The Tag Team Take

Distribution vs. Reliance Upon Social Platforms

11.10.07

Filed Under: Apps, Perspective, Tag Team

Jeremy Liew posted a very insightful piece about valuing widgets (er, “social media companies”) from the perspective of a VC. He writes in his post that:

…I now think it makes little sense to talk in the abstract about what “an app” is worth. It’s better to apply the same principles to think about what a company is worth. A company will have various distribution channels through which it reaches its users; this can include its own website, a Facebook App, a Myspace widget, a distribution deal with AOL, SEM on Google, email virality, and others. Viewed this way, open platforms, and distribution, are opposite sides of the same coin.

In the late 90s, some companies pinned their futures to a single distribution deal with a single portal, and paid up for the privilege. Others, wisely, diversified their dependency on any single channel. A company that defines itself solely as a Facebook app runs the risk of relying on a single distribution channel.

Companies like iLike and Flixster (a Lightspeed company) have built their systems as a single database; their users can access the same data regardless of if they come in from their Facebook app or from their website. As the other social networks open up their platforms, these too will become alternative channels to reach users with the same system. It’s like one kitchen serving multiple restaurants.

We believe this just further confirms that the route we are taking as a company is the right one. As I wrote in a post earlier this week:

Is it worth investing in your own destination, or only investing in the social web? It’s a question we have been asking ourselves at Tag Team lately. While we firmly believe we’ve made the right decision in investing our time into the creation of our stand-alone apps Judge-O-Rama and blippr, we do foresee the opportunity to utilize Facebook not only as a marketing and complementary channel for our current sites, but as a breeding ground for new ideas…

RockYou isn’t just betting on Facebook [for their company's valuation]. They’re betting on networks like MySpace, Bebo, Hi5, and a long list of other sites to follow Facebook’s lead in opening up their platforms. From my perspective, that’s not just a good bet, that’s a sure bet. So while 10 million users may be one thing, what type of valuation could RockYou get for that single application if their SuperWall audience doubled, tripled, even quadrupled? 

We’re betting on the same thing. While we have a ways to go in terms of user and visitor growth, we have clear plan to achieve our goals and ultimately, we aren’t in this for the fast buck. We are building a portfolio of socially-driven applications that inform, entertain, and enrich our users. Those applications will not be reliant upon other channels, such as Facebook, or MySpace, or iGoogle/Orkut, but merely complements of these networks and methods by which we can further distribute and grow our applications to an extremely active and social audience. There’s always risk in any venture, of course, but we agree with Jeremy’s final conclusion:

As Myspace, iGoogle/Orkut, Hi5, LinkedIn, Bebo, Tagged and others open up APIs to their platforms, I think the companies that treat each social network as a distribution channel, rather than defining themselves as an application on a single platform, will create the most value.

We’re glad to know we’re not alone in our thinking.

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