Automated Revenues: Fact or Fiction?

In the world of internet and content publication and services one hears the term "automated revenues" so often that an analysis is in order.

First, a definition. Revenues is $. Pure and simple, money that comes to you in reward for putting your effort, ideas or ownership to work for someone else. In short, as the reward for transferring what is yours, one receives compensation.

In business, we call the money received revenues. Automated, as intended in the phrase, has a meaning that is just the opposite of effort! In fact, automated means doing something without effort.

When coupled the two words conjure up a picture of obtaining $ without effort. Is that really it? Very close. Automated Revenues is the Internet equivalent of the Fountain of Youth that drove 16th century explorers to the sandy beaches of Florida!

But is there really a reward of money without effort? Fact is, NO. There is significant and substantial effort, just not the usual kind. Bear with me as I explain.

In most businesses, the only way to earn revenues is to make a product or service, sell and market, deliver the product or service to the customer, then collect $ if the customer is satisfied.

In internet automated revenues businesses, software does all of the above. Software makes the product or service, markets it to consumers or businesses who find it on the Web through search or other automated web tools. The product delivery is one hundred % digital, so no human being need be involved in delivery. The money is received through automated transactions if there is a price for the digital goods, or advertising solutions are plugged in if the product is free but supported by ads.

So, the things most businesses are accustomed to doing are done by software systems, hence the term automated. But, there are tasks that must be undertaken...the software must be developed, then maintained. The network and servers must be managed, maintained and upgraded from time to time. The money must be received and anaged and bills paid.

In a well conceived and managed automated revenues business, the time investment can be minimal compared to an ordinary business. In fact, it is possible to run many automated businesses at one time. Many are doing exactly that. There are milions of internet spawned automated businesses that provide all or part of the support for families. And there are large automated businesses that are amazing and growing every day. For example, automation of systems allows Google to have the largest revenue to employee ratio of any company in history.

In a matter of days, any major media site (e.g. ESPN.com, NBA.com, MLB.com, Getty Images etc.) could be transitioned to an automated business with 50% of current staff and revenues per employee far exceeding Google's current $1.5M ratio (note that the Google ratio is much lower than it would be if they were not spending so much on activities unrelated to revenues).

Funny, considering the shareholder activist proposals at YHOO, I would probably just drive that business to a pure automated system and drive the price of the stock up based on a goal of $5M per employee in revenue!

Am I serious? You betcha.

Consider YouTube with 100M videos viewed and just 70 employees or the pre-Fox MySpace run with nothing but geeks (10) and servers.

This is how it gets done today and it is also the reason that private equity $ is flying into Internet companies in spite of the clear knowledge that the days of high flying internet IPOs are over. The fundamentals per classic bricks and mortar, General Motors type analysis are simply too good to ignore!

Much more coming on this subject.