Monday, December 22, 2008

Bubbles, Slogs, and Selling Out: Part 2

The previous installment of my chronicles of Chowhound's final (independent) days concluded with this teaser:
I got an email out of the blue from one of the most important figures in the online world, a top executive for a gigantic, titanic household-name media conglomerate. He wanted to take me to dinner.

I can't say it was particularly surprising or exciting to have been contacted by this guy. Over the years, I'd dined with many such people. That may sound like boasting, but, as with so many Chowhound-related experiences, the reality wasn't what you'd expect.

Here's how it would work. Important people, hinting that they wanted to help, would request a meeting...always asking me to choose a restaurant. Eating with that jolly Chowhound guy was the real agenda, but sometimes there was also a sincere helpful impulse. We'd meet, they'd lavish praise on Chowhound, confess their utter addiction to the site and enthuse over how great they've been eating ever since they found it. They'd listen to my plans, flatter my ingenuity, and avow their bright confidence in the operation's future. Exuberant about my powerful new allies, I'd pick up the checks to thank them for their time (the meals I bought for millionaires during this period were beyond counting), and they'd leave feeling terribly virtuous for having offered their sympathy, their solidarity, and their presence. And that would be pretty much that. I discovered that expressing a heartfelt desire to help, for most people, satisfies 110% of the minimum daily requirement of virtuousness. No actual help is necessary.

To be fair, Chowhound was hard to help. If any of these geniuses had a sure-fire road map for monetizing large online communities, they wouldn't have been whispering it to me over merlot. No biz guru had better ideas than I did, because the puzzle had never been solved. In fact, as I write this, Facebook still hasn't solved it! As for lending a hand with our crushing server bills - mere peanuts to them - well, the burning love for Chowhound and staunch affinity for its values never reached the check-writing point. A very small group of regular Chowhound posters, none massively wealthy or powerful and none bugging me to take them to dinner, was bearing much of that load. They were so small a group, in fact, that if one ever went on a diet, the entire enterprise would have sunk.

But I gamely ate dinner with this honcho du jour, and he surprised me by telling me some useful things I didn't know (but should have!). First, he shared with me the traffic and Google AdSense weekly revenue stats for some of the web sites he oversaw - all names you'd recognize in a millisecond. We'd installed Google AdSense on Chowhound, and it was providing decent though still grossly inadequate income. But his properties, just an order of magnitude or two busier than us, were bringing in amounts like $35,000 per week on AdSense alone.

$35,000 per week. Our chief moderator, a
retired grandmother, awoke each bitter cold winter morning at 5:30am to make ends meet as a school crossing guard. We could have rescued her from a year of that hell via the first three days of revenue. And by the end of that same first week, my entire year's rent would have been paid.

I hadn't realized that Google AdSense revenue was not directly proportional to traffic. Beyond a certain traffic threshold, payment shot up dramatically...and we'd been operating just beneath that point. Just beneath the $35,000 per week point.

Here's where I'd gone wrong. From 1997 to 2000, we, along with the rest of the first wave of web companies, were all about attracting lots of users. Compiling a serious data trove of chow tips, after all, required a critical mass of hungry hounds. So we guerilla marketed our way to heavy growth, doubling traffic every six months.

In 1999 the dotcom bubble arose and pet cologne startups were sucking up $200 million in funding and companies whose function no one could explain were enjoying massive IPOs. Finally, Bob and I began thinking we ought to try to turn Chowhound into a “real company”, realizing even at that early point that our labor of love deserved to endure, but that our adrenal glands were not a viable long term fuel source. So we took deep breaths and reluctantly approached the gravy train (if this were a movie, you'd be seeing a montage of slick confident sharpies spitting rapid-fire MBA-speak at fat cats across desks, followed by me and Bob looking forlornly miserable and hideously out of place).

One of our users had been hired by a top Silicon Valley law firm, and I flew out and spent twenty minutes pitching to the slightly unhinged name partner, a Valley legend, who kept raving at me and Bob about how we'd need a home run; how he could find us funding but we'd need to promise a home run, that everyone wanted to see a home run. We were signed up as clients, and instructed to create a business plan forecasting a hundred million dollar home run for investors after three years. He kept repeating that figure. A hundred million dollars. That, above all, was key. He slurred the phrase slightly from long over-repetition: a hunredmillindollis.

His law firm would wait to be paid for its services until we were funded, an arrangement offered as an act of great benevolence. A few weeks later, I noticed that this preliminary meeting, which took place before we'd even actually signed on, had been billed at a heart-stopping rate to our account. Cue the "Jaws" theme.

Bob and I struggled for months to concoct a spreadsheet whose dots somehow connected our present reality (no income, no assets, no funding) to a hunredmillindollis home run in three years. But we share a character flaw that's pure poison for entrepreneurship: honesty. Bob and I tried to flex our puny, hopeless bullshit muscles, but they merely sagged, woefully. We brought in bullshit specialists (read: MBAs) to lie for us, but lying's like anything else: to do it right you really need to do it yourself. We sweated and we stalled, and soon, thank God (in a way), the bubble burst and there was no funding to be had and we'd gone from Cutting Edge to hopeless relic in the space of a few months. Yah, we ran a much-loved content web site with tons and tons of users. How friggin' quaint.

Online advertising, which had not yet settled upon a model, was a steaming wreckage. All of us who'd struggled to attract crowds to our sites were left with no prospects but steep bandwidth charges and daunting customer service burdens. Hugeness meant precisely nothing, aside from bragging rights. And I've never been much of a braggart.

Given the unviability of advertising, plus the increasing bandwidth costs, the customer service burden, and the growing awareness that our antiquated, jury-rigged software might begin groaning under its load, it didn't take a genius to conclude that continued growth would work against us, not for us. More than anything, we were terrified by the Psycho Scaling Effect: that even a few more kooks would severely strain our resources, and every 50,000 new users meant 5000 jerks, 500 scary whack jobs, 50 dangerous psychopaths, and 5 endlessly plotting Hannibal Lechters (in a pear tree).

So we did everything we could to slow down growth. For one thing, I stopped talking to big league press for a while. And we came to view our unwieldy interface as a boon. It took forever to do anything on Chowhound, which repelled a huge percentage of newbies, and also filtered out regulars who were less than fervid. We were satisfied, because the quality of our food tips was better than ever, with only the most devoted hounds sticking around through the adversity.

A few haters, bless them, built competing communities, determined to grab as much of our audience as possible and gain what they deemed all-important Bragging Rights. They mostly drew off our lowest value usership - the troublesome hotheads and shameless self-promoters. Naturally, we prayed daily for their success. Maximal hugeness had never been the goal. We just wanted the best possible resource. And so we kept the brakes on.

Traffic eventually decelerated, and, years later, leveled off - though, in spite of our best efforts, we remained the highest trafficked food community. But sometime right around then, gigunda audience had became valuable again...and the news had escaped me. Of course, it's not like I was spending any time leafing through biz journals. There were limits to how much of a weenie I was willing to transform myself into for this damned thing, even if I had time for all that.

My trembling hand returned to the scarfing honcho his proprietary, paradigm-exploding site statistics. If, instead of having clenched into a traumatized posture of repelling the masses, we'd hustled in new software and resumed guerilla marketing, we'd surely be at least up to the traffic levels my dinner companion was talking about. We'd be pulling in $35,000 per week instead of lying prone on the asphalt, broke, bedraggled, and weeks away from pulling the plug on a vital resource depended upon by a million friends.

Oops!

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