Hotornot…

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.

40 Responses to “Hotornot…”

  1. Ryan Says:

    Markus,

    Why is match.com able to make so much more on advertising than your site? Do you think they are able to negotiate better deals, and so earn a greater rate? Do match.com users generate more clicks?

    Ryan

  2. Markus Says:

    I don’t know what match makes but I bet its not 10% more like 3%. Its easy to sell a few million pageviews at high CPM’s its a LOT harder to sell billions of pageviews at high CPM’s. Myspace and facebook are perfect examples of that.

  3. Ryan Says:

    I misunderstood your post. Thanks for the clarification.

    The pure advertising revenue model definitely has a lower revenue/user ceiling. As the free sites mature, I wonder how many will feel compelled to move away from the free model, and grow revenues by transitioning into premium services.

    In the case of hotornot, it does appear that they are haphazardly trying to find the magic formula. The move to facebook appears to be a vain attempt at gaining users, which “may” translate to revenue.

    I have my doubts about facebook in general. At first, I also thought that the facebook channel had huge upside. A ton of users, and a fresh operating platform. But upon further reflection, facebook as an application channel introduces inertia and scale limits (limited user base) that impacts its attractiveness for all but the most basic applications. Some people have equated facebook to a new style of operating system/environment, but in some ways, it looks more like a newer incarnation of AOL style environment. AOL had a ton of hosted apps and content, but in the end it was seen for what it is, a weak substitute for the web as a whole. Once all of the excitement of facebook dissipates, I think most people will see it as a personalized iGoogle page, with some social functionality mixed in. Not exactly revolutionary.

  4. JT Says:

    I have to wonder if he’s really trying to make that much money… or if he’s building it to sell. The way things are valued in today’s market he may get a big payoff in the future.

    And realistically, the free sites and Facebook are cannibalizing the paid market, as you’ve said many times. But you are right, he has to make so much more money now… I don’t understand why he couldn’t have kept his paid model going, and started a separate free model site. Yes, he’d be cannibalizing his OWN market share, but at least he’d have a revenue stream while he did so, diminishing as it may be. I also think he’s obsessed with getting “the best” programmers, ie he’s convinced he has to give away the company to get that.

    Still, both he and the others made a lot of solid points in that seminar you all did. It was inspiring for us, as we were considering venture capital, but will take our time now and do it ourselves.

    Here’s a question for you: If you had to learn a programming language today, would you stick with ASP.net or try something trendy like Ruby On Rails (seems several Web 2.0 sites are built on that.)

    Are you still working on your “social network” idea, to evolve POF and compete against Facebook?

  5. Jay (living in First Life) Says:

    Markus,

    I’m impressed by this post on two fronts:

    1. You are courageous enough to realize that the ad-supported model only gets you so far.
    2. You are building a business to run a business, not to flip it to some foolish larger internet company

    I think the entire focus on having “rockstar engineers” is overblown. There aren’t enough “rockstar” engineers in the world to go work for all the companies that claim to be hiring them. Even if there are 10 rockstar engineers in each age year cohort, and let’s say engineers work from 20 years old to 60 years old, that means there are 40*10 = 400 rockstar engineers. Chances are that a good 50% have their own start-ups and aren’t going to work for your startup. Another 25% are very well compensated at a major company and won’t leave. Of the remaining 25%, how are you going to find them? 100 fish in the sea – chances are they don’t want to work for HotOrNot.com and get a measly 2% of equity.

    Great post again and good luck with the site.

  6. My Internet Notebook Says:

    Making Money with Free Websites

    We already know a lot of website are free to use. But do you know some of them are actually making good money with just one or a few guys running it? Guy Kawasaki moderated a panel talking with the new internet entrepreneurs.
    When would the same thing…

  7. robhyndman.com » Blog Archive » On Reinventing HOTorNOT Says:

    […] to business writing about startups and the Web. Update: Markus Frind of PlentyofFish, a competitor, responds.              Related […]

  8. Mike Says:

    hotornot will soon be notsohot

  9. Marc Says:

    Ryan is right on target about facebook. I’ve made similar sorts of statements, but nobody wants to listen to us facebook skeptics. Maybe next year… sigh.

  10. Marc Says:

    On another note. All this talk of having the best engineers or best people or smartest people. I think it all goes back to Microsoft pumping this propaganda a decade ago. Bill Gates has already admitted the failure of this corporate policy. Lots of people are still on about it though. To me its like saying, I want the best bricklayers in the world to build my house. It’s just a dumb idea, and prolonged exposure to reality has proven it so. I think it was Bill Joy who said, that no matter how many smart people you have inside your organization, there will always be more smart people outside your organization.

  11. Ryan Says:

    Marc, everybody will have their few days of fun with the various facebook apps, but quickly become bored and move onto something else. 5% may stick as long term users.

  12. saidamin Says:

    Personally, I don’t think that James will make as much money with his free model – now, if he can pull off a paid/free hybrid model with his newfound traffic levels, he may far exceed his previous revenue.

    My further 2 cents worth…their revenue was going down…key staff was leaving to pursue their own dreams and better opportunities, and the founders (already sitting on some nice payouts over the years), decided to take a drastic turn to try to buck the declining trend.

    Bold move.

    Will it pay off? To be determined. I am skeptical, but again, if they can introduce a free/paid hybrid, i think that they can stand to make more than they were during the their heydays. Doubling your page views will is not enough to cover the loss from the switch in business models. That said, big ups to them for having the balls to go this route. What a journey!

    Life is good.

    -S

  13. JT Says:

    Facebook apps = Free Research & Development for Facebook. No hiring the best “rockstar engineers”, no giving away shares of the company to get brilliant new ideas, and best of all no associating failure with the company as various people try out new ideas. And once they see what applications take off, they can clone the app themselves and conveniently roll it out in the next system upgrade.

  14. Jonathan Frate Says:

    Has anyone seen the facebook app called ‘Free Gifts’? it basically lets you do all the things that the gifting portion of facebook does, but for free.

    Heh heh. let’s see how opnen their platform is…

  15. JT Says:

    Jonathan:
    At first I thought that Free Gifts apps might cut into them, too, but
    a) people on the other end have to install it first which slows adoption and
    b) free = cheap = making you look cheap, so it might be OK for joking around with close friends but if you want to impress a potential new friend or partner… you’re going to want to spend for a virtual gift.

  16. Pint of lager Says:

    Hello all,

    some good points made above.

    VCs think more widgets mean a more engaged audience, therefore a longer lifespan, thefore more ad clicks, thefore more money. The fact that so many apps / widgets have been developed seems them to be the proof that they are right. Wrong, proof will be in the actual user retention.

    They also think that AOL Yahoo are dying.

    The difference I think is that the content on Facebook is free to them, no huge mergers or staff over head to get content.

    As for me, my gut tells me opening up a site like Facebook is wrong, too many wars between widgets and apps i.e. IM wars that are dysfunctional to the site and distracting, but lets see.

  17. Pint of lager Says:

    apologies for the facbook rant. as for HotorNot – well they are giving equity not just to get the best programmers, but to get the best from their programmers, however, the market place has left them behind, I don thtink making a myspace for daters is really going to put anyone else out of business.

  18. stephen Says:

    I have been a member of Hotornot for a month or so and my profile was just turned off by Hot or not as well as someone else who contributed a comment to my blog- “Fox new=Education???”- Because of this innocuous comment his profile was turned off as well. Apparently Hot or not does not like blogs that speak against the Bush Administration’s war in Iraq. I guess Hong et al are pro-war, pro-Bush and pro-big business. I wondered why there are so many military profiles on the site, Now I know.

    I thought that a blog was a place to air personal views. I guess if these views differ from the people at Hotornot then they turn your profile off. Nice guys- real democracy at work here. It’s amazing how many people are afraid to allow something to say something against an administration who has clearly lied to the American people repeatedly.

    This is a war for oil and for forward strategic military bases. We are an occupying force. By taking actions such as cutting off any blog that raises issues regarding this unjust war, Hotornot is contributing directly to the ongoing slaughter of innocent people and supporting big business and huge oil company profits.

    Hotornot- Not. Don’t use them if you are against the war in Iraq. Come on…………cutting off someone profile because they wrote “Fox News=Education”. So much for personal blogging and the right to free speech. Don’t support people who mute the truth. Don’t use Hot or not. Very disappointed in you guys. Sick.

  19. Sylvia I. Kirby Says:

    I’m experiencing some trouble with seeing your page properly via the most recent version of Opera. It is fine in IE7 and Firefox though.Hope you have a wonderful day.

  20. Chris Says:

    So are they trying to say that Markus Frind could make $100 million year. DAMN!

  21. dogal tas Says:

    My traffic exceeds that of match.com and I can tell you I’m not even close million a year which is 10% of Match.com’s revenue.

  22. devlet hastaneleri Says:

    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.

  23. gelirler vergisi Says:

    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.

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