The Bright Side of a Recession: The Success of Real Brands And Real Businesses

Although I have been active in digital marketing for years, I have always had an issue with the way Internet "businesses" are developed and valued. Silly me, I always thought that a business was a company that sold things -- products or services -- for money, and then subtracted the cost of providing those goods or services from revenue to calculate profit.

Ultimately, business, as I understood it, was about that last bit, profit. That the success or failure of a business related to how much or indeed IF a profit materialized when costs were subtracted from revenue.

Not so in Internet "business." Witness AOL paying $850 Million for Bebo a year ago, despite the fact that the company had little if any revenue and enormous expenses. And despite the fact that the major soc nets haven't cracked the nut of profitability -- at least to the extent necessary to justify paying $850 million for the number three network.

The thing is, when revenue is smaller than costs, the result of subtracting costs from revenues is what we call a LOSS. Which, perhaps I need to remind the digitheads, is NOT as good as profit. In fact, I will go out on a limb here and say...whereas profits are good, losses are BAD.

Naturally, there are those in Internet business who would poo-poo my pedestrian notions, pointing out that platforms like Facebook have attracted 160 Million users and that that is impressive, even if money isn't being earned in prodigious quantities YET.

OK, I will accept that to a point. But let's look at it as if a real company, like say Kraft, were evaluating Facebook as a business opportunity. Let's pretend Facebook is actually the name for a block of cheese. Imagine it's got a blue wrapper and comes in a long package like Cracker Barrel.

Imagine this pitch to the division head.

"So how it works is, we give the cheese away to 160 Million people. As many times as they want it. And every quarter we make the cheese taste a little better, or make the piece a little bigger. And keep giving it away. And hopefully someone will come along and help pay for the cheese we give away. But no guarantees."

I grow weary of listening to Internet "wunderkinds" that have never generated a dime of revenue. One of the great things about being at the iMedia Brand Summit this week is that one gets to talk to people who earn revenue and profit instead of just score hype. I am sure that there are some people on Sand Hill Road who wish we had a little more old school business thinking in digital.

And while this rec(depr)ession is not at all a good thing, it may produce the side effect of having people remember that the marketers that sell things and earn profits are more worthy of big pay and recognition than folks who give away value indefinitely.

Thanks for reading, and don't forget to write.