Farhad Manjoo at Slate offers a timely reminder of one of the underlying realities of online business:
“Everyone knows that print newspapers are our generation’s horse-and-buggy; in the most wired cities, they’ve been pummeled by competition from the Web. But it might surprise you to learn that one of the largest and most-celebrated new-media ventures is burning through cash at a rate that makes newspapers look like wise investments. It’s called YouTube.”
I’ve said before in various conversations that one of the factors that big online publishers need to consider is the value of the traffic they are getting, and YouTube is a perfect, if extreme, example. Without a real method of turning traffic into money, every visitor represents a cost to your business. Bandwidth, server maintenance, development, and infrastructure might have a low cost on a per-user basis, but they’re not free, and the more users you have, the bigger than sum is going to be.
Saying, as some commentators do, that you should build traffic before having at least the outline of a plan to turn that traffic into money is simply unsustainable in the current economic climate. It was actually unsustainable in the old economic climate too, but the flood of cheap credit based ultimately on overvalued assets and Chinese savings disguised that fact. It made it seem like the era when VCs would endless fund business with no business model (and big companies would buy them) would go on forever – and that’s sadly not the case.