Why 53,651 People Matter… A Lot!

“You say it’s your birthday. It’s my birthday too–yeah” — Apple iPod… opps, I mean, Apple Records… opps, no, I mean The Beatles.

Redeye VC: 53,651: Josh Kopelman, a Venture Capitalist for First Round Capital, is out with an interesting post today called 53,651. 53,651 is his creative title referring to the number of people that currently subscribe to Web 2.0 Blogging Czar Michael Arrington’s Tech Crunch blog. I, of course, am one of those faithful Arrington readers (as are probably you) — and I of course play on digg and flickr and delicious and reddit and upcoming and riya, etc. etc. etc., blah, blah, blah.

But Kopelman makes a very salient point and that is what is the significance of a 53,651 drop in the bucket in the bigger context of a 6.5 billion world population? And how will this tiny audience ever mean profitability and big money in the larger context of the Fortune 500 type earnings type of thing.

And to a certain degree he’s right. When I’m hanging out with tech savvy geeky photonerdy friends and Flickr comes up all the heads nod in unison and the geekiest of all might mutter out a “respect, dude, respect.” But in Middle America they have hardly any clue at all about what Flickr is.

Recently I visited New Orleans for Jazzfest and there were only two people there that I interacted with that knew anything at all about what Flickr was. One was Brian Oberkirch from the social media company Weblogs Work. Brian’s a geek like us of course and so as soon as he saw me posting shots of New Orleans up on Flickr he Skyped me with a hey welcome to town message. Very geeky, very cool.

Then I had a coffee with Anthony Posey, a pretty heavy Flickr user who I’ve gotten to know through the Deleteme Uncensored Group. And of course we geeked out.

But do you know what? Everyone else who was there for Jazzfest had no idea what Flickr was. I had plenty of people ask me about my photos. My camera was glued to my face for four days straight. And as I told them all about Flickr, they said, huh, Flicker what? What’s that? Invariably for the most interested I’d have them write it down and remind them that there’s no “e” in Flickr, etc. As popular as Flickr is, I think we need to remember that it’s still really only 2.5 million users and I’d bet that 80% of those 2.5 million are pretty light users. I know I’ve set family members up on Flickr (plenty of them) that have largely abandoned their Flickr usage.

But… and a big but… here is what I think Kopelman’s post misses. Yes, flickr, digg, delicious, etc. Small time. Small potatoes. But what these small time Web 2.0 companies are doing is providing application to much larger more useful *very* profitable areas of the larger economy. Search is a billion dollar game. While no one in New Orleans knew who Flickr or Digg were, they all know who Yahoo! and Google were. And Yahoo! and Google are where they are today for a single reason. Search relevancy.

So the power of the Web 2.0 company is not in it’s tiny user base and the fraction of those that might be paying $25 a year to Yahoo! The power of the Web 2.0 company is that you can plug it into a larger machine and increase relevancy. At some point I’m convinced that Yahoo! will integrate Flickr, Delicious, Upcoming, etc. into their search world and it will increase their relevancy dramatically. Actually it boggles my mind that they have not done this already.

Does Middle America know to go to Flickr and do a search for birthdaycake and then to change the view to sort by interestingness to get some kick ass photos of birthday cakes for the homemade card that you are going to make for Aunt Betty?(beachycat, that’s a kick ass photo of those candles). Of course not. But they do know to go to Yahoo! image search and type in Birthday Cake and find an image. And they do know that if all of the photos of Birthday cakes on Yahoo Image Search suck (which they all do by the way) that they can go to Google Image Search and search for birthday cakes there (and they still suck).

You know who else has great birthday cake photos by the way? Getty Images. There birthday cake images are fantastic because you pay for them if you want them. Big money in fact. Now there’s another billion dollar market. Stock photography. Could Yahoo! do stock photography? Sure. Will they? probably. But here they are dragging their feet too. Getty Images just bought iStockphoto who has about 800,000 royalty free images… for $50 friggin’ million dollars! That’s more than Yahoo! paid for Flickr. Why so much? Because stock photography is big business.

I think I’m going to start a Web 2.0 stock photography company actually. I have this idea about creating a network affiliation kind of thing for photographers, along the lines of FM Publishing’s blogging network, where photographers get phantom equity and you build a network of the very best pro/ams out there today. You could easily build a site that has more than 800,000 images and have a library much better than iStockphoto and priced between iStockphoto and Getty. Web 2.0? Yes. But marketed to a larger and greater audience that pay real money.

Web 2.0 companies are cool and nifty and make all kinds of really fun things. But the real value is not in the 53,651 influencers that they have access to. The real value is that they are the labs where future technology is being created that will in fact impact the larger population.

Last year I had dinner with Microsoft Senior Exec Jim Allchin. One of the things that we talked about was about how to popularize RSS and push it out to the masses. And you know what? It is the job of some small little Web 2.0 company to develop the best damn coolest RSS technology possible for those 53,651 users and then it is Microsoft’s job to partner/buy that technology and push that out to the millions of Windows customers when the time is right. And this should be the value of Web 2.0 ventures for venture capitalists. It’s not how to monetize 53,651 people, it’s how do you create something that you can do because you’re quick and small and nimble that can then be applied to Google or Microsoft or Yahoo or Getty where they can then leverage the Web 2.0 technology.