Shahar Solomianik

Since Twitter allows only 140 characters…

Can Zemanta Generate Revenue?

with 149 comments

Zemanta is getting a lot of attention lately. And why not? This fascinating blog/e-mail enrichment tool adds new and surprising features on an almost daily basis. But I’ll leave the discussion about their features and products to others right now. What interests me is the business model behind Zemanta.

Exit Strategy

I am not sure what the initial goal of Zemanta was when they were founded, but the moment they accepted VC funding, they had to adopt the idea of an exit on the horizon. Making an “exit” is not necessarily a function of the company’s ability to generate revenue or show a sustainable business model. Sometimes, the acquiring company simply sees a great value in the startup that is not expressed through its financial reports. Google, for example, acquired Youtube before it showed any significant income. Youtube brought something more relevant to them – a significant search volume.

Is Zemanta headed for such an exit? I don’t think so. I see the great value in Zemanta, but at this time I can’t see any synergy between Zemanta and a larger corporation that is already monetizing in the field where Zemanta is currently operating.

Moreover, Zemanta exposed a for-pay service when they introduced their public API. Make more than 10,000 daily API calls, and you are now a paying customer. A few days ago, they exposed a second for-pay product – a per-site installation for a subscription-based fee.

With all this in mind, we can assume that Zemanta does have plans to start generating revenue, and prove their concept with some green lines in their financial reports. But are their current offerings sufficient for providing those green lines? I am not so sure. Let me explain why:

Possible Revenue Streams

There are three type of actors in the Zemanta show:

  • the bloggers/writers
  • the service providers that operate the blogging/writing platforms
  • and the content consumers.

Each one is a candidate to become a revenue stream for Zemanta.

Bloggers/Writers

Zemanta hasn’t yet attempted to monetize their bloggers. But they did not completely close the door to this concept either. Download their browser extension and you are asked to agree to this:

“Our basic service is free, and we offer paid upgrades for advanced features such as customization and guaranteed service levels.”

However, even if they do try to monetize this front at some point in time, they need to have a huge user base for this monetization effort to show significant results. They wouldn’t charge bloggers for more than $5.00/month – would they? and for so little, they need 200,000 paying customers in order to make $1M/month. Assume a generous conversion rate of 1% from free user to a paying one, and Zemanta needs 20M registered users to be successful if they choose this path.

Feedburner jumps to my head now (same audience: bloggers; and same VC invloved): their efforts to monetize their user base by providing for-pay added-value services has failed. Google acquired them not for their paying clients – rather for their feed advertising network. Their “Pro” program’s revenue had probably been such negligible that when Google acquired Feedburner it opened up the “Pro” plan to anyone for free…

Service Providers

Most chances are that Zemanta will keep it’s service for bloggers/writers free for good, and maybe this is why they started their monetization efforts on the service providers front.

At first glance, their chances in this front seem much better. Service providers tend to be willing to pay for service if it is business wise: Let the service users use Zemanta, have them producing content of better quality, and have this translated into better revenue. I can understand that.

However, take any of the two payment scheme Zemanta offers, do some calculations and you still won’t understand how they are going to make some serious money.

Their SaaS offering values their API at a $0.66 – $4.00 per 1,000 calls. Even if they charge at the higher end of their scale, they need to be serving 250M API calls in order to make $1M. Where will they get those numbers from?

WordPress.com reports about 4M monthly posts. Add up all the posts from all other leading blogging platforms and you’ll get to how much? several tenths of millions per month maximum. Only if you add some 200M emails you may start be nearing the goal. But is this feasible? They need to be converting so many huge service providers for that to happen. This sounds far fetched.

Same goes for their second offering of $2,500/month per site installation. Where are they intending to find 400 paying service providers to pay this price, when their SaaS is so better priced?

The Consumer End

And that brings us to the last possible income stream – the content consumers. Zemanta is not showing any intention here yet, but I think this is where they are headed. Simply because charging their bloggers/writers or service providers can never work for them.

Now, I don’t claim that they will charge content consumers – not at all. That would be ridiculous. But they will need to use the content consuming point to make significant revenues only because this is where the numbers will be big enough. Think about it – each post that utilized a single Zemanta API call can be viewed by several to thousands of readers. An email that is written once with the help of a Zemanta feature can be sent to a lot of people and then be forwarded on, hence being read tenths, hundreds or thousands of times.

In the point of content consuming, numbers get a magnitude of order higher. Here Zemanta can start talking billions. And when you have billions of events, a small transaction fee can be multiplied to generate significant income. How? I don’t know. An advertising network based on Zemanta’s contextual abilities and huge network of publishers? Semi-organic paid link inclusions offered by Zemanta to the bloggers, maybe with a revenue share scheme? an innovative type of another commercial inclusions in blog posts and emails that no one else can yet think about other then Zemanta?

We can only guess the answer – or wait until time (or Zemanta) will tell.

Written by Isaac Trond

February 11, 2009 at 3:00 pm

Posted in Web

Tagged with ,

So What's Outbrain's Business Model?

with 235 comments

Recently I wrote about two companies, Weebly and Widgetbox, that launched their for-pay services after they had run only free services for some time. I believe that was each company’s first public appearance with a formal revenue generation model.

Whether a sign of times or not, it is interesting to examine a company’s business model, especially when that company’s initial launch was as a free service. I think we can expect more of these launches to come shortly. There is one in particular that I am waiting for with a great deal of curiosity: the public release of Outbrain’s business model.

I first heard about Outbrain a little less than two years ago when LGILab announced that they had invested in Outbrain. Overwhelmed by the idea that around a million dollars could be invested in what then looked like a silly widget, it was easy for me to miss this line from the announcement post:

…a service to deliver personal content recommendation with a secret but really innovative business model… But this will be more powerful than that and the secret-for-now business model is really smart.

I didn’t really see the value in it back then. Ok, so I am a blogger and I can put this rating widget that looks sooo web1.0 on my blog. Big deal. What’s next? Another widget? Is this like a JS-KIT competitor?

Then I forgot about Outbrain for a while, although its widget started popping up on many blogs that I read regularly. Great strategic marketing team, that’s for sure. Then, Outbrain received a second injection of funds, this time five million dollars, and a bit more of the service’s value was revealed.

Any time you rate a blog post using Outbrain, it recommends relevant links, whether in the blog you are reading or on other blogs that embed their widget. There is something in it not only for the publishers, but also for the content consumers. Now Outbrain started to sound better, and I began to see the “win win” model.

Not only will publishers get feedback, but links to their post will also appear on other blogs and posts. Content consumers, on the other hand, will have a chance to make their opinion count, and they will get other relevant content delivered to them because Outbrain learns what they like and dislike.

They’ve found a way to satisfy both publishers and consumers. And – the byproduct creates a recommendation engine. That’s nice.

Still, how they intend to make money?

I had several ideas. The most obvious one was ads embedded within the widget. After all, one of Outbrain’s founders is Yaron Galay, who recently sold Quigo to AOL. He must know something about advertising. However, this doesn’t seem likely. Moreover, they state on their site:

No marketing on your blog!
We don’t stick our logo or any ‘powered by Outbrain’ stuff through the widget. We are a guest on your blog and don’t intend to use it for our marketing purposes.

Another revenue model could be that they expand their content rating system into a product rating one. Then they can start making CPA e-commerce money. This comes to mind considering that another Outbrain founder – Ori Lahav – has a few years with Shopping.com on his resume. But this model seems too far fetched. They would have initially started with this method if that was their initial intention, right?

So what else can it be? I think it will be one of two models:

First, they can charge for inclusions in their relevant content box that is exposed to millions of users daily, much like Stumbleupon does. (Yes, not many people are aware of the fact that you can “buy” category-based stumbles. How else did you think Stumbleupon makes their money?).

Or perhaps they can try to somehow monetize their growing database of consumer preferences. After all, every time you rate a post, Outbrain collects another tiny bit of information about you, which could be used later to identify your preferences in a commercially effective way. I think this falls under the behavioral targeting definition. Exelate does something similar.

Like I said, these are just my predictions. Time will tell what Outbrain is really all about.

Written by Isaac Trond

February 3, 2009 at 1:34 pm

Posted in Web

Tagged with ,

So What’s Outbrain’s Business Model?

with 51 comments

Recently I wrote about two companies, Weebly and Widgetbox, that launched their for-pay services after they had run only free services for some time. I believe that was each company’s first public appearance with a formal revenue generation model.

Whether a sign of times or not, it is interesting to examine a company’s business model, especially when that company’s initial launch was as a free service. I think we can expect more of these launches to come shortly. There is one in particular that I am waiting for with a great deal of curiosity: the public release of Outbrain’s business model.

I first heard about Outbrain a little less than two years ago when LGILab announced that they had invested in Outbrain. Overwhelmed by the idea that around a million dollars could be invested in what then looked like a silly widget, it was easy for me to miss this line from the announcement post:

…a service to deliver personal content recommendation with a secret but really innovative business model… But this will be more powerful than that and the secret-for-now business model is really smart.

I didn’t really see the value in it back then. Ok, so I am a blogger and I can put this rating widget that looks sooo web1.0 on my blog. Big deal. What’s next? Another widget? Is this like a JS-KIT competitor?

Then I forgot about Outbrain for a while, although its widget started popping up on many blogs that I read regularly. Great strategic marketing team, that’s for sure. Then, Outbrain received a second injection of funds, this time five million dollars, and a bit more of the service’s value was revealed.

Any time you rate a blog post using Outbrain, it recommends relevant links, whether in the blog you are reading or on other blogs that embed their widget. There is something in it not only for the publishers, but also for the content consumers. Now Outbrain started to sound better, and I began to see the “win win” model.

Not only will publishers get feedback, but links to their post will also appear on other blogs and posts. Content consumers, on the other hand, will have a chance to make their opinion count, and they will get other relevant content delivered to them because Outbrain learns what they like and dislike.

They’ve found a way to satisfy both publishers and consumers. And – the byproduct creates a recommendation engine. That’s nice.

Still, how they intend to make money?

I had several ideas. The most obvious one was ads embedded within the widget. After all, one of Outbrain’s founders is Yaron Galay, who recently sold Quigo to AOL. He must know something about advertising. However, this doesn’t seem likely. Moreover, they state on their site:

No marketing on your blog!
We don’t stick our logo or any ‘powered by Outbrain’ stuff through the widget. We are a guest on your blog and don’t intend to use it for our marketing purposes.

Another revenue model could be that they expand their content rating system into a product rating one. Then they can start making CPA e-commerce money. This comes to mind considering that another Outbrain founder – Ori Lahav – has a few years with Shopping.com on his resume. But this model seems too far fetched. They would have initially started with this method if that was their initial intention, right?

So what else can it be? I think it will be one of two models:

First, they can charge for inclusions in their relevant content box that is exposed to millions of users daily, much like Stumbleupon does. (Yes, not many people are aware of the fact that you can “buy” category-based stumbles. How else did you think Stumbleupon makes their money?).

Or perhaps they can try to somehow monetize their growing database of consumer preferences. After all, every time you rate a post, Outbrain collects another tiny bit of information about you, which could be used later to identify your preferences in a commercially effective way. I think this falls under the behavioral targeting definition. Exelate does something similar.

Like I said, these are just my predictions. Time will tell what Outbrain is really all about.

Written by Isaac Trond

February 3, 2009 at 1:34 pm

Posted in Web

Tagged with ,

Is it Money Time?

with 10 comments

I have numerous accounts in many services across the web and my inbox is usually flooded with periodical newsletters and promotions, sent to me by those services. I am not complaining — not at all. Whenever I sign up for a service that offers to keep me notified by mail, I gladly accept the invitation (unless it’s a Microsoft service). The reason I do it is somewhat educational. I like to be exposed to the way those services communicate their messages and brands, follow their styles and realize their marketing characteristic out of their communication strategy.

I rarely pay much attention to the actual content of those communications. As for information regarding those services it is usually wiser to get it from unbiased 3rd parties that cover those services. I do want to hear the bad news as well.

However, sometimes the content is very meaningful. Especially when a very similar messages arrives in from two completely different services. Good old email proved yesterday it can still deliver the news.

First it was Weebly to send me an email, notifying proudly in it’s title about “Over one million weebly users”. After a few lines the number becomes more clear when they say “Weebly just crossed 1,500,000 registered users.” but the true scoop is soon to arrive when they say that “To celebrate, we’re throwing a Beat the Recession sale! The cost to upgrade to our pro service has been cut by 25%”. Nice discount… but wait! Did they say “pro service”? Which “pro service”? I didn’t know Weebly had a pro-service. Was there?

Either I never saw it, or didn’t look for it, and perhaps Weebly never tried to push it too hard. Moreover, clicking the link to their pro service lands you on a support page describing the offering. That doesn’t sounds like a solid page in the site, something that strengthen my feeling that this offering is actually completely new.

What they actually offer are a bunch of added values such as password-protected pages, customizable footer, multiple sites per account, extra storage space, embeddable audio player and premium support. All at $3.99 per month. Nice.

So Weebly exposed their (one of?) monetization method. That’s news.

Next in my inbox I found another scoop. This time from Widgetbox. Those guys didn’t try to imply anything. They simply put the message on the subject: “Widgetbox’s New Blidget Pro: Get on our Homepage!”

That was the second “Pro” I read in less than a few minutes. And the same kind of “Pro” — A for-pay offering from a company I’m used to seeing only free services from. They gave their offering a more designated location on their site. They also offer some for-pay added value for… the same $3.99 of Weebly’s.

So two different companies, in somewhat different segments of the web business, launch their for-pay services on the same day. Is this just a coincidence? Is it a sign of the times? Is it money time?

I guess it is. And I wonder — who’s next to come?

Written by Isaac Trond

January 29, 2009 at 7:17 am

Posted in Web

Tagged with , ,

Stop Programming, Start Integrating

with one comment

A few months ago I interviewed a web developer who applied for a position in my company. At that time he was still employed by another company and wished to change a position. I asked him what made him look for another job, and he said that the reason was professional – he further explained that up until then they were maintaining their own in-house developed CMS, and were starting migration to Drupal in order to get things done more efficiently. He claimed that working with Drupal was boring, since it merely involves integrating some existing modules into an application, and he prefers to do it the old low level programming way. He said that with a pride of a brave programmer, ready to fight them bits, bytes and bugs, and smiled with satisfaction. The poor dude thought he was impressing me… Of course I did not hire him.

This event took me back in time to 1999. I was then the CTO of Tikal Knowledge, a super PowerBuilder developer who was handed the responsibility of developing a web based knowledge management system from scratch. Driven by the internet hype of the late 90’s, our team just spinned off a software services company, and had no idea about developing web applications. We started to program the thing from scratch, in Java programming language – mainly because the only other alternative we could think about was Microsoft and we didn’t want to pay any license fees. We were so novice that we actually started programming an entire in-house web server. We realized we were doing something wrong when we had to figure out why no data is being actually written into the database. It turned out we forgot to code the “commit” statement…

At that point the company was nearing some great business opportunities. A bunch of high profile enterprises showed interest in our product. It was quite a neat product and I guess we had a good marketing team as well. However, the more promising the business future seemed to be, the more frightening the development process became. The product was fragile, strict, and had no friendliness whatsoever for the future professional services team to come. Our greatest fear was that the product will sell but the application will never be able to hold it from falling apart – should we keep developing it the way we did – and that the failure will be a tech one.

After a year and a half of development, with a major install at the first big enterprise client’s site few months ahead of us, we decided to switch to a completely different approach, junk all the old code, and start all over again – second time from scratch. We decided that this time we will be basing as much as we can on existing open source projects. It was a very frightening stage. We needed to accomplish a lot in a very short time and we had to trust other people’s code to perform for us. We never had a similar experience before and had little trust in it. But there was no other choice.

So we jumped on the J2EE wagon in its very early days – EJB specification was only version 1.1 old at the time – used JBoss on production back on the days when it was still called EJBoss and was quite immature and questionable, packages such as Apache Velocity (where is it today?), Ant and various others.

The result? After less than 3 months we were able to get back at the same point in the product road map from which we “branched”, this time with a robust product that was flexible enough, configurable and with much less bugs. We also had great development communities supporting us. We knew that we are ready to take the application further to wherever its clients will want to take it.

Then the NASDAQ collapsed and our opportunities all wiped off one after the other. Tikal Knowledge itself was not shut down however. CEO Lior Kanfi had wisely used our open source religion to shift the company focus towards providing cost effective open source solutions for the enterprise, and the company today is very successful.

As for myself, I learned a very valuable lesson at that time, a lesson I implement somewhat fanatically in my current ramblings: When it comes to developing applications, if you’re finding yourself programming too much, you must be doing something wrong. At this point, what you have to do is simply stop programming. Start integrating instead.

Written by Isaac Trond

January 19, 2009 at 4:06 pm

WordPress Theme as a Communication Protocol

with 18 comments

One of the nicest things that a publisher gains by using WordPress (and any other open CMS like Joomla, Drupal and the likes) is the elimination of what was once – and still is for those publishers who still don’t use open CMS – a tedious, exhausting and frustrating process – the process of designing your website.

Designing a website wouldn’t have been such a dramatic process if a human designer wasn’t involved. But that’s not usually the case. If you polled a group of publishers for the thing they dislike mostly about what they do, they would definitely vote for the process of communicating with a website designer to be number one.

The problem is usually that publishers and designers hold completely different approaches and while formally speaking the same language, be it English, French or Slovenian, they use different dialects. Moreover, while publishers look for the utility in the design, the designer will most likely look for the artistic aspect.

Publishers who ever found themselves trying to explain their designers about usability and utility will testify that always when they finally had the designer humming, there was a slight feeling of guilt hanging the air, saying something like “hey you publisher, you art killer.” At that point many publishers share a very shameful thought. They wish they could hand the design process to a computer… experienced to a certain extent with computers, having those as well not always functioning as expected, publishers appreciate the predefined communication methods of computers – also known as protocol.

Now getting back to WordPress, and what it has to do with all this. Well, WordPress covers so many aspects of CMSing, one of them is a set of rules for designing themes and templates. Any publisher who chooses to publish their websites with WordPress must obey those rules. And – any designer who wishes to design a WordPress website must also obey those rules. There you go. No more conflicts. No more guilty feelings. The publisher can be so much utility driven, and designer can go so far with their artistic aspirations.

I am not sure they meant it over at WordPress, but what they really did is creating a communication protocol for publishers and designers.

Written by Isaac Trond

January 15, 2009 at 2:58 pm

Posted in Wordpress

Tagged with , ,