Raja Jasti’s Blog - Renaissance Thinking

Enough has been written about the cratering advertising market and its impact on the survival of web 2.0 companies.

Eric Schmidt in his interview on Charlie Rose, made some interesting observations about monetizing web media. He said advertising works well for sites that have say 20B of uniques. He suggests micro payments as a viable model for sites that have say 20M uniques and subscription model for niche sites that have even fewer users.

Today Bill Gurley, a VC at benchmark capital, wrote an interesting post on monetizing the social networks. He thinks social networking sites such as facebook and myspace should take a look at chinese IM company called tencent for how to better monetize their users. He thinks that the secret to cracking the code on monetizing social networks lies in digital goods (micro payments) and casual games (subscriptions).

The takeaways are quite straightforward.  The amount of advertising revenue on an adjusted basis at TenCent ($2.08) is quite similar to Facebook ($2.44) and MySpace ($5.85) (some may wonder why MySpace ad revenue per user is higher than Facebook – many believe they are more aggressive with ad placement and insertion).  The key difference in this comparison is obviously the revenue TenCent generates with business models that are largely absent on both Facebook and MySpace — digital items and casual game revenue.  For every $2 of adjusted advertising revenue TenCent has per user per year, they generate $17 in other revenue streams.  Benchmark Capital has invested in two private companies in the social/virtual world space – SecondLife and Gaia Online.  In both cases, the company revenues are significant, and in both cases advertising is not the leading business model.

I think Eric Schmidt and Bill Gurley may be on to something.