meebo Sells Out

It has been a long time coming, but meebo has finally succumbed to the pressures of a basic business truth that they’ve been dutifully ignoring:

in order to stay in business, you actually have to make money.

Since their initial $3.5M financing round in December, 2005, they’ve been very good at two things: spending money and generating buzz around their service offering: free, browser-based multi-band instant messaging that supports AIM, MSN, Yahoo!, GTalk, Jabber and ICQ. New features, including “meebo rooms” and iPhone integration, have also generated a fair amount of hype. But back to dollars and cents . . . .

Their primary investor is Sequoia Capital, which has a great track record that includes companies like Cisco, Yahoo!, Paypal and Plumtree. From their point of view, investing in meebo in order to flip it to a larger company doesn’t seem viable because if any of the big players (Google, AOL, Yahoo! or Microsoft) bought meebo, they would most certainly shut down the other channels, which is one of meebo’s most compelling features. So, how does Sequoia intend to monetize meebo?

The team has been fairly tight-lipped about their plans, although co-founder Seth Sternberg has dropped a few hints on their blog including selling ad space, partnering with other providers to provide fee-based SMS or other services, and (my personal favorite) selling virtual goods to “spice up” your IM avatar.

San Jose Mercury News quotes Seth as saying:

“There are tons of ways we can make money, but we have to choose our priorities carefully.”

When you take the venture capital route, however, choosing the company’s priorities involves more than just the management team. Whether it was investor pressure or just common sense, we’ll never know, but yesterday meebo finally started devoting some of their copious dead space to advertising. They’re calling the new feature “meebo sponsors” which is a euphemism for, ehem, “meebo advertisements.”

meebo_adI have to give the team some credit because the introduction of ads on meebo was tastefully done — the ad is small, out-of-the-way and you can disable it with a single mouse click. However, if you click on the “try the Talib background” link, the results are quite shocking. Moreover, there’s no easy way to stop “trying” the Talib background. You have to navigate into your preferences and reset the background to whatever you had before.

A little “Are you sure?” could have gone a long way here.

meebo also plans to use the “holy grail” of advertising — targeting — to make sure these sponsor messages hit home. From the meebo blog: “We’ve already got a bunch of ideas to make [the ads] better, including preferences for the types of things you’re interested in. We’re hoping to figure out how to be selective, so if you indicate that you like movies, but not rap music, future sponsors will reflect that for you.”

It’s just a matter of time before meebo will be combing through your IM conversations looking for keywords like “BMW” or “Rolex” and using those data points to drive targeted ad campaigns.

Succumbing to financial pressure to allow advertising on your site is a slippery slope.

I’m curious to see where this leads and if meebo can continue to provide ads — and their free service — without the ads becoming too obtrusive, which will cause their user community to resent them.

While I commend them for finally taking a step toward financial responsibility, I worry that it won’t be long before the ads on meebo become burdensome enough that the users no longer want to use the service, e.g. AOL pre-welcome screen pop-ups of the late 90s.

I’m definitely interested to see how this one plays out.