Forget Eyeballs, It's The Monetization, Stupid

Blaise Zerega likes engagement. How are Web 2.0 companies going to monetize themselves? it's a question that came up when I sat down with Patricia Nakache and Gus Tai at Trinity Ventures. It's something that needs to be addressed or soon we will be hearing the Pop! of another investment bubble.

"What's scary is we're seeing very smart people reverting to a focus on eyeballs," says Nakache of recent valuations given sites that have high-traffic but little or no revenues. It's the opposite of what a company like Affinity Labs, founded by the invincible Chris Michel is all about. Trinity was an early stage investor and enjoyed a swift and tidy return when Monster.com bought the firm in January for $61 million.

"Many start-ups haven't figured out how to monetize their users' engagement," adds Tai. "Advertising, lead generation, and subscriptions from end-users," are three things he says he looks for in assessing a company. One investment of Trinty's that's doing it right, he says, is game company Trion.

Converting eyeballs to dollars requires increasing engagement for users: acquisition, conversion, and retention. Both Nakache and Tai pointed to Bunchball, the subject of a recent post, for getting this point. 

It's something that any business -- online or offline (magazines!?) -- needs to get right. In traditional publishing, a person buys a magazine off the news stand (acquisition); the person likes what she reads and sends in a subscription card (conversion), and then they renew ad infinitum (retention). If only it were that easy.

In the digital realm, the process is even more difficult because almost all the content is free. To entice conversion and retention more than free calculators umbrellas or clock radios are needed. Instead, as Nakache says, "Sites have to intercept consumers only in the ways they want." This means ditching static registration forms and applying game-like features and functions to the registration process.

Again, looking to the  world of magazines, it's something that SELF does incredibly well. The title's Self Challenge  encourages women to visit the site --repeatedly -- as the get fit, healthy, and thinner, and while they're at it, perhaps sign up for a subscription. Looping back, it's very similar to the concept Affinity Labs uses with its seven vertical communities of active, engaged members. One that led to success and an early acquisition.