You Must Build a Destination if You Want to Create a Fully Valued Sustainable Business Worth Buying

Mar 3rd

Recently Google's Kevin Marks was interviewed by cNet, where he said:

OK, stop and think about your application. Do you really need to be a standalone site? Do you really want to write user registration code, or would you be better off taking your application and bringing these other sites where there are lots of users already and where they have already expressed both their personal information and their connections to other people?

The answer to that is of course you want to be your own destination. Writing registration code once means you can re-use it over and over again on various projects. If you can program a successful widget or application then you are not the type who thinks registration code is a roadblock.

Some of the most successful viral applications (like Paypal and YouTube) leveraged other platforms for growth, but a large part of their success was that they also chose to be destinations.

If you create a destination vs exclusively being a platform on another site, you...

  • have more direct contact with your customers (which often creates new revenue streams)
  • have greater organic growth opportunities due to a wider variety of organic distribution channels (rather than being someone else's user generated content)
  • make it easier for reporters to contact you. Public relations is huge for spreading viral stories and growing viral networks (look at how many times Plentyoffish was in the press)
  • create something that is easy to link at, where you control the link equity and attention and use it to profit as you wish (ads, market new related ideas, change your business model, etc.)
  • can extend your offering out into related fields and/or create a premium service
  • are more likely to receive funding if needed and can sell your business for a higher price point (since your business has more of what Warren Buffet considers a moat around it)

Consider some of the add ins that sold for millions or billions of dollars because they chose to become destinations

  • If Paypal was not a destination, eBay could have killed them and/or bought them for a small fraction of their potential value.
  • If Del.icio.us or MyBlogLog was just a Firefox extension would Yahoo! have bought them?
  • If Feedburner was a browser plug-in of some sort would Google have paid an estimated $100 million for them?
  • If YouTube was not a destination could they have competed with Google Video and got bought for $1.65 billion?

Overture, which pioneered the paid search field, once had a dominant market-share, but was afraid of becoming a search destination because they thought that it could cost them syndication partnerships. The day AOL signed on to syndicate Google's ads, Overture became irrelevant as a business force. They bought a couple search engines in an attempt to become a destination, but it was too little too late. And Overture was bought by Yahoo! for about 1% of what Google is worth today. The pioneer in the paid search model that drives the current web economy sold for about the same price as a marginally profitable free video hosting site, largely because Overture failed to become a destination. Oops.

Published: March 3, 2008

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Comments

March 3, 2008 - 3:09am

It all makes sense Aaron, up until the last paragraph there, because I think that pretty much everyone reading this would be mighty happy to sell their business to Yahoo! for 1% of what Google is worth today.

March 3, 2008 - 6:02am

Well considering that Overture pioneered the field that Google later followed in, it shows that the strategy of being a destination was worth at least 100x. Which is a big big difference in value.

March 3, 2008 - 5:08am

Aaron, it's a trend I've noticed here that you discuss SEO less and larger business trends more and more. I enjoy it a lot, and find myself constantly giving you kudos as a result for this idea or that idea.

On the idea you express here, I think you might like to refine the title - you make the case for being a destination, period. And getting bought out is not necessarily the be-all, end-all business plan.

Besides that, where do you go to hire programmers that you can build a relationship with?

March 3, 2008 - 6:01am

The programmer relationship stuff is something I am still working out. I work with a couple great ones right now, but not sure if I can formulate how all those relationships were made other than saying that typically the lowest risk strategy is word of mouth marketing.

And when I say "worth buying" I also mean "worth owning" and "worth spending your time creating."

March 3, 2008 - 7:23am

Right, that makes sense about the worth owning bit etc.

Thanks also for clarifying how you get the programmers. Any things you might generalize about friends that can be trusted for good recommendations and such? Perhaps fellow elite level SEOs? Programmers you've worked with before? People focused on copy? Specific industries? Local schools etc.?

March 3, 2008 - 7:42am

I think I use gut instinct and outcome of past recommendations more than anything.

Another tip is to start them on a smaller project and build from there.

March 3, 2008 - 7:32am

Google has two advantages over Overture:

1) They are a better Search Engine

2) They have a better pay-per-click service.

Those two reasons might also account for why they sold for only 1% of what Google is worth right now.

Not to mention, also, that over the last few years Google has expanded to much more than just a search engine (Google Maps, YouTube, Google Video, GMail, etc.)

March 3, 2008 - 7:40am

I am not disagreeing with what you are saying, but Overture could have been Google if their strategy was correct. Though much of Google's growth stems from public relations beyond the capability of most people.

March 3, 2008 - 8:24am

I agree. The 'come and build you site with us' rhetoric is a lure that is certainly working with some people, but I think is being eluded by smart startups. I am a little behind the curve here, but I recently checked out Squidoo, which is based on the same argument or business model. Imagine investing your resources for 3 years and at the end of the day, you have no site, no pagerank or Alexa score, no real control and are in essence, a shopkeeper for the shareholders.

March 3, 2008 - 10:30am

I think that Squidoo is more about creating quick useful answers, rather than building entire sites and business models on it, as Google's bogus promotions suggest.

March 3, 2008 - 1:56pm

Great stuff, Aaron!

You've really begun to differentiate yourself from the pack in recent weeks.

March 4, 2008 - 5:52pm

before the destination, it's the interaction that comes beforehand, that enables for any true destination to formulate. allowing visitors to remain a part of any production process creates the possibility & more importantly an inherent connection for future exchanges to occur. especially in the real estate market, your ability/inability to foster relationships can often be made often before they got onto your site. it was finalized on the social community they found you in.

March 13, 2008 - 3:07pm

Hi Aaron , have been away and am trying to catch up on all your great recent posts.

This subject hit me the other day when I saw a great idea for a BB forum. It was brand new with few posts and made me think about how difficult it is to build yourself as a destination. If you rely solely on users for atmosphere and content - how do you develop their growth as a destination?

I agree that you don't need to look at selling the business. It just needs to be worth you AND your visitors time - a bit like this blog (well for us anyway!).

March 13, 2008 - 9:59pm

If you rely solely on users for atmosphere and content - how do you develop their growth as a destination?

Typically you have to be involved, spreading the brand off the start. You have to think of yourself as a politician for your site.

I am not sure how you do well with little to no involvement because if you are not involved AND the site actually does build up traction it quickly devolves to a worthless pit of spam. Even Digg, which has its users vote on stories, still keeps changing their algorithms and deleting what they deem to be spam. So does Google. And YouTube reviews many of the uploaded videos AND has the users flag inappropriate videos and spam comments.

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