Not All Users Are Created Equal

Om Malik recently wrote an article for Business 2.0 magazine, in which he discussed “the value of eyeballs.” The point of the article is that over the past 6-8 years, Internet companies have been bought and sold, and if you believe the premise that that a major driver of these acquisitions is users, then you can track the value of individual users (or the value of eyeballs, as it used to be known) over time.

To ruin the ending, Om points out that the acquisition price of a single user has fallen from a high of $710 (when Yahoo purchased Broadcast.com) in April 1999, to about $.73 in November of 2001 (InfoSpace purchases assets from Excite@Home), and back up to about $10 today (from the recent purchase of Weblogs, Inc by AOL).

I don’t think these numbers tell the whole story, though. It wouldn’t be difficult to argue that the late-90’s eyeball craze was the result of a certain level of irrational exuberance. And it likewise wouldn’t be difficult to argue the late November 2001 eyeball drought being caused by the Internet slump. If that’s the case, it’s reasonable to believe that we will eventually settle into an equilibrium where the value of “an eyeball” is well-known and static, and the valuation of a company can be (more) easily determined, right?

I would argue (and Om does to some degree, as well), that that’s not the case. A user today is worth more than a user six years ago, and likely tomorrow’s user is worth even more than that. And while this increased value of a user might have something to do with the maturity of online advertising monetization and the increased share of wallet being allocated to online purchases, it more has to do with the how users are changing and evolving and how dynamic social patterns are emerging online.

Ten years ago, Internet users tended to only communicate with people they knew. Through offline interaction, instant messaging, and email, people were able to better keep in touch, but for the most part, people continued to interact solely with others in their social network. As such, their value as a marketing tool for the products and services they used were relatively limited, static, and equivalent to everyone else. If I told all my friends about this great new online service, it would be no different than if you told all your friends, since we likely had a equivalent sized network of friends that generally remained static. In fact, if you believe the stereotypes, people that used the Internet ten years ago likely had a smaller social network than non-computer users.

Today, that’s not the case; blogging, wikis, citizen journalism, and multi-player interactive gaming (among other technologies) has extended — by leaps and bounds — the social networks of many online users. Prolific bloggers can reach thousands of people within his or her social network at the stroke of a key. Interactive gaming brings together tens of thousands of people who have like interests (and a common demographic). There is now a large disparity between the social network of a typical online user, and an online user who involved in the emerging viral aspects of the Internet (Web 2.0, if you will).

It is this connectedness of the new breed of Internet user that makes these users so valuable. These users can often serve as a viral marketing hub for the products and services they use; and because the social network of these users is likely to consist of other well-connected users with a similar demographic, their marketing value increases exponentially. Today’s web journalists (like Om himself), are perhaps the most powerful advertising tools in existence, making their eyeballs all that much more valuable than traditional users.

In fact, speaking of the recent AOL purchase of Weblogs, Inc, it’s possible to figure out the relative value of each and every user of the acquired company…