Impacting millions, unable to make a profit?

[dinvesthk]

Social news websites like reddit.com and digg.com are impacting millions of people's lives (the first has 8 million while the latter has 5 million unique visitors per month), and yet reddit is barely breaking-even while digg is frequently reporting losses. Why is this the case? How can they turn things around?

 

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[Vigilante]

The more profit you show, the more taxes you pay.

 

[chudnovsky]

they turn things around when they go public or sell to some big guy.

 

[BeachBoy]

until they generate revenues, IPOs will be harder and harder to get out strong. We're seeing more an dmore tech co. with IPO that are dropping in value as soon as they are out.

 

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[dinvesthk]

they turn things around when they go public or sell to some big guy.

Reddit was sold to Conde Nast Publications in 2006.

 

[healthstatus]

They are adding some convenience, but not really creating anything new, recommendations to other pages. Not a lot of value and not solving a "painful" problem. That equals, not much profit.

 

[buckmajor]

Interesting! How do those social media sites make their money anyway? I'm guessing here, do they get paid through advertising on their site?

 

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[chudnovsky]

this is the way I understand this: their business models are flawed. they create these sites to provide a kind of "service", but with no idea of how to sell it. VC's and investors realize that some people are using these sites and they might become the "next big thing", so they inflate them with money with with the hope that they will find a way to squeeze money out of them, or that when they sell, their buyers will.

the Law of Effection works only if you impact millions from a business perspective. you must know how to make money: if you simply provide a service this way without knowing how to sell it, you might become the next youtube or facebook, or you might just be among the other 99% of the websites that fail big and you never heard of.

 

[Darkside]

this is the way I understand this: their business models are flawed. they create these sites to provide a kind of "service", but with no idea of how to sell it. VC's and investors realize that some people are using these sites and they might become the "next big thing", so they inflate them with money with with the hope that they will find a way to squeeze money out of them, or that when they sell, their buyers will.

the Law of Effection works only if you impact millions from a business perspective. you must know how to make money: if you simply provide a service this way without knowing how to sell it, you might become the next youtube or facebook, or you might just be among the other 99% of the websites that fail big and you never heard of.

You hit the nail right on the head. It's not about getting millions of visitors to your site; it's about monetizing them. Sites like Digg have a hard time being profitable because all of those visitors come with a bandwidth cost and the only way they can make money is through sponsored stories, which they don't get that much of. It's not like Amazon which gets tens of millions of paying customers every month.

Digg and Redditt just have millions of people using up bandwidth to read funny stories, only a few of which click on the ads. That's why it's better to have a few visitors who are paying for a service than millions of people who are just there to look at stuff for free. With the few customers you don't have to worry about bandwidth costs, and they give you money.

 

[winch]

A whole lot of conclusions based off assumptions and dubious data being thrown around in this thread...

 

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[theBiz]

I agree with some of the things being said here. I have tried to shy away from businesses that can not profit from their first customer. While this may limit my scale and size of a company I can build... I feel more in control. You can see early on its not working and walk away. Now that doesent mean I won't run the first month or two non profit to get it going but I shouldent need investors to start making some roi from my advertising and word of mouth. Again I'm not saying this is the right way to do it at all it limits "thinking big" but unless I have investors lined up before I start executing a business plan it wouldent be very risky IMO.

 

[911Carrera]

I'm sure these sites make a profit. They might show a loss after all the big bonuses and payouts and crazy expenses but I'm sure the owners have become millionaires from them.

 

[awjt]

I'm not sure what the play is for these sites. One one hand, you could advertise becoming wildly profitable, due to very low staffing and high volume, and that might gain interest from potential buyers. Fluff up the feathers.

On the other hand, you could report low profit and high volume, yet on an individual affiliate level, you are always making money for them. Word gets out that you turn people a handsome profit, despite the woe-is-us publicity, and it attracts more affiliates and you grow your biz. Kind of like Bart Simpson, "All attention is good attention."

Remember, Amazon went years before turning a profit. Until they hammered out their distribution methods and achieved a critical volume, they suffered greatly. Or so they said...

Let me put it to you this way. No sane businessman would paint a negative picture about his own business unless there was a strategy. I don't know what Reddit or Digg's strategy is, or even if it's a good one, or if their handlers are sane, but I am certain there IS a strategy.

 

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[BeachBoy]

A whole lot of conclusions based off assumptions and dubious data being thrown around in this thread...

well, if you know everything, instead of complaining maybe you should give us the facts and the real numbers:wave:

 

[aug]

well, if you know everything, instead of complaining maybe you should give us the facts and the real numbers:wave:

LOL

Read this from 2002 on Amazon.com Amazon posts its first net profit - CNET News they burned through hundreds of millions before making a profit.

The intrinsic value reddit adds to Advanced Publications is what matters and how they help further the company's business objectives. It's not always so cut and dry. There are loss leaders, competitive objectives, price dispersions, promotional value, etc... these are entire business cases that should be thought through before assuming that they are worthless because they don't turn a profit.

 

[winch]

well, if you know everything, instead of complaining maybe you should give us the facts and the real numbers:wave:

I don't understand how you inferred that I had the facts and real numbers from that post. Having the actual numbers is not required to conclude that others do not have them when the information isn't publicly available.

Hey, if you want to go ahead and make conclusions of the viability of their businesses based off well, essentially nothing, don't let me distract you.

And for the record I'm not saying anyone is wrong either (as you astutely pointed out, I also don't have the facts), I was pointing out that the information used for analysis seems pretty weak.

 

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[BeachBoy]

ah ok, then yes it's anybody's guess untill the copanies go public and show their reports.

but seeing the struggle of some companies before or after they go public, it's easy to conclude some of these companies have a hard time generating profits.. many IPOs are going down in value right after going public while others are postponing and postponing (think Groupon)

 

[chudnovsky]

Originally Posted by BeachBoy
well, if you know everything, instead of complaining maybe you should give us the facts and the real numbers
I don't understand how you inferred that I had the facts and real numbers from that post. Having the actual numbers is not required to conclude that others do not have them when the information isn't publicly available.

Hey, if you want to go ahead and make conclusions of the viability of their businesses based off well, essentially nothing, don't let me distract you.

And for the record I'm not saying anyone is wrong either (as you astutely pointed out, I also don't have the facts), I was pointing out that the information used for analysis seems pretty weak.

I don't think anyone is jumping to any conclusion because as you said, unless you have valid inside information, what you're talking about is just assumptions. on the other hand, you do not need facts and conclusions to have a discussion, and that's why we're here

 

[winch]

I don't think anyone is jumping to any conclusion because as you said, unless you have valid inside information, what you're talking about is just assumptions. on the other hand, you do not need facts and conclusions to have a discussion, and that's why we're here

Well, yes, some conclusions were made. Hence the comment. Critical thinking/evaluation is benefited by having some evidence to back it up.

Your comment that we do not need facts and conclusions to have a discussion is completely valid. I agree. And in the context of your quoting me, I never said or implied otherwise.

Don't let me derail the discussion either. I was really hoping someone would post some numbers/articles/something in response (I don't care enough about Reddit or Digg to research them) that ultimately spawned some more discussion.

 

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[BeachBoy]

Pet.com has a great story also about a company getting tons of money.. just to crash in an explosive way.

 

[kahem89]

To first poster. I would just say impact millions, make millions is a term and there will always be expectations. You still need a business mindset to make money. If you have a concert for 10 millions and don't charge anyone you will still earn 0.

But maybe if u started charge 100 bucks u would have 1000 visitors which is a nice slump of 100k. If you told advertisers you sell banner adds for a 10 million concert you prolly would be paid allot more. The thing here is even impacting millions you still have to do business, and if nobody is willing to pay, its not a business.