Back in the heady days of 1999, everyone (and their sisters, brothers, parents, cousins) was sending off business plans to venture capitalists. I was part of that group. By February of 2000, I had a business plan that I was happy with and a financial model that looked like it would be solidly profitable. By the summer of 2000, I found the flaw in my model. Nick Denton has created what my model should have been.
Kendermedia was all about building niche-topic, “community-driven” sites. We would hire on a small staff for each site and produce content regularly that would keep people coming. The primary revenue source would be advertising, which sounded good at the time. Every site would also have other revenue sources.
The nice thing about this model was that there was a bunch of infrastructure that would be shared between the sites. Back in 1999, there weren’t 500 different blogging programs and 2 million blogs. I had written a Zope-based blog-like program and online store system that would be shared by every site. The only infrastructure that wouldn’t be shared would be the content itself.
The first site, which actually was running, was Byproducts.com, a humor site with a novelty shop as its other revenue source. There were plans for other sites, including a gadget site called GizmoWeb.
You may remember that spring of 2000 is when the tech stocks started dropping and the VCs started becoming more conservative. Here in Michigan, VCs have always been a bit more conservative than out on the west coast. Despite that, I was still shooting for some venture money, because I had a 20 page, reasonable spreadsheet model that said “here’s a profitable business”.
As much as I worked on being accurate, some statistics were not easy to come by. When you’re selling advertising, your inventory is the amount of advertising spaces you have to sell. The most reliable thing I had heard was that a typical, successful site would sell 75% of its inventory. During the boom time, that seemed plausible. Sites like c|net and Yahoo! were profitable on the basis of ads at that point. But, in the summer of 2000, I finally found a reliable source that pegged the real number at 25%, meaning that 75% of available ad space simply goes unsold. When I plugged that number into my model, the company would have had an impossible deficit.
Nick Denton is doing something similar today, but he’s doing it in a realistic, sustainable-business sort of way. He hires an editor for his sites, keeps costs low and puts together appropriate advertising and marketing relationships. The risk is very low and the potential for profitability is pretty good. A focus site like Gizmodo can attract a good audience that likes to buy things. And, that’s just one of the sites. Keep adding more and it will grow into a solid business.
It’s nice to see that even in this economy with online advertising looking far worse than it did in 2000, a niche content company still has potential.