Are online start-ups the next Facebook?

2013-12-01 14:00

A growing group of social and mobile web services are poised to become the next Facebook – just ask them.

Online start-ups with eye-popping statistics that purport to show their popularity have captivated the attention of the media and investors.

As measures of their success, these companies boast of everything from skyrocketing page views and user sign-ups to shared digital photos.

But unlike the financial numbers used to evaluate more mature companies, the so-called vanity metrics now in vogue are largely self-reported and often vague enough to defy definition.

With valuations for high-flying start-ups hitting nosebleed levels, some hear echoes of the obsession with “eyeballs”, or raw numbers of website visitors, that defined the dotcom boom of the late 1990s but quickly proved illusory.

The issue came into focus last week when Snapchat, the hot mobile photo and video messaging start-up, announced that its users send 400?million “snaps” per day, just as reports surfaced that it had turned down a $3?billion (R30.6?billion) acquisition offer from Facebook.

The offer shocked many, given that the company, which lets smartphone users send vanishing pictures to each other, does not have any revenue.

Some also wondered what the 400?million snaps actually referred to and how they compared with the amount of photos shared on Facebook.

Of course, 400?million of anything is a big number and a sign that the company has achieved some level of success.

But according to Joe Beninato, a Silicon Valley entrepreneur, a single metric alone might not tell the whole story and could even mask problems, such as a high user churn rate.

Even long-standing web traffic metrics, such as page views and unique visitors, remain surprisingly open to interpretation, owing to divergent measurement techniques and standards.

For web and mobile start-up companies, proving robust growth in users and time spent with the product is critical to attracting media coverage, recruiting talent and securing funding.

Venture capitalists, who typically evaluate hundreds of start-ups every year, say they know how to cut through the superficial metrics to find out how a company is really doing.

They look at the ratios of daily users to weekly and monthly users to get a feel for how many repeat users a company has.

They strip out growth that comes from unsustainable practices, such as online services that tap into a user’s list of contacts to send “spam” messages, and they try to determine how “viral” a service is by measuring how many of a user’s friends join.

Consumer advocates fear less sophisticated investors could easily be misled, but even experienced investors can make mistakes.

Viddy, a social-video app, raised $30?million in funding last year as investors jostled to get a piece of the company that was at one point adding more than 1 million new users a day.

An investor in Viddy said its hypergrowth was mainly due to being one of the first video apps to take advantage of new distribution features on Facebook. But when Facebook suddenly tightened that distribution channel, Viddy’s momentum came to a screeching halt.

David Cowan, a partner at Bessemer Venture Partners, said some metrics really did have value, pointing to his firm’s decision to invest in professional social network LinkedIn six years ago.

The fact that many LinkedIn users were inviting their friends to join the service, and that LinkedIn user profiles were appearing high up in search results on Google, suggested that the service was spreading in a meaningful way.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.