Some companies' revenues are permanently associated with rising cost of revenue to the point where they are permanently unprofitable -- e.g. Pandora makes less ad revenue per play than the licensing cost of the song.

1. Permanently
Unprofitable
Dr. Augustine Fou
http://www.linkedin.com/in/augustinefou
May 24, 2012.

2. Pandora (P)
160
140 Revenues
120
Total Operating
100 Expense
80
60
40
20
0
2008 2009 2010 2011
May 24, 2012 2

3. Demand Media (DMD)
400
350
300
250
200
150 Revenues
100
50 Total Operating
Expense
0
2008 2009 2010 2011
May 24, 2012 3

4. Angie’s List (ANGI)
160
140
Revenues
120
Total Operating
100 Expense
80
60
40
20
0
2008 2009 2010 2011
May 24, 2012 4

5. SINA (SINA)
600
500
400
300
200 Revenues
100
Total Operating
0 Expense
2008 2009 2010 2011
May 24, 2012 5

6. InfoSpace (INSP)
250
200
150
Revenues
100
50 Total Operating
Expense
0
2008 2009 2010 2011
May 24, 2012 6

7. Rediff (REDF)
45
40
35
30
25
20
Revenues
15
10
Total Operating
5
Expense
0
2008 2009 2010 2011
May 24, 2012 7

8. InterActive Corp (IACI)
3000
2500
2000
1500
1000 Revenues
500 Total Operating
Expense
0
2008 2009 2010 2011
May 24, 2012 8

9. TheStreet (TST)
100
90
80
70
60
50
Revenues
40
30
20 Total Operating
Expense
10
0
2008 2009 2010 2011
May 24, 2012 9

10. AOL (AOL)
6000
5000
4000
3000
2000
Revenues
1000
Total Operating
0 Expense
2008 2009 2010 2011
May 24, 2012 10

11. Yahoo (YHOO)
8000
7000
6000
5000
4000
Revenues
3000
2000 Total Operating
1000 Expense
0
2008 2009 2010 2011
May 24, 2012 11

12. So What?
“Companies whose revenue is directly
related to cost of revenues (e.g. „traffic-
acquisition costs‟) may see increases in
revenue but still never achieve
profitability.”
- Dr. Augustine Fou
May 24, 2012 12

13. Dr. Augustine Fou – Chief Digital Strategist
“I advise clients on building new
high margin products and evolving
business and pricing models to
thrive in the new digital world.”
FORMER CHIEF DIGITAL OFFICER, HCG (OMNICOM)
MCKINSEY CONSULTANT
CLIENT SIDE / AGENCY SIDE EXPERIENCE
PROFESSOR AND COLUMNIST
ENTREPRENEUR / SMALL BUSINESS OWNER
PHD MATERIALS SCIENCE (MIT '95) AT AGE 23
ClickZ Articles: http://www.slideshare.net/augustinefou
LinkedIn: http://www.linkedin.com/in/augustinefou
May 24, 2012 13
acfou@mktsci.com