Chapter 48 Section 2 Flow, Flow, Flow

In 2000, if you asked "what is most important to Internet companies", 100% (not 99%) people would answer "traffic".If you ask what is the second most important, the answer is the same, or "flow".At that time, all websites cared about how many people they attracted to surf the Internet every day, and how much time they spent on the website when surfing the Internet, rather than how much money they earned every day.We now know that this is obviously a misunderstanding of traffic, but that was the way the world understood the Internet at that time.Why did Internet companies only focus on traffic at that time?It starts with Yahoo's business model and its early success.

Although Yang Zhiyuan and Filo did not think too much about how to make money when they founded Yahoo at Stanford, but focused on how to run Yahoo well, but when Yahoo became an independent company, Yang Zhiyuan had to consider this. problem.This is not only related to whether Yahoo can continue to develop, but also whether the free lunch of the entire Internet can work, because in the end someone must pay for the operation and development of the Internet.We have already mentioned that there are three sources of this money. The first is from the government, which is actually taxation.It looks like it's free, but it's actually out of every taxpayer's pocket, and possibly a lot, whether it's online or not; and government agencies are generally more costly and less efficient than private companies.The second is to rely on every person who surfs the Internet to be billed by time. This is actually what America Online does. It turns the Internet into another telephone network.The third way is to change the Internet itself from the original non-profit nature to profit, stimulate the development of e-commerce, earn money from e-commerce and advertising to maintain and operate the Internet, so that users can surf the Internet for free, this is the Internet Before the bubble burst, people called the "free lunch of the Internet".It has now been proved that the third path can be followed, although when the Internet encountered some short-term difficulties after 2000, the whole world doubted whether the Internet could really be free.

Yang Zhiyuan is a talent with both technology and business. He quickly thought of a good way to make money by advertising for large companies.In the United States, the entire advertising market is about 150 billion US dollars a year, which means that the advertising fee spent on each American is as high as 500 US dollars.And it costs a merchant about ten dollars to attract a new customer.The traditional advertising industry charges money per thousand impressions.For example, if you advertise a page in a newspaper and charge $500 per thousand times, and the circulation of the newspaper is one million copies, then the advertising company will have to pay the newspaper $500,000.The same goes for advertising on TV and in magazines.In the United States, subscription fees for newspapers only account for a small part of their income, while advertising costs account for the bulk, and some newspapers are even free.Yang Zhiyuan completely copied the business model of newspapers and other traditional media advertisements, that is, free services, and then used advertising fees to support himself and develop.In the newspaper industry, circulation is the most important thing. In the Internet industry, it becomes the traffic of the website.In the early days of Internet development, the traffic of the website was seriously insufficient. Even today, it is difficult to get the advertisements on the homepage of Yahoo. Therefore, increasing the traffic has become the primary purpose of Yahoo.If you want to increase the traffic of your website, the key is to have good content that can attract users.Yahoo has been doing this for a long time. It has single-mindedly established itself as the best media on the Internet, and the outside world has always regarded Yahoo as a media company. This is obviously a correct path.As traffic grew, Yahoo's turnover also grew at an unprecedented rate.From 1996 to 2006, Yahoo's turnover increased 260 times, from more than 20 million to more than 6 billion.In the same period, the turnover of IBM and Microsoft increased by 20% and ten times respectively.That's why Wall Street was chasing Yahoo until last year.

Of course, if you want to exceed Wall Street's expectations, you must increase traffic at a faster rate. This is already impossible for Yahoo to rely on its own development. Therefore, it began to acquire companies with large traffic. For example, in 1999, it exchanged shares. Acquired the heavily trafficked GeoCity for $3.6 billion plus $10 in options. All Internet companies saw the importance of traffic and quickly copied Yahoo's business model.However, none of these second- and third-rate Internet companies are as profitable as Yahoo.At the time, people didn't realize that "not all traffic is created equal". Before 2000, e-commerce sales were actually not high, and the advertising costs that could be spent were pitifully small.Therefore, Internet advertising fees can only be earned from the "brand" advertising fees of the world's top 500 companies.In the advertising industry, there is an unwritten convention in brand advertising, which is very particular about the right match, that is, a company with a first-rate brand must advertise on the first-rate media, even if a second-rate media has the same audience, that company cannot be on it. Advertise because that will affect your brand.Therefore, those companies that advertise their brands will never advertise on second- and third-tier websites.This result led to the fact that outside of Yahoo 2000, almost no companies earned money from brand advertising.So far, companies such as Procter & Gamble (P&G) have never spent a penny on second-tier websites, although they spend more than 7 billion on brand advertising every year.

Originally, the purpose of running a company was to make a profit.Konosuke Matsushita said that if a product is not profitable, it is a crime against mankind, because it wastes manpower and material resources, which could have been used for more meaningful things.In the madness of the last dot-com bubble, Matsushita's wise, unpretentious view was seen as outdated.Countless venture capital money is poured into emerging Internet companies, regardless of whether these companies have a future.The vast majority of companies cannot be profitable at all, and their founders don't even intend to make them profitable. Their first consideration is how to induce venture capital investment, and the second is how to sell to a next home who took advantage of it.The founders who are a little more responsible still think about how to create a little output value, but most entrepreneurs don’t even consider the output value, thinking that everything is possible only with traffic, and some people still hold this view today.After the dot-com bubble burst, Ge You starred in the movie "Big Wrist", which reflected the misunderstanding and fanaticism at that time.In the film, a person who works on a website goes crazy and tells others that as long as the traffic goes up, the website will be worth several million.The one-sided pursuit of traffic has led to various websites not paying attention to content, and the spam web pages on the Internet are rapidly flooding.In the absence of a substantial increase in the total revenue of Internet advertising, the increase in traffic can only lead to less and less money earned per thousand views.After losing money, each website does not improve the quality of content but inserts advertisements more crazily, and invents pop-up advertisements, trying to get a relatively large share from the small online advertising market, thus falling into a vicious circle .A few calm investment gurus, including Buffett, have found that this trend is increasingly deviating from the principles of economics, but their voices are so slight that they cannot be heard amid the din of the Internet bubble.Some so-called economists and speculators are advocating the so-called new economy in the Internet age, looking for a theoretical basis for this anomaly.The development of Yahoo was still very rational at the beginning, but around 2000, it also joined the ranks of crazy people.We didn't see any investment or innovation in Yahoo's technology before 2000, but we saw a lot of crazy acquisitions. In 1999, Yahoo bought Broadcast.com, now owner of the Dallas Mavericks Mark Cuban, for $5 billion.Since then, the company has only created an output value of 20 million US dollars for Yahoo every year, let alone profits.Even with a 100% profit margin, Yahoo would have to wait two hundred years to recoup its costs.These seem to be ridiculous things now, but everyone thought it was normal at the time.The most outrageous thing is a job-hunting website called Collegehire, which means college recruitment. As long as you put your resume in its database, you can get a $100 Amazon coupon.Yahoo played a role in fueling the dot-com bubble.Although it does not directly burn investors' money, countless small Internet companies rely on burning money to maintain it. This is like putting out a fire with a salary.After the 2000 general election, there was finally no new investment, and the Internet bubble burst.Although Yahoo is different from these money-burning companies, it has also been hit hard. Its turnover has declined for the first time in history, and its stock value has evaporated by more than 90%.

Yahoo has attached great importance to the profitability of Internet companies from the very beginning, and it is right to increase turnover by increasing traffic.However, the frenzy for the entire Internet is beyond Yahoo's control.The emergence of a large number of one-sided companies that seek the most traffic has made traffic very worthless, and almost ruined the entire open and free model of the Internet.Fortunately, Yahoo's fundamentals are good. It read a difficult 2001 and started to recover in the second year.