Startup Chatter by Donna Bogatin

Fast Company tries to live up to its nom de plume by proclaiming “a sure fire way to build a billion dollar business from scratch”:

Simply design your product the right way, and , with no advertising or marketing budget, and no need for a sales force, venture capitalists will kill for the chance to throw money at you.

Adam Penenberg forgot the killer punch line however: Especially if your initials are MA.

Marc Andreessen’s $60 million Series D funding of his latest entrepreneurial try is hardly representative of how non-celebrity entrepreneurs navigate the chilly capital waters.

What’s more, contrary to Penenberg’s claims of a low-budget Ning requiring no ad, marketing or sales budgets, Andreessen’s purported “perpetual growth machine,” requires perpetually more money to operate, reportedly over $100 million in capital to date.

Penenberg is enamored of Andreessen’s theories of “viral expansion loops,” seconding Ning’s cheery New Year’s 2010 party plans: “4 million social networks serving up billions of page views daily.”

Ning partner Gina Bianchini touts a  Ning “power of compounding” yields “predictable growth rates.” Despite Ning’s confidence, however, fickle user generated content traction does not mimic pre-determined yield rate formulas normally associated with fixed financial instruments, such as bank CDs.

What’s more, Ning’s eighteen month time horizon provides ample opportunity for the next cool social networking thing to emerge and claim its own virtuous viral victory.

Union Square Venture’s Fred Wilson shares, “at no time in history has it been possible to market to so many by starting with so little.” Perhaps, but Marc Andreessen nevertheless has gotten A LOT of VC money to support Ning.

Penenberg even joins the “”phantasmagorical growth” bandwagon, asserting, “you can actually predict rates with astonishing accuracy.” Despite his wistful thinking, however, both LinkedIn and Twitter are far from “unassailable.”

While Wilson and Andreessen are enthusiastic for their respective “viral adoption models,” revenue models are given typical Web 2.0 short drift.

Penenberg inaccurately says Ning is “delivering the kind of targeted advertising that Google rode to vast riches.“ The text ads that decorate Ning’s page views are indeed “placed” by Google, but Google’s real riches are in-house AdWords driven, not AdSense for content.

Moreover, Google is NOT adequately monetizing AdSense on social networking pages, and generally leverages commissions it pays out to content partners to its own proprietary advantage.

While Andreessen and Bianci wax on and on about power to the people, no such in-depth expose is offered for the big business that supposedly is Ning. A large percentage of networks created languish without activity and only 3% pay the low monthly fee of $20.

Eventually, Ning says, it “plans to serve their own” Googley style ads. Facebook’s “creepy, retrofitted” advertising forays are dissed by Penenberg, however, hailing that “Ning doesn’t face that risk.”  

Ning does face a big advertising risk, though: If Ning doesn’t in fact “retrofit,” by innovating on the ad side, as Facebook seeks to do, Ning’s revenue potential will not be virally rosy and “impregnability” will be far from a “paved Ning road.”

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