Monday, February 4, 2008

Algorithmically human societies

I chose to bore myself to death this last weekend.

More out of curiosity than anything else, I was going through different online video sites(can't/won't name them), putting the views/video versus video rank into an excel spreadsheet, and generating graphs. It was a tail-driven exercise, to see what everyone's tail looked like.

I started off with YouTube(blue) and saw that they're quite consistent with Chris Anderson's depiction of the long tail. Nice parabolic structure, with the hits, the mid-tail and the tapering long tail, tending to infinity.

But then I mapped out the others and I noticed a *very* interesting trend.

I'd love to take a highlighter to these four but I think it's obvious- we're still looking at a spurt of online video sites that survive on hits. Or on the strength of unmanageably long tails.

There is no discernible mid-tail.

The bigger picture? You're either running a high risk venture(your hits stop being hits one day, and you're toast), or you're going to take 50+ years to demonstrate meaningful profit margins(assuming you last that long).

It's actually hilarious. I've been reading so much about VCs pumping gazillions of dollars into some of these startups these last few months, and I wonder- isn't anyone thinking about value creation any more? Where's the value in making $0.10 per unique visitor/year?
I thought the value creation would be if someone came along and said we can help generate $0.50 per unique visitor/year, and we will help increase that number by x% every year.

What surprises me is that in these (not-so-hot financially) times, a VC is actually willing to hear a pitch that effectively says: "Hi! I can build an online video site. I can make us $0.10/user/year. Please give me $25 million and I can promise you that I will have a user base of 50 million users in my 4th year. Which will give us only about $5 million in revenues.
But you see, I'm trying to accumulate a lot of eyeballs into one place with your money, so that the next rich person on the block looking for a list of 50 million eyeballs can buy us out, and we'll be sooper-dooper rich."

Irrespective of how our story ends(and I'm not sure it will end!), we have quite a few people to thank for making sure that at the very least, ours isn't yet another B.S. story.

Stay tuned.