Best Way to Create a Billion Dollar Company

I had lunch yesterday with a close friend, Jim Ericson, who was my first marketing employee at Ancestry.com, back in 1998, just after he got his MBA from BYU. Everything Jim does works, and he has had success wherever he goes. We’re hoping to work together again very soon.

For several years he and I built the Ancestry.com marketing machine together. We watched the industry and tried everything that everyone else was trying. We did keyword buys (back in the Infoseek/Yahoo/Altavista days), link exchanges, banner ads, email advertising, pay-per-click (in the Goto.com era), search engine optimization, and most importantly, we launched Ancestry.com’s affiliate program together. Our small team was responsible for external traffic, repeat visitors (fueled by email notifications to registered users), and conversion rate. Our engineers wrote web tracking systems that measured everything, so that we could improve and optimize all our campaigns. The whole experience was incredible, to watch the company go from 20,000 subscribers when Jim joined to 50k to 100k to 200k, and so forth. I’m guessing that sometime in the next year or two the company will pass the million unique subscriber mark.

We talked yesterday about how much we both love the subscription business model. Once you get a customer signed up, and the product is good enough to keep them happy, you generate revenue for months or years. So your marketing pays off long-term.

I have concluded that the best and fastest way to build another billion dollar company (assuming, of course, that MyFamily.com gets a billion dollar market cap someday) is to create a subscription product that one million people will eventually pay $10-20 per month to use. A million customers paying $15 per month would generate $180 million in revenue. If the company had a profit margin of 25% and a P/E ratio of 20, the company’s market cap would be $900 million.

Netflix just passed 2 million subscribers and is worth $1.86 billion.

XM Satellite Radio reached 1 million subscribers last October, less than two years after its launch. They are projecting 2.8 million by the end of this year. Market cap: $5.2 billion.

RealNetworks reached 1 million subscribers to its content service by April 2003. Market cap: $1.1 billion.

Classmates.com had 1.6 million subscribers two years ago. (It’s privately held).

American Greetings, I believe, got a million subscribers (to its $11.95 per year greeting cards subscription) in less than one year.

There are many more examples of successful subscription services. The question is, is it possible to create new ones that have the potential to generate a million subscribers, or have all the good ideas already been taken?

I’m working with two startup teams on two pretty exciting ideas, both completely unique, that might eventually generate a million customers each. (Especially if Jim Ericson gets involved!)

Others may argue that another great way to build a billion dollar company is to create and sell products using a network marketing approach. I blogged about hugely successful network marketing companies in Utah a few months ago. Problem is, I have no experience with this business model.

So I’m gunning for the million subscriber thing.

Wish me luck.

4 Comments

  1. The statistics you mentioned about various subscription model based companies are quite interesting. When selling to consumers, subscription based models can work both for internet and perhaps also for wireless. Do you know about any companies in the wireless sector for the same (except carriers)?

    And best of luck for your next million customers.

  2. I completely agree with your comments. I am the CEO of Fast Home Offers (http://www.fasthomeoffer.com), a business that links real estate investors with homeowners on a subscription basis to the Investor. While we will never reach 1 million customers with our model, I am sold on subscription systems, and we have a few more under development.

  3. The business to business environment has proven for years that the recurring revenure model is king.
    Simply look at ADP and Paychex as examples. ADP has a recurring rev model for most of their services, and they have a market cap of 23billion or so.
    All of that started from one payroll client, paying x$ per month.
    The key of course is maintaining your customer base while adding customers at a reasonable cost.
    I am sure that once Netflix fixes the high cost of customer acquisition, we will see their market cap soar past 3 billion

    Best of luck on the newest venture. Hopefully you get Jim on board.

    -Pat

  4. Mario

    All the good ideas are never taken. If you would believe in it, what would be the optional routes you could take? Improve the current ideas until you’re literally sick of it? I guess there are ideas springing up all the time. You just need to keep your eyes open all the time. The majority sees, but only a few realize. Another big paid-subscription is the Wall Street Journal Online (http://www.wsj.com) which already had 600.000+ subscribers a while ago. I assume that the number is slowly approaching the million milestone, if it hasn’t already passed it by now. Anyway, good luck with your ventures and don’t forget: You have got a loyal readership base that is willed to offer you feedback for free (Hint: Keep us informed on your blog 😉 ).

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