification, education. We provide information and leads relevant to those individuals…We publish interesting info, hundreds of thousands of charts and graphs, info about what the average nurse makes in Seattle…We buy key words.” As for future revenue streams, Metzger said, “I wouldn’t rule out advertising, but for us it’d have to be very focused and targeted.”
Rascoff gave a quick update on his real-estate company. “Zillow has a Web page for almost every home in the country,” he said. It is up to 150 employees and 5.5 million unique visitors per month, and is not profitable yet. The company sells all manner of online ads—cost per impression, cost per click, cost per lead, self-service advertising. “It’s a whole smattering of different revenue streams, we’re still trying to piece it all together,” he said. Case in point: about three weeks ago, the company introduced “showcase ads” that target home buyers in local markets and cost a bit more to place than the original self-service ads Zillow tried. “People would say, ‘I spent $20 and didn’t sell my house…’ We try to protect people from themselves, and make them pay a bit more,” said Rascoff.
Jacobson asked about the effects of the recent market woes. “The downturn in the real estate market has been great for Zillow. The downturn in the advertising market has not been good,” Rascoff said. “Zillow’s traffic is way up because the market is going crazy. But the ad recession, it’s hard for us to know. We’ll get a $300K buy from an advertiser, we’re very happy about that, but if not for the ad recession, it might have been $600K.” As for future marketing plans, he said, “We decided to invest heavily in people and products instead of advertising. That’s gotten us this far. Probably there will be a time when we buy key words. But if VCs give you enough money, anyone can buy enough key words, and get a million impressions.”
Representing the youngest company on the panel (it just closed a Series A round this week), RescueTime’s Wright spoke about his time at Y Combinator, getting his startup off the ground. “Every piece of entrepreneur advice is a lie,” he joked. “There is no formula, no 12-step program…Build something people want. There’s this concept of being upwind of success—focus on your product every day, and then you throw up your sail and have a great shot at revenue and success. A lot of companies charge forward on the traffic too early.”
RescueTime’s time management software keeps track of how much time users spend on various websites and applications, with the goal of “empowering people to be more productive,” said Wright. It targets businesses and corporate workers, and the service is a “freemium” model—RescueTime gives away the basic service for free, but offers a premium version to businesses for a fee. “I’m the token sucker who charges for software,” Wright said. “Deciding what you charge for is a dark art. We err on the side of giving a lot away. A lot of users can teach you what your software needs.”
So would Wright consider putting advertising on the free site? “It’d be a way to annoy our users. I don’t think it would be a way to make any money. Ads in tools, in general, perform much less well than in search or content,” he said. “The ad model is not something we’re looking at. But our users are giving us second-by-second data, contributing to tens of millions of man-hours of user data. Google called to ask to borrow our data.” It’s early, of course, but it sounds like selling online behavioral data would be something to consider down the road.
Ultimately, Jacobson asked, what is the future of advertising networks? Mpire’s Hulett said, “Each ad network has a unique take. They’re trying to figure it out. Seventy-five percent of impressions are in the tail…I think ad networks are going to grow. Brands will figure out how to monetize impressions.” Liu added, “An ad network doesn’t care about your brand. On the ad rep side, I’m trying to get ad reps to sell BuddyTV. Then, as I’m building the business on their backs, it’ll be easier to get in the door. It’s always good to pit one ad-rep firm against another, and have them rep your brand. You can get a fantastic deal. But if you’re a small site, it’s getting harder to monetize now.”
One of the last questions came from Bill Baxter, the chair of WTIA’s executive committee and CTO of Seattle-based Cozi. Baxter noted that only two of the five companies on the panel were supported by traditional ad revenue. So, he asked, could you conceivably turn off ads and make a business work? To me, the answers said a lot about the persistent future of online advertising. “We see ads as content. We have no plans to turn off ads,” said Rascoff from Zillow. Liu echoed the sentiment. “We see it as content too,” he said. Though “if some of these other models take off, maybe we’ll have fewer [annoying] ‘punch the monkey’ ads.”