There’s an interesting article in today’s New York Times about Yahoo and its efforts to close the revenue gap between it and its arch-rival Google.
Among the financial numbers tossed around, including Yahoo’s ridiculous PE ratio of 34.1 and Google’s vintage Bubble 1.0 ratio of 63.3, is the fact that Google has found a way to better monetize its traffic. Google generates 11 cents per domestic web search, while Yahoo generates only 4 cents.
The bull side of the Yahoo debate argues that since Yahoo has a ton of traffic, it only needs to better monetize it. The argument is that it’s better to have a monetization problem than a traffic problem. Hello, Web 2.0.
I can relate a little to Yahoo’s problem. As I have mentioned before, I am generally a fan of Second Life as a business platform. It has a business plan that doesn’t rely strictly on ads. More and more businesses are looking to Second Life as a way to connect with their customers and potential customers.
But I have grown bored with my personal Second Life experience. I’m not big on chatting with strangers, and there is no Second Life collective for tech bloggers- at least not one that I have been invited to participate in. I have been thinking for months about canceling my account.
In the meantime, I decided to do an experiment. I installed a music player and a bunch of dance pads (where visitors can get paid Linden dollars for dancing) in my Second Life home, configured the dance pads to pay out at a slightly better than market rate, and mostly stayed out of the way.
A funny thing happened.
Traffic to my parcel went off the charts. I constantly have people hanging around my place, dancing for Linden dollars. In fact, I have installed more dance pads, and have to rest them twice a week, after they pay out their maximum.
I initially thought that your Second Life stipend (the Linden dollars you get every week from Second Life) went up if you had a lot of traffic. I checked last night and realized that I was mistaken about that.
So that leaves me with some land that has a ton of traffic, but no plan to turn that traffic into money. In the meantime, my Linden dollar “burn rate” continues to accelerate.
What to do?
I don’t know, but I’m not sure all my traffic makes my parcel any more valuable than the empty land next door. It costs a lot of Linden dollars to operate my parcel, and nothing to operate the empty land. And our revenue (the Second Life stipend) is the same.
Without a viable monetization plan, I think Yahoo and I are screwed. Fred Wilson seems to agree, though for a different reason.
Come visit my Second Life establishment at Sibine 03 (106,33). Suggestions to turn my traffic into revenue would be welcomed.
Maybe Yahoo will buy me before Microsoft buys Yahoo.