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Summary:

Max Levchin’s Slide, a San Francisco-based startup that caught the Facebook application wave early, is making a strategic shift, refocusing its revenue efforts on higher-margin premium advertising that include brand sponsorships for many of its well-known applications such as Super Poke. As part of this realignment, […]

Max Levchin’s Slide, a San Francisco-based startup that caught the Facebook application wave early, is making a strategic shift, refocusing its revenue efforts on higher-margin premium advertising that include brand sponsorships for many of its well-known applications such as Super Poke. As part of this realignment, the company’s advertising sales force will be slashed, though some members are being reassigned to new roles, we have learned.

The news of these pending changes was shared with the company in a brief email sent out earlier today. Slide has raised over $58 million in funding from Blue Run Ventures, Founders Fund, Mayfield, Khosla Ventures, T-Rowe Price and Fidelity Investments. The company is valued at half a billion dollars. Slide is focusing its attention on building a team that will focus on higher-end campaigns, ones in the $500,000 category range.  When we contacted Levchin, he said that the company has had a good track record of building relationships with big brands. While these deals take longer to close, they are more lucrative for the company.

Smaller advertising deals that range between $30,000 and $50,000 have lower margins. Slide is going to add more people focused on “business development.” “Sure this is going to drive up our cost of sales, but so are the RFPs,” said Levchin, who co-founded PayPal. He described it as a “purely analytical decision.”

I can’t blame Levchin for making this decision.  As we wrote earlier:

Advertisers are pushing more ad dollars online, but the number of sites to house them are growing even faster. And so there is more and more discussion this month that CPM rates are falling. (There remain optimistic exceptions, however.) The relatively balmy climate of Web 2.0 means more sites are looking for ad revenue just as mainstream advertisers are contemplating cuts in their ad budgets.

Of the folks I have talked to, most agree that there is a major advertising glut in the market. The increased usage of Facebook and Facebook applications is only helping to create advertising inventory out of thin air. This is putting downward pressure on the amount of money publishers can charge for their inventory. This problem is especially rampant in social networks, which are growing at a relentless pace. In this highly commoditized market, publishers including app developers such as Slide have to stand out and deliver larger brand experiences.  It wouldn’t surprise me if more follow suit.

Related Post:

  1. Max Levchin on The GigaOM Show

Photo of Max Levchin courtesy of flawed artist via Flickr

  1. slide sucks Monday, July 6, 2009

    Om you’re too close to these fools. Slide was doomed to fail. Just come out and say it hombre.

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    1. One thing $58 million does – buys you a lot of time to change business models and figure out a way. I think it is not just Slide but all of these companies that have raised a ton of cash and are CPM based are going to be facing crunch time: when they do, they would all need to figure out a new revenue model. Will it work? Who knows….

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      1. Om

        I agree with you on this point. It is also worth noting that Levchin has a strong track record of making the strategic shifts necessary to succeed as in early stage technology company – or, in the words of Andreessen, the shifts necessary to achieve Product-Market fit.

        PayPal is a case in point where, as Confinity, they initially focused on infrared payment transfers between Palm Pilots. When the market for this service turned out to be negligible, the management team shifted strategy to focus on email payments, which were generating early traction. There is no reason to believe that Levchin is not capable of making the strategic shifts required for Slide to succeed.

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      2. It also puts pressure on you to build a business that can exit for well north of $500m. Is Slide really a $1b company?

        And was it really that hard to figure out that by taking that much money the lower margin smaller campaigns wouldn’t be the way to build a $1b company? If not, then why build that business and then abandon it?

        We have a habit of praising CEOs who make ‘strategic shifts’ without looking at the decision making process that led to the shift. In the meantime people who were hired based on the previous model are out of work in a touch economy.

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    2. slide never really had a business plan or out look….the are always looking over their heads and doing what RockYou did. it was a simple cut and copy on their front. paypal was a one hit wonder like hotmail was for the founders…just pack up and move to some island. i agree with the above comment…OM you are getting to close with some of he firms that you cover….do some real analysis and competitive analysis on some of these companies and look at their business model which is nothing more then cut and past…cover real tech firms.

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  2. [...] Malik, whom I respect quite a bit, publishes a post that doesn’t really say much.  Read his post a few times and tell me what are you supposed [...]

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  3. HALF A BILLION DOLLARS FOLKS. HALF A BILLION DOLLARS!!!!!!!!!!!!!!!WOW

    Good to see they have switched models, but you should know your business to be valued at that much money

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  4. Om – good story. Do you think they are focusing more on virtual items / premium content revenue from their games? Zynga has seemingly left Slide in the dust by focusing on consumer-driven game revenue instead of ad revenue.

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    1. I would have thought so, but it seems like this change of focus is still on getting premium advertising. I think in the end their revenue will have to go towards virtual goods but the company needs to make more products that are virtual goods oriented. so newer apps that really are games.

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      1. om,

        CPM models are unsustainable as well. but virtual goods is just kicking the can down the road?

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      2. Sounds like a pipe dream in this market. $50k deals keep the lights on and are the foundation to nearly all online ad publishers bottom line. Publishers need to prove their VALUE/ROI before they can ask for a Budget north of $250k. The $500k Brand deals are being sold as Integrated TV/Web sponsorships. Apps are everywhere and Slide’s market share is shrinking as users download the “App Du Jour”. More Apps equal more Supply and Demand isn’t even close.

        Good Luck Slide-you need it.

        Jimbo-NYC

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  5. [...] Slide cuts, re-shapes ad sales force [GigaOm] [...]

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  6. [...] funding from Fidelity and T-Rowe Price. Now, the S.F.-based startup is slashing its sales force, GigaOm reports, in what CEO Max Levchin says is a push to focus on ad deals with bigger brands (and more money). [...]

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  7. mikesimonsen Tuesday, July 7, 2009

    Not a good sign when your $50,000 ad sales aren’t high margin enough.

    Om – is it really a *margin* problem or is it purely a revenue problem? There simply aren’t enough advertisers who want to spend $50k full price ads. You can get lousy CTR anywhere and just pay pennies.

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  8. Om,

    Can’t believe the valuation for a company still looking to prove its model. As we have discussed several times, the way out of the CPM downward spiral is not with more inventory, even if it is “better”. Consumers don’t want ads period. And as Ali points out,it is about connecting with consumers in new engaging ways –games, game mechanics, virtual goods etc.that are relevant and actually liked by consumers. That’s at least where we are putting our bets, and seeing effective CPM’s through the roof. To get it right the consumer needs to win, not just the companies who push more and more crappy ads at them.

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