Last SO/SE post

March 27, 2010

I found an insightful discussion about SO/SE (StackOverflow/StackExchange) business model and going for VC money on 37signals. It looks like everything has been said, and the outcome is just remained to be seen. Some key points well noted there were:

  • A developer Q&A site cannot scale, since it’s a niche site.
  • The clones of a Q&A site are too easy to build, expect a lot of competition.
  • A Q&A platform cannot scale, because it’s just too easy to build. What happened to forums (phpBB and vBulletin), will happen to social Q&A platforms. Expect a race to the bottoms.
  • There is already a good competitor: www.qhub.com, wait for more to come.

The future of StackOverflow?

March 21, 2010

What happens when you have a great knowledge-sharing site, where people can freely ask questions and other people are willing to answer them?

Let me ask again, what if you have “pioneered a unique web service that offers its members fast, qualified answers to questions … from a network of qualified technology experts”? And not just that, you also have a “patented knowledge-sharing process, combined with the advantages of the Internet”? And if it’s not enough, let’s imagine for a moment that you “received a $5 million first round investment commitment from  <drum-roll> J.P. Morgan Capital“?

Well, mostly likely you end up being www.experts-exchange.com. The text in bold above is quoted from the site and from a Business Wire article.

The company is 14 years old now. It’s an eternity by the internet standards. The site was once the largest network of qualified technology experts, or so they claim. What lessons can we learn from its fate?

First, a few observations:

1. Is its traffic going up or down?

2. How does it compare to competition?

3. Was there an IPO or sale to a strategic investor?

I couldn’t find any traces of it in the internet. OK, this is certainly not a hard fact, and if you send me a link about the event, I’ll update the post accordingly.

What can we learn? Perhaps, that Q & A sites are too easy to build (say hi to StackExchange!). That the competition in the area is too fierce. That even patented IP and “smart money” from the investors won’t let you scale the business enough. You may be the leader one day, and a new kid on the block leaves you biting the dust the next day.

 

Update: despite struggling traffic, Experts Exchange is running well, apparently with enough revenue to support itself. See comments to this post for more details.


StackOverflow revenue estimated

March 4, 2010

The question of whether a StackExchange-based site can generate a lot of revenue and my answer to it lead to a heated discussion on the OnStartups Answers. So I decided to estimate what kind of revenue StackOverflow actually generates. Apparently, it’s enough to try to go to VCs, but not enough for a self-sustained growth. Luckily, it is relatively easy to estimate.

Disclaimer: the following calculations are unproven, non-scientific, and cannot be used as a financial advice.

Despite a good and long list by Alex Lam of potential revenue possibilities for StackOverflow, they make money only via paid job posts and site ads (rectangle banner in the right column and sponsored tags).

1. Paid job listing is very easy to calculate. They have about 8-9 new job posts a day. One costs cool $350. So let’s estimate it at 9 * 350 * 30 = $94,500 per month.

2. Ad revenue is hard to estimate. Let’s start with the 26M pageviews per month they claim to have. A lot of these pageviews don’t carry any ads at all: pages like About, FAQ, list of users, etc.

2.1 I would take 80% are ad views and 20% non-ad views. This gives 20,800,000 pageviews with ads.

2.2 The ad inventory is not sold out. Every now and then they display an internal ad – ad for job.stackoverflow.com. To make matters worse, the ads are geo-targeted, showing different ads for different countries. This means that ad inventory and its sold out ratio is different for every country. My tests showed it is about 75% for USA and 45% for India and Russia. Let’s take these figures and assume 75% rate for highly ad-targeted countries and 45% for the other countries.

2.3 My estimation is that half of pageviews go from highly ad-targeted countries and another half from the other countries. Originally I thought that low ad-target countries would make most of the pageviews. However, I browsed through the list of registered users and was impressed with the big number of USA, UK, Australia, Canada users. So let’s take 50% – 50% split, which gives average of 60% sold out inventory ratio. Thus, only 12,480,000 pageviews carry paid ads.

2.4 Now the trickiest part, CPM – the cost per 1000 impressions. fabien7474 came up with roughly $5 CPM for StackOverflow and I tend to agree, not going into details.

Drum rolls: the estimated banner ad revenue is $62,400 per month.

2.5 There are also sponsored tags that display ads as well. I don’t think those are sold on CPM basis, and hardly a lot of people click those tags anyway. Also, consider that few tags are sponsored so far. A week ago I saw a bunch of tags sponsored by Adobe and them are gone. Let’s add ballpark $10,000 for the tags.

The total revenue is $94,500 (for job posts) + $72,400 (for other ads) = $166,900 or $167K per month.

A few observations:

  • The job listing brings more money than the ads!
  • I can try and estimate the costs (hosting, traffic, staff), but no matter what chairs you buy for your guys, the costs will be lower than $167K monthly. So, this is definitely cash-positive.
  • This revenue figure is nice and it is a good achievement, but looking for VC money to scale this business? You gotta be kidding.

In the next post I will go through competition and examples of similar sites to get the whole picture…


Selling to the programmers

February 23, 2010

While reviewing ad inventory on the StackOverflow, it occurred to me that it’s not easy to sell things to the programmers. If the visitors of your site are programmers, what ads are going to be most effective and perform better than the others? Currently, the only non-job ads on the StackOverflow are promoting SDKs, components, development and related tools, training courses. This is basically all you can try to sell to the programmers. From the top of my head I typed www.programmers.com into the browser and got a site with just the same sorts of ads.

Now, one would think that it’s not easy to sell these things to the programmers for a variety of reasons:

  • There are many open-sourced and free alternatives.
  • High piracy rate. Programmers (in general, but not all of them) love to find and download things they need without paying.
  • A lot of programming is outsourced these days, meaning there are many programmers from India, China, Russia and other countries, whose buying power is reduced. In other words, there are a lot of customers who won’t spend an extra dollar unless absolutely needed.
  • Build or Buy thinking, meaning that every time a programmer evaluates someone else’s software, he thinks “I can build it myself and it will be better”.

For me personally, these reasons are scary enough to keep away from programmers market as far as possible. I know there are people who built successful companies selling stuff to developers, like a code review tool or bug tracking system. Well, these people are very smart and lucky. I’ve seen dozens of companies that tried to sell components and crashed into the ground.

 Dilbert.com


StackOverflow gives up a hope of making money, goes to VCs instead

February 16, 2010

A while ago I was writing about StackExchange, which is a platform to create simple web 2.0 questions-answers community sites. StackOverflow was the first community site created by Joel Spolsky using StackExchange. I sometimes browse through another StackExchange offspring – OnStartup Answers, which is themed around startup industry. Ironically, one of the questions asked on the OnStartup Answers was the following: Do owners of sites like OnStartups.com and Startups.com have any revenue off of these websites? I was skeptical about it and got slammed by fellow OnStartup lovers. Meanwhile, Jason Cohen, a co-owner of the OnStartups himself wrote that the site “is like blogging. It’s almost impossible to make money off ads and blogging, even with thousands of readers (you need many 10s of thousands). But blogs can be a fantastic way to drive traffic to other things that do make money, like a startup or like consulting time.

So guess what happened. Joel started looking for VC money to fund his StackOverflow project. Funny enough, he also wrote in that post that it is a sign that you should NOT be looking for VC money “if there is any other way to raise the kind of money you need, for example, by selling actual products to customers“. In other words, he doesn’t think that he can make good money by selling actual products (ads or whatever) off StackOverflow and decided to go to VCs. This is exactly the answer the OnStartup lovers didn’t like.

It is not necessarily a bad business model for Joel and StackOverflow. This is the way to do things in Silicon Valley – you get a site off the ground, get funding, grab the audience, do IPO or sell to a strategic investor, and then you walk away smiling. Webvan, anyone? ;-)


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