On this trip, we visited the New York office of eMusic, an online service of downloading music. This was the first trip we had that was not to a place associated with NYU-Poly. We all came to hear a few words from Max Smith, CFO, and Richard Caccappolo, CTO, about how an online company makes money.
Probably the first thing we noticed was the office. It was hidden away on West 13th Street in Manhattan, but when we got inside, it was like a totally different planet. This place had hard-wood floors, glass walls, fancy overhead lighting, and everything modern under one roof. I kind of envy the people that come in to work here every day.
Our presenters were also very experienced in the field. Max was the co-founder or Talking Media Group (TMG), an and also led growth initiatives with Warner Music Group, LinkShare, TechRepublic, Gartner, and World Color Press. Rich was one of the founders of iVillage Inc., and presided over the sale of iVillage to NBC Universal.
Max and Rich started the presentation by discussing how internet advertising works. According to them, there are three ways to gain profit from internet advertising. The first, Cost Per Thousand (CPM), is where an advertiser pays a publisher a set rate for displaying their ads to online readers, with pricing done on a “per 1000” basis. The second, Cost Per Click (CPC), is where advertisers pay a publisher on a per-click basis, and the publisher runs the ad with no guarantee of payment except the possible user clicks. Finally, there is Cost Per Acquisition (CPA), by far the riskiest method. This is where the advertisers only pay when a user is directed to their site from a publisher’s site and completes a transaction directed by the advertisers.
Max and Rich also talked about how a similar company, the New York Times Media Group, functioned. New York Times generated revenue of over $2.052 billion this past year, with the newspaper alone generating revenue of $1.646 billion. Their average circulation is around 1,137,429 subscriptions a year, and each subscriber was valued at around $1,448. NYTimes.com made $15 million from display ads and estimated total revenue of $150 million. The site also averages around 14.6 million unique visitors each month, and the per-thousand-visitors values were estimated at $7.81 each.
The marketing strategy of eMusic itself is focused on five dimensions of music experience. First, the user discovers the music, then they share the music with their friends. Then everyone is listening to the music, and eventually owning it. It isn’t long before the users are buying the music. They also focused the consumer types along the axes of Mainstream-to-Offbeat and Leaders-tp-Followers. This way, they know exactly how to market their music.
I never knew how an online business really carried out their operations and made a profit. Like most people, I just assumed that there was absolutely no thought going into it, where in reality, it’s like studying society itself. If I ever start my own company, I hope I follow a similar path, because the path eMusic has taken has lead them to success.