Guest post: The secret of scale, revenue and margin on a budget

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This a guest post by David Hickson co-founder of stealth start-up tribesports.com. David’s a 12 year Internet-veteran and self professed geek-wannabe. He previously spent 5 years at lastminute.com, and was a founding shareholder and Head of Corporate Development at mydeco.com.

I’m unlikely to give you an epiphany of Damascene proportions if I told you that the secret of scale on a budget is to activate the power of the people. Facebook, Twitter, YouTube don’t market – their users do. But even the venerable Facebook, with an active user-base about the size of Western Europe, is still having a good old think about whether to IPO or not. Although expected to hit revenues of $1bn in 2010, that is still a relatively small number, and there is very little focus in the Facebook rhetoric about the bottom line – possibly because it can’t yet be properly seen below its chubby server-belly.

Yet consider Expedia, Inc’s Tripadvisor’s numbers – with a tenth of Facebook’s visitors and a UX that could do with some work, it is expected to generate revenue closing on half that of Facebook, – with a whopping bottom line as near as dammit half that number again. Now that’s a business model.

What’s the real secret of scale, revenue and margin? Simple. Engineer a social platform that has real utility for its community, port it into a big vertical, then, harvest the content created by the community to create genuine added–value texture around products; the kind that really does assist those that arrive at the site at a product level to make a purchase decision. This content doesn’t just have to be product-reviews, think of the listing–metaphor that is Polyvore’s moodboard tool: that is a user-generated merchandiser too.

None of this is new. Yelp, Gamespot, Tripadvisor and many others have been sitting at the intersection of social and super-affiliate for years, but those properties had the advantage of, variously, being first, or nearly first, to market, material levels of funding, and/or (for example, in the case of Amazon) a significant other operation. However, what is becoming apparent – and herein lies the opportunity for all start-ups – including those in Europe, because of the opportunity to scale in a territorially agnostic way – is that growing a scale business, with healthy revenue and margin, on a relatively small amount of funding, is within reach.

Let’s think about Goodreads for a moment. I love Goodreads. As an avid reader of books, I love thinking about books, learning about books, seeing what I should be reading, hearing what other people have to say. I want to do it at length at my desk or in bite-sized chunks through my iPhone.

Goodreads’ product-set (Goodreads.com, and iPhone app) created this platform for me. Although it faced-up to one of the biggest competitors of the lot – Amazon, it had a secret-sauce: focus on the book reader not the book. It’s now activated a passionate community (uniques, repeats & viral marketing: tick) creating great content that, oh yeah, happens to help sell books (tick) and is really solving SEO. (Forget – OK, don’t forget, but you get my point – your H-tags, linking strategy, relevant keywords etc – you want to win in Google? Get fresh relevant content uploaded everyday in a cost-effective way i.e. by your users.)

I searched for my favourite book of all time: JD Salinger’s ‘Nine Stories’ on Google.com – and there it was: Goodreads’ ‘Nine Stories’ product page – right there on page one, just below Barnes & Noble. According to Google Ad Planner, Goodreads has doubled in size in 12 months and is nearing 8m monthly visitors – not bad for $2.75m.

OK, you say, but a social network away from Facebook is a tough cookie to crack – just look at what happened to Ning’s freemium networks. Agreed – but we are now seeing enough evidence that with the right platform, a platform that privileges the community (not the end product, i.e. the book reader not the book, the film-goer not the film, the Gucci-buyer not the Gucci dress) infused with the right, non-vanilla, social media levers (and we are beginning to see a number of these that we know work – but that is for another post), that syncs well with its mobile, Facebook and other platforms product-set, niche social networks, away from the traditional tech, music, film and travel verticals, are taking off in a big way – think Polyvore, Livestrong, Daily Mile, Daily Burn, Kaboodle etc.

Perhaps the crucial element is that these communities are more than just a place for those with a shared passion to meet – they are also full of fun things to do around that passion. On Livestrong you can Dare yourself and others, on mydeco.com you can create a beautiful home-related aesthetic, on Polyvore you can put a fashion-set together. What we do know, is that in this post-Facebook, post- smartphone world the mainstream is becoming comfortable having an ID offline, an ID in Facebook and an ID within a community where they can indulge their interest in a way, and with a group of like-minded people, they couldn’t ever do before.

Our challenge is to provide this service to our users while at the same time to join up some of the other business strands – which actually work symbiotically with the community not against it – to create some great new digital media businesses.

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