The morning after

It's Friday, which means it's the morning after my almost three hour (ack!) Thursday night class. As usual, it was a lot of fun--for me at least--in no small measure because I changed the format from lecture (the official designation, and blah in a florescent-lit room with no windows) to info-gathering-and-discussion. Also didn't hurt that I've been functioning on precious little sleep the past week, which for some odd reason seems to translate not only into -2 intelligence but +4 charisma. Go figure.

One of the things we talked about was the deceptive lure of online ads as the path to profitability, as well the need to adapt to hard reality. Here's one startup's striking experience on that score, via GigaOm:

Peanut Labs, a company that couldn’t find a business as an also-ran social network, took a different route and now conducts market research on social networks using virtual goods to reward survey takers. The San Francisco-based startup said today it has raised $3.2 million from Leapfrog Ventures and BV Capital (which had funded its original and now side project, the social network Xuqa). The Series A-1 round brings the company’s total funding to $4.5 million. Of Xuqa, Peanut Labs CEO Murtaza Hussein said today:

“The CPMs are so low it’s really hard to build a real business unless you have several billion page views and your own sales team. Social networks get 5 to 10 cent CPMs, and less outside the U.S. At one point we were averaging 3 cent CPMs. We figured out if we all got up and worked at Starbucks instead we would make more money as a company than selling 300 million impressions a month of ad space.”

To reiterate what I said earlier, there's a lesson here for web-based social enterprise. Defaulting to Google ads as your source of sustainable revenue is usually not going to suffice.