Ad Inventory: Separating the Theoretical from the Monetizable

Disclaimer #1: I'm not an online ad expert. Disclaimer #2: I'm not an online ad expert. That said, I'm not a dummy, either, and do have a direct view into the area through my investment in Buddy Media. And I am also an active Facebook user, blogger and blog consumer, so I think I get the big picture. And what mystifies me about the big picture is this: why are so many so amped up about things like downloads (applications) and users (Facebook) without a clear discussion of their ability to be monetized?

I mean, I know people are aware that at some point, far far away, such things (apps and social networks themselves) will need to generate revenue bearing some relationship to their (astounding) valuations (Slide at $500mm pre and Facebook at 30x that - nice), but what is observe is an over-focus on the headline numbers (downloads and users, and therefore theoretical "inventory" for advertising) and an under-focus on what inventory is, shall we say, real. And as an investor and as a pragmatist I truly don't get it.

Isn't the point of investing in social networks and application development firms to make money? And if this is the case, and given the valuations we've seen, what are the metrics being used to justify such enormous numbers? I'd gather that the analysis revolves around a calculation of theoretical ad inventory, which is then subject to a massive discount for converting that into a number that is truly monetizable. But how? What are the metrics being used? Because I haven't heard or read anything that bridges the gap for me between the headline inventory number and the real inventory number. And as an investor in such things I really, really want to know.

Buddy Media's business model is different, in its young life is already generating very healthy revenues (so much greater than we could ever have imagined, in fact) and has built brand and reputation for a company focused on monetizing inventory, not simply creating it. But that is not the point. The point is that I see what appears to be a lack of investing discipline of things in and around social networks. And as bullish as I am on the early-stage investment space in general, this is an area ripe for some fresh thinking.

Comments

[Darren Herman]

Roger, I agree with many points.

I would also like to point out that many of the people investing in the digital media landscape have never spent a day working in marketing at a brand or a day in an ad agency. Learning how/when things are monetizable is important... and what motivates the holders of the purse strings.

Just because there is "inventory" - does that mean it can be monetized? No.