The scary math behind Web 2.0

How do you survive? Flip a billion pages.

How many pages does a Web 2.0 company have to flip a month to get on track one day hold an initial public offering?

A billion or more, says Opus Capital partner Ken Elefant, which is why his firm doesn't invest in them.

"Most of them are features," he said in an interview. "Most of them can't be long-term sustainable businesses."

Here's how Elefant comes up with his math. A web 2.0 company needs to be pulling in around $5 million in revenue a month to become an independent, viable publishing house. The average CPM is around $10. About half of the inventory on a given site remains unsold so the real CPM is closer to $5. Thus, you need 1,000 CPMs a month. A thousand impressions go into CPM.

Ultimately, this means that, to thrive, a Web 2.0 company needs to get bought by an established player. A site that doesn't do this kind of readership volume or get acquired can still survive, of course, but it may end up operating like a small to medium sized business. It will pay the salaries and expenses of the employees, but the owners won't likely to be able to retire on a mattress made of chopped up $100 bills.

Although he's not wild about investing on the content side, Opus is making investments in web infrastructure. One of the more interesting ones is C-Nario, which serves up ads over distributed networks of public LCD screens and plasmas. So if you are playing slot machines in an gas station in Henderson, Nevada and see ads on a small screen, you can thank C-Nario.

 

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