April 30, 2009

The Essentiality Criterion

Posted in Category: Work — Amr Awadallah @ 1:31 am | link | | comment (0)
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First, I can’t believe it has been three months since I last blogged, all I can say is that a startup will suck the life out of you 🙂

I still see many startups creating free online services and expecting them to generate hundreds of millions of dollars from advertising. I might be stating the obvious here, but that will only work out if these services get tens of millions of users, with those users returning to the service almost every day, and that will only happen if the service meet the essentiality criterion. Essentiality is the litmus test that differentiates a life-style business (e.g. a super popular blog that makes a few million $/year max) versus a venture business (i.e. a business which generates hundreds, if not thousands, of million $/year). By essentiality I mean both the ability to amass a large population of users, but become necessary to these users such that they need to visit the service almost every day (if not many times a day).

For example, here are some essential online services:

  • E-Mail/Chat/IM: It is essential that you communicate, almost continuously
  • Search: We all need to find stuff many times a day
  • News: Almost everybody needs to know what is happening. Facebook is news about your friends, it is communication too.
  • Music/Movies/TV/Videos/Games/Sports: A decent population needs their daily entertainment “fix”, however very few destinations are able to aggregate a large enough audience due to content fragmentation

I was then going to list the many services/sites that I don’t think will make it due to failing the essentiality criterion. Many of these services will collapse due to fact that they are small/life-style businesses but their VCs expect them to hit venture scale (the ones structured as small businesses will live and prosper). But, to avoid alienating such businesses (since some of them are potential customers for Cloudera) I decided not to list them here :). That said, the common pattern among them are: either they have a lot of users but are not essential to any of them, or they are useful but to a very small group of users, in both cases this means they will not be able to amass the huge volume of pageviews required to make venture-scale money based on advertising.

Cheers,

— amr

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