How You Can Buy Growth Like The Big Fish

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Social sharing sites are freaking red hot right now. Over the past month, we’ve watched major tech companies shell out eye-popping stacks of cash to acquire hyperactive social apps…

LinkedIn bought SlideShare for $119M, Zynga paid $200M for DrawSomething, and of course Facebook bought Instagram for a cool $1B.

So what exactly is going on here? What’s making these massive publicly traded companies so hungry for social apps, most with largely unproven revenue models?

Here’s the thing: Because these companies are all massive and publicly traded (or soon to be) — and the money changing hands is so astronomically high — these acquisitions appear to be incredibly complicated and abstract.

But they’re really not…

And even though your business is most likely a tiny fraction of Facebook’s, you can use exactly the same strategy to grow your business.

Buying Users

What does Facebook’s $1B purchase of Instagram tell us?

Two things: First, it tells us that Facebook believes adding Instagram’s 25M highly active users will boost it’s IPO price by more than $1B. Second, the acquisition shows that Facebook has a high enough average customer value to justify the huge ticket price…

Facebook, LinkedIn, and Zynga have proven business models. They’ve studied the analytics. They’ve optimized their marketing funnels. These mature social networks are hungry for new users.

Start-up apps are topping 20M users in an amazingly short span of time. Instagram attracted 25M users in 14 months… truly incredible!

The problem is that these apps are built to attract boatloads of users, not to make money. Once they’ve got over 10 million users, these developers are feeling some major pressure to sell.

Then there a company like LinkedIn, that has a thriving ad business and knows almost exactly what their customer are worth…

All LinkedIn needs is an injection of new users at a fair price. You could think about it as a long-term media buy…

That’s exactly what buying users is.

How You Can Buy Users

TONS of online businesses have the same problem: Just like these app developers, they get great traffic, but they don’t know how to monetize.

They’re waiting for an offer, even if they don’t know it yet…

Finding promising businesses to buy isn’t the hard part. The hard part is internal. As a marketer, you need to analyze your business model thoroughly, like an SEC auditor. You need to know your average customer value backward and forward.

Once you know that, you can simply negotiate for users/traffic/subscribers/etc.

It’s the exact same strategy that the big boys use, just knock off a bunch of zeros off those dollar figures.

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One Comment

1. 

   Don

   June 8, 2012 at 7:55 am

   Great insight to what’s actually happening with these big companies. I’ve been building websites with an eye towards monetizing. Can’t say I’m being very successful but at least I’m going in the right direction.

   Reply