In January 1996, a few months before England crashed out of the European Championships when Gareth Southgate missed his penalty, Stanford University students Sergey Brin and Larry Page launched a research project for their PhDs under the URL google.stanford.edu. Today, 14 years on, Google Inc. has a market capitalisation of $161billion; that’s roughly 20 times the capitalisation of WPP Group.
The birth of the internet marked the moment when an idea could be turned into a product, and a product into a business, very quickly indeed. In the dot-com boom, and bust, of the late 90s and early noughties, speculation over internet businesses grew at a faster rate than understanding of business models. With little attention paid to profit and earnings, share prices rose too far and companies eventually fell, one by one, until all but the strongest were gone: LastMinute.com was one of the few UK survivors of note.
Today I meet with companies selling media in publications, applications and games that don’t even exist yet. I find myself repeating phrases I hear on Dragon’s Den: “How are you funded? How can I be sure you’ll be around in 6months’ time? What makes you think you can achieve 100million users in 4months?”. These companies use famous case studies as evidence for the success that’s yet to come: that Farmville has 84million registered users; that the iPad has sold 3.3million units in 6months; that people spend tend to spend more time in apps than they do in web browsers. All of this is fine, and true, but it doesn’t make for a better product.
It took Google four years before they started selling advertising related to search keywords and longer still until they started turning a profit. YouTube still doesn’t make a profit, although you should remember that they too are only 5 years old at the moment and Google CEO Eric Schmidt insists that 2010 is the year for their numbers to hit the black.
What we should remember is that these companies focus on product first, profit second. They know that unless they offer the very best service to their customers and continue to invest in technology, creativity and ground-breaking, industry-shattering innovations, someone else will. If advertisers interrupt this process, the user will feel it most and the equity is lost.
Advertisers are not angel investors; while it’s exciting to see so many talented people developing exciting products and services, it is unwise to invest a single penny in those products based on a hunch, a whim, and a snazzy presentation. It’s important to stay conservative and always trace back to the question, ‘how much is my cost per contact?’ If what you’re considering advertising on doesn’t have a user base yet, or even a beta version, then that cost per contact may as well be cost per toilet flush.
To entrepreneurs I say this: build the product, improve your customers’ lives in some way – no matter how small – and then think about advertising. We don’t want to hold you back and we don’t want to interrupt the experience of your users. We look for partnerships and mutual benefits – benefits that are felt by your audiences.
Hopefully we won’t see another boom and bust, but I can’t help but feel like we’re operating in a Dubai building estate back in 2007, with huge deposits on things that aren’t built yet based on an assumption that everything will all be OK this time next year. Please remember: markets change based on forces beyond specific market sectors.
Angel by clspeace on flickr