James posts about transforming hotornot here.
From what I’ve heard of pay sites that try advertising they generate about 10% of their revenues from advertising at a small scale. My traffic exceeds that of match.com and I can tell you I’m not even close to making $30 million a year which is 10% of Match.com’s revenue.
As for growing pageviews via facebook I think that is a mistake for a dating site, even when they allow advertising you’d make cents on the dollar compared to what you’d make having the visitor on your site. I couldn’t even create a dating site in facebook that would run with a profit on facebook. Most of facebooks pageviews aren’t even in the US and you are looking at splitting 5 cent CPM’s with facebook.
I think James will face an uphill battle getting a lot of money via advertising, assuming his pay section was well optimized he’d have to grow pageviews 10 fold t0 make the same amount of money. But he still has virtual gifts so maybe its only 5 fold growth needed. Hotornot has expanded to 14 employees and given away a lot of equity. That means that he has to grow revenue far beyond the 5 million he had before to own the same dollar amount of the company. Ie owning 50% of a company that nets 3 million a year is the same as owning 10% of a company that makes 15 million a year net.
There is also the problem of market size, if a site like hotornot wants to make far more as a free site than a pay site it may not even be possible. Assuming a free model makes 1/10th to 1/20th the revenue per user is the market even big enough to support a company with 20 million in revenue?
If I wanted to generate $100 million in revenues per year it would be pretty easy, all I need to do is convert to a paid site. To generate 100 million a year as a free site is virtually impossible as the market isn’t big enough. I’m already the largest player in the UK, Canada, and US. Growing the company another 10 to 20 fold just isn’t realistic.
At the end of the day I don’t know if hotornot made the right choice. The answer to that question really depends on how huge the site can get.