Moneybox Size Matters

Kurt Andersen was quoted the other day to the effect that it might not be so hard as you think for his new online magazine,, to turn a profit. “If we were generating the revenue that Salon is generating today, or if we were generating a small fraction of the revenue that is generating today, we’d be profitable,” he asserted. “So profitability is possible.” I’m sure my bosses at Slate are as thrilled as anybody to hear this news, but there may be a little spin going on here.

In its most recently completed fiscal year, Salon had revenues of about $8 million. had revenues of a bit over $14 million. In light of that, there are a couple of points to be made. The first is: Hats off to Andersen & Co. if’s impressive content and marketing are really costing less than $8 million a year, which seems like kind of a modest figure given the scope of the site.

The second point is that in this context, $8 million and $14 million are actually small numbers. That is to say, it would be unusual to round up $28 million in venture capital–which is the amount that’s been attached to in various press accounts–by promising to build an $8 million business. More typically, a venture-capital firm these days would want to be able to envision revenues of, say, $100 million. and Salon have spent amounts of money far in excess of their current revenue levels– had piled up a deficit of more than $61 million through the end of March; Salon’s losses totaled about $46 million by that date–not because they can’t count, but because their ultimate success depends on building much larger businesses. In the summer of 1998,’s best-known public face, James Cramer, stated flatly that “if we wanted to, we could be profitable next year, but that’s not the plan.” He was probably right– would be profitable by now if its owners had chosen the road of maintaining a modest-sized staff with low expenses and little marketing. It would be profitable, and small. But the plan, explained then, was to build a huge commercial brand, the Home Depot of do-it-yourself investing. I don’t know what vision’s backers have, but I would guess that even if Inside.comcould be profitable on $8 million a year, it would certainly take a far more ambitious revenue number for the company to be the success those backers must have envisioned earlier this year.

There’s nothing wrong with a less grandiose business model, of course–something I’m sure my Slate bosses would also be happy to hear. Slate doesn’t share its revenue figures, even with me, but my guess would be that Microsoft did not back this magazine with any pressure to see it become a $100 million business. The economics of building a new property inside an established company are simply different. Similarly, a new publication eking out a profit on $8 million in revenue would probably make, say, Time Warner happy, because that would simply be one property in a mammoth portfolio.

But that scenario has come to seem just a bit dowdy in the past few years, as a notoriously Zeitgeist-sensitive fellow like Andersen is no doubt aware. It’s not what you do if you’re dreaming of a big swinging IPO. That’s what makes you and your top employees instant millionaires. That’s what leads you to venture capitalists, who seek to measure their returns in multiples, not percentages, of their original investment. And that’s why you end up needing revenue numbers with nine digits or more.

From what I’ve seen of, the journalism is quite good, and I hope they can make a go of it. But what’s going to prove a lot more important than making a profit on $8 million is what sort of expectations and its backers have for the long term. Then again, maybe they didn’t do much in the way of long-term thinking, since Andersen has famously commented that getting financial backing for an Internet company is (or until recently was) as easy as getting laid in 1969. I suppose it will be up to those investors to sort out whether this means that they got in on something special, or that they merely got screwed.