Neomeme

Perpetually-in-private-beta online TV startup Joost has announced it has reached 1 million users. That’s a pretty impressive number for a product that still lacks much truly compelling content. But do these numbers matter? And are they even real?

One miiiiilion users!

The CNet article makes the excellent point that registered users does not mean active users. The journalist’s Joost account lies dormant- so does mine. Joost won’t be making any money from inactive accounts- so why should they even matter?

Another startup that announced 1 million users was Digg. Digg is notorious for overinflating its user numbers- banned users and duplicate accounts are included in the user count. Ten accounts are Michael Arrington and, spammers probably register thousands of accounts they later abandon. Oh, and did I mention that Digg inflates its pageview data as well?

So why do companies brag so much about user counts? Because high user numbers bring high valuations- regardless of income or revenue. In the old days, a promising business would be acquired for 20-40 times monthly revenue. Now, in our Web 2.0 bubble world it’s only the number of users that matters. Some recent acquistions, and price paid per user:

• YouTube- 36 million members, $1.6 billion valuation, $44 per user
• Grouper - 900,000 members, $65 million valuation, $70 per user
• MySpace - 100 million members, $580 million valuation, $5.80 per user

And some estimated valuations for as-yet-unacquired:

• Digg - 1,520,259 members (the Digg API lets me be very precise), $200 million valuation, $131 per user
• Facebook -30 million members, $6 billion valuation, $200 per user

And some revenue estimates- with its advertising partner Federated Media, Digg was making around $800K a month, at obscenely high CPM rates (considering Digg user clickthrough rates are very, very low). The 200 million valuation is 250 times monthly revenue. In other words, if anyone bought Digg, they would have to run the site for over 20 years before they break even. And that’s not taking into account hosting costs. Think Digg(or Web 2.0) will still be around in 20 years? No wonder they’re not in acquisition talks with anyone.

And now for the hot topic, Facebook. Facebook, with its highly targeted and fanatical userbase and wealth of information about its users is certainly a hot property. But it’s valuations, too are spinning out of control. The 6 billion valuation comes on the heels of news that Facebook expects to earn $30 million this year. Yes, that’s right- on a valuation of $200 per user, Facebook earns $1 per user per year. In other words, an acquirer would need to run Facebook for 200 years before breaking even. In 200 years, of course, we will be in the middle of Bubble 9.0, so perhaps they will be able to flip Facebook to some alien VCs for a few trillion then.

I can’t imagine how Google can ever hope to earn $44 in ad revenue from every YouTube user- every user would have to be clicking on ads nonstop. But Google has the cash to burn, and they need to keep spending- to fuel our Web 2.0 economy. YouTube, by the way, pulls in $15 million a year - a princely sum of $0.41 per user.

So, do user numbers matter? They sure don’t matter in terms of revenue- revenue per user varies significantly. They don’t matter in terms of traffic- a high percentage of accounts on any site are abandoned or deleted. But they do matter for calculating obscenely high valuations for greedy VCs looking for the next Facebook- and that’s all that really matters, right?

There’s no denying that we are in a ballooning bubble- and I, for one, am enjoying the ride. We live in exciting times.