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April 29, 2005
Attack of the Killer Online Ads
I’ve realized that many of my posts to date have assumed a basic premise: that online digital media and advertising is exploding in growth, creating a fundamental shift in generating enormous value that will be captured by entrepreneurial endeavors. To provide a little bit of context into the first part of that claim, I want to point to two articles published this week.
ClickZ reported that online ad revenues were up 33% last year to $9.6 billion dollars. Both the absolute size and relative growth of that figure are tremendous. But like most facts and figures, it is difficult to really wrap your head around it. (I will try to spend some time and see if I can provide some comparable $10B industries).
One way to grasp the enormity of what’s going on was identified by Advertising Age in an Economist article,
“This year the combined advertising revenues of Google and Yahoo! will rival the combined prime-time ad revenues of America’s three big television networks, ABC, CBS and NBC.”
Think about that. Really think about it.
Google and Yahoo larger than network prime-time.
(And it’s not getting any better for the networks, as this graph identified by Chris Anderson of Wired shows)
We truly are in an industry with enormous potential for the foreseeable future, as I believe that the drivers of these trends are going to continue.
April 28, 2005
VC Money - How Much and Where it Goes
The following are links to two great posts on the business of venture capital:
The first, from Bill Burnham, insightfully explores the issue of whether or not the industry is currently heavily over-funded. He concludes that
“...[while] venture capital may not be wildly over-funded at an aggregate level, anyone on the ground will tell you that there are clearly localized pockets that are highly over-funded.”
His unique approach to the aggregate level view states that “It’s all relative” and compares the amount of venture capital under management to the market capitalization of the NASDAQ. He states,
“One way to create such a context is to compare venture capital to the public markets on the assumption that venture capital is closely tied to the public markets because public markets are the primary source of VC liquidity.”
The only question I would raise is: because a start-up’s liquidity event most likely occurs in a three to five year time-horizon, would another meaningful figure be a comparison between the current venture capital under management and a metric based on the anticipated future value of the NASDAQ? In the fall of 2002, I think that there was more talk about over-funding then than there is now, partially because the anticipated future value of the index was probably lower then, not just because the current index was lower.
The second post from Paul Kedrosky begins to make a case that while raising a first-time fund is becoming increasingly rare, perhaps a first-time fund isn’t such a bad thing. He concludes,
“If traditional strategies are looking tired, then what better way to find people with access to different deal flow, different stages, different geographies -- or different anything -- than by going against the flow, say to people promoting first-time funds.”
I also personally wonder how many of the so-called current first-time funds raised in the past year are really experienced investors regrouped under a new fund.
Posted by at 8:23 AM | Permalink | Comments (0) | TrackBacks (0)April 27, 2005
The Implications of Better Search Results: Talking about the Long Tail without Really Talking About It
A document that I would highly recommend reading is Mary Meeker’s “The Age of Engagement” presentation given at the AdTech conference in San Francisco earlier this week. (I unfortunately, wasn’t able to attend the conference myself, but would be very interested to hear from someone who did).
The presentation strikes the usual chords: the impact of the Internet is large and only just beginning, mobile is going to become increasingly important, etc.
However, I would like to highlight pages 36 and 37 of the report where she cites data that:
• Search engine clickthrough rates go up as the number of keyword phrases increase (form one to five words).
• Search engine conversion rates rise as searchers increase their keyword phrase length from one to four words, but then drop with five and six.
Again, I didn’t attend the show to see this presentation first-hand, but the implications here are strong. Consumers, advertisers, and search engines are now in a virtuous cycle. As search engines are able to deliver better results with larger keyword queries, consumers are able to more often finding their desired information item, and advertisers are more likely to respond with an appropriate multiple sponsored keyword ad listing. Consumers find these listings useful and click through, which in turn, drives advertisers to further fill out the multiple-word blocks. As consumers become increasingly confident that they can find all of the information they need on the portals, search engines look for ways to improve the relevancy of all types of searches. And the cycle continues.
What does this fact mean for startups? Two important things:
1. As Meeker points out on page 22 of her deck, “on-going improvements in online ad tools are key.” While Google, Yahoo, and Microsoft will surely build features and functionality to their existing offering, there is a huge opportunity for start-ups to create effective tools for search engine marketers. Advertisers’ transitioning from one keyword to five keyword listings and beyond involves some complexity, especially when you figure everything into the mix like optimizing landing pages. These big players always face the make vs. buy decision, and in this case, they will be shopping for online ad tools providers in the upcoming few years.
2. Key vertical search players will be acquired by the portals as well. As Google, Yahoo, and Microsoft look to satisfying a consumers’ every wish for information, adding an full offering of structured search for things like travel, job, and event information is only a natural extension. Here, though, startups need to move quickly to establish themselves, before the big guys do it on their own, or try a novel approach like A9 has done with its Open Search featureset. It is my opinion that most of these vertical search startups will not gather enough critical mass to survive on their own (though some of the successful vertical shopping players provide a critical counter-example).
Posted by at 10:17 AM | Permalink | Comments (0) | TrackBacks (0)April 25, 2005
Google Becomes an Ad-Network Company
Earlier this month, I posted how Yahoo has the wind against its back with the market trend towards rich-media advertising, and predicted that “Google [will] make some moves to play catch up in this race.” Yesterday Google confirmed that forecast, taking a significant step forward.
ClickZ reported that Google now “will let advertisers choose on which sites their contextually targeted ads appear, but they will have to pay for those ads on a CPM basis… Using the same AdWords interface, advertisers will be able to select sites on which they want their ads to appear. They can either enter in the URLs of specific sites, or they can perform a keyword search to find sites on which to place their ads. Google will return a list of sites similar to the URLs people select, or a list that matches with the particular keywords. Advertisers can then select sites from those lists.”
With this move, Google is officially transforming into an ad-network company. No longer is the company solely focused on search and search technology, merely wrapping CPC ads around results. As John Battalle summarizes,
“Not to put too fine a point on it, but this is Google as DoubleClick, Web 2.0 style (ie with an auction and with massive scale). Any pretense this has to do with search should be put to rest. This is an advertising play, pure and simple.”
What does this offering mean, then? A few thoughts and quotes:
• Tony Gentile says, “By allowing advertisers to target specific sites, Google has moved into the role of a rep firm. Contextual Advertising will now compete against a major publisher's internal sales force, as advertisers will have the ability to buy Contextual placement via Google instead of directly from the publisher.” Very insightful ramification.
• Also, this move heats up the holy war between the behavioral and contextual networks. With Google now in the ad serving business, behavioral advertising network startups firms like Tacoda and Revenue Science will need to demonstrate their true effectiveness with their technology. It is for them both a threat and an opportunity.
• Finally and most importantly, it finally validates the fact that large traditional offline advertisers are truly looking to purchase branding ads on a CPM basis, not just performance-based buys on a CPC or CPA basis. Advertisers want to target messages to specific demographics, not just specific web-based contexts. We’ve known that for years now, but with this step Google is finally admitting it.
Business Planning The Future
Michael Moritz, a general partner at VC firm Sequoia Capital and an early investor in Google, recently told the crowd at the VentureOne conference that start-ups shouldn’t bother with a detailed business plan. He’s quoted in the BusinessWeek DealFlow blog as saying, “The longer the business plan, the worse the prospects for the company.”
“Maybe, but startups should not come into that first meeting with a potential investor with nothing but a nice smile and a firm handshake. The point of a business plan is simply the intellectual exercise of crossing the t's and dotting the i's. No investor really believes that it's a rigid plan, but investors do want to have confidence that you have figured out the moving parts and have a well formed idea of the direction you need to go in. I don't get detailed business plans for any of the deals we look at, but we do expect to see evidence of detailed planning behind the great teams.”
I think that the perceived difference in opinion comes down to the style of the individual investor. Different VCs look for different attributes and characteristics in the companies that they invest. And how they evaluate potential companies is a reflection of that difference.
A business plan isn’t a prediction of the future, but a demonstration that an entrepreneur is thoughtfully preparing for the future.
All VCs know that whatever the current plan is now, it is definitely going to change. Yet all VCs want to know that the entrepreneur is seriously considering and planning for the future, given all of the information that’s currently available. How this thoughtfulness manifests itself varies. Some VCs will want this preparedness to come through in a series of conversations and meetings. Some will want to see it in an articulate business plan and/or thoughtful financial model.
I disagree with Businessweek’s Justin Hibbard’s conclusion, “So here's a tip for entrepreneurs: unless you're a fiction writer, put away the financial-modeling spreadsheets. While you're at it, spare us the PowerPoint presentation.” Instead, do as Jeff suggests: don’t “come that first meeting with a potential investor with nothing but a nice smile and a firm handshake.” Bring a presentation and be prepared to walk through it. You might or you might not. Likewise, have a written document and a rough financial model ready as well. A VC might want to see it on the first, second, or fifth meeting. Or never. You should be ready either way.
Posted by at 7:57 AM | Permalink | Comments (1) | TrackBacks (0)April 24, 2005
Hype, Measuring the Hype, and Too Much Hype
I am surprised by the number of entrepreneurs that I meet with and talk to who don’t have a true online communications strategy, which I’ve blogged previously. Whether or not a company has a blog or some other form of incremental content, there is a conversation going on with or without them. Take the tracking of “social bookmarking” on g-metrics, for example. The number of instances of this phrase used online has rocketed in the last month. Are all of the companies in the space engaged in this discussion? Or, a query of “in-game advertising” on Blogpulse reveals that April has been a big month for blog discussions in this category as well. What is Massive or IGA Partners doing about it? So while companies like NewsGator and Topix.net do a very good job of keeping its name active in the blogosphere, many companies do not. I think that start-ups even in the most infantile stage should be thinking about the role that online communications should play in their strategy. Effective communications can attract customers, partners, employees, and yes, even venture capitalists.
However, there is a danger in playing the hype too much. Yahoo’s Buzz Game is “a fantasy prediction market for high-tech products, concepts, and trends,” which tries to predict “how popular various technologies will be in the future.” Its goal is to provide a real-time marketplace to measure the hype on a company or category. While I fully realize the intention of this game is purely for fun, it is perhaps perpetuating the notion that all that matters is the hype and buzz. Just because this market predicts Friendster to be the premier social network in the future, it isn’t necessarily so. A good business is not made on hype alone.
I think that the key with any online communications strategy is balance. There is a conversation going on, so join it. But hype is just that. A positive conversation will continue from your own lead – if you have a great product and solid business.
April 21, 2005
More Support For New New Media
My original New New Media post argued a significant set of New New Media venues are emerging – ads in video games, mobile phones, and DVR/IPTV boxes. I followed up on Monday with some supporting evidence for in-game advertising and on a DVR/IPTV box. Here are two additional points to further the case:
Moble Ads. Earlier this week, Paul Reddick, an executive at Sprint commented about the possibility of ads on mobile phones, “It's inescapable that that's a great opportunity.” Believe me, if you hear it from the carriers, who yield a lot of power in the industry, it’s going to happen. Now it’s just a matter of how and when. Paul followed up saying that “it's not clear yet what form advertising might take.” That issue leaves room for startups to make a footprint here.
In-Game Ads. The initial standouts offering an in-game advertising network, Massive and IGA Partners now have some competition. Game publisher WildTangent has partnered with 24/7 Real Media to offer online dynamic ad insertion services. In addition to validation of the space by “traditional” interactive agency 24/7 Real Media, this deal “makes it easy for a media buyer in New York to pop $60,000 or $100,000 into a game and treat it like standard Internet ad buying,” according to Dave Madden, an executive vice president at WildTangent. He’s absolutely right – the more similar that you can make this ad buy to standard online media purchases, the more quickly the adoption of this new new medium will occur.
Is there any argument that these new new media types will make an impact in the next five years? Now I am trying to explore the best opportunities for startups to create value around innovation in these spaces.
April 20, 2005
Why I Like Our NewsGator Investment
Earlier today, NewsGator announced another round of investment from Mobius and the addition of Masthead Venture Partners. I’ve been very closely involved with the deal here at Masthead, working with partner Rich Levandov and the teams at NewsGator and Mobius in making it happen. Mobius’ Brad Feld outlined his reasons for his NewsGator investment in a post last year, and I wanted to share my own thoughts as well.
At the core of my opinion is the premise that RSS is fundamentally going to change the shape of the Internet. RSS is the protocol which is enabling its transformation from the Reference Web to the Incremental Web, as I’ve blogged previously. There are many companies emerging in this mushrooming space, but I think that NewsGator is in a unique position to create significant value for customers, partners, and investors. It may sound cliché, but I truly believe that the company’s strength comes down to two components: its visionary strategy and the team.
Visionary Strategy. Last June Brad blogged "the misperception is that NewsGator is only an Outlook plug-in." That view has changed, and deservedly so. First, the company offers a synchronized platform for reading RSS feeds on a number of devices, including mobile and media center – not just in Outlook. And as NewsGator’s Executive Vice President Sandy Hamilton has explained, "we’ve been building and positioning the company over the past couple of months to take advantage of the burgeoning demand inside of the enterprise." In step to that end, founder Greg Reinacker has outlined a strong product roadmap to take the company towards offering enterprises a full RSS solution. So while most other aggregator companies are strictly focusing on the consumer space, NewsGator is taking an approach to include both an enterprise solution and media platform in its offering. And with this investment, the company will have the resources to accomplish all facets of this plan. My opinion is that this comprehensive strategy is the right one to capitalize on the myriad of potential customers who can benefit from NewsGator’s technology.
Team. All start-ups need great people to execute on their visionary ideas. After meeting the team at NewsGator, I am confident that they are right people to do it. Brad Feld said, "I'm dealing with A+ folks." He’s right. Founder & CTO Greg Reinacker is both extremely creative and energetic. CEO J.B. Holston is well-seasoned and experienced to lead. The rest of the team, including Sandy Hamilton and Mark Nass, are top-notch as well. Just one example of this strength is reflected in the fact that a number of them have fully embraced the blog movement, giving this next-generation start-up a genuine transparency.
The combination of these two factors gives NewsGator an advantage that most of the others in the broadly-defined "RSS space" do not. The company is well on its way to executing its vision. For example, Mobius’ Seth Levine points out, "developing strong partnerships with distribution partners (to drive their subscribers/readers to NewsGator’s platform) is a key part of the mix [in setting NewsGator apart]." NewsGator’s recently signed partner relationship with VNU, which will distribute the company’s consumer and business RSS services for seven countries throughout Europe, is just one of many partnership agreements to come. This is just one example of the significant tangible steps that NewsGator is making towards becoming a true success.
In short, I believe in the power of RSS, NewsGator’s vision to capitalize on its adoption & transformation, and the people it has doing it.
April 19, 2005
All the News That’s Fit to Blog
BL Ochman is starting a project to track “how long it takes the New York Times to pick up stories from the Blogosphere.” She cites cases of bloggers getting fired for their personal blogs taking five months to hit the press, and today’s article mentioning Electronic Frontier Foundation's much criticized recommendation that workplace bloggers should blog anonymously taking ten days.
I personally wonder when we’ll now see mainstream media stories about “how Yahoo got its mojo back” after Om Malik and others (myself included) blogged about it a few weeks ago. Yahoo’s impressive earnings today might be the catalyst.
So what does this lagtime between the mainstream media and blog media mean for the startup world? Yes, companies that are ahead of the trends (both competitive and market forces) have the ability to make preemptive moves – that will always be the case. But there are a new crop of companies, like Cymfony, which offer technology-enabled services to monitor the blogoshpere for competitive intelligence. (That company, of course, has its own blog with posts on the subject). Startups that utilize technology to monitor and search (in a structured manner) this online activity could present themselves as interesting investment opportunities.
Posted by at 7:34 PM | Permalink | Comments (0) | TrackBacks (0)April 18, 2005
Adobe-Macromedia Deal: Same Neighborhood, Different End of the Street
The big news of the day is that Adobe is purchasing Macromedia for $3.4B in stock. Fundamentally, this deal makes sense. The core of both of these companies’ products is an offering for the “creative professional” (that’s the Adobe-speak that I picked up while working there a few years ago). Adobe has had success in the past year increasing their top-line through the bundling of their product line; this acquisition will add another set of titles to supplement that bundle. That part of the marriage makes a lot of makes sense – these companies are in the same neighborhood.
The question that I have with the acquisition comes down to culture and strategy. While both of these companies are in the Bay Area, their physical distance mirrors their cultural and strategic differences. Macromedia up in San Francisco and Adobe down in San Jose are worlds apart sometimes. And especially for these two companies. Remember the bitter lawsuit war that these two companies had a few years ago? Let’s just say that tensions ran high and it’s going to take some time internally for the people at these two companies to warm up to each other. More importantly, Adobe CEO Bruce Chizen has publicly stated that the key component of their growth strategy moving forward is around bringing the PDF intelligent document to the enterprise. How does the Macromedia acquisition fit into that plan? I don’t see it, really.
Moreover, I think that Om Malik has it right: these are “two companies who have not kept up with the times… The deal is proof that there is little or not growth organic growth left in the old Silicon Valley. Desktop publishing, and subsequently Web 1.0 publishing are passe… They are becoming increasingly irrelevant in digital worlds where free programs like iPhoto and Picasa are setting the tone on the desktop.” Adobe has missed out on a huge opportunity in consumer digital imaging. Its offering, Photoshop Album, has been edged out by competitors. The problem comes down to culture – it’s just not a place that embraces innovation, especially in the connected online world. The internal Photoshop fiefdom is used to producing shrink-wrapped software, not online services. It “innovates” around a new tweak in the next Photoshop release, not around new product lines or business models.
At least now Adobe is waking up to the fact that it must purchase innovation, not facilitate it. Look for more acquisitions from the Adobe team in the upcoming year, so it can add a few more houses to the neighborhood it’s building.
Posted by at 5:59 PM | Permalink | Comments (0) | TrackBacks (2)The Case for New New Media
Last week, I posted my belief that a significant set of New New Media venues are emerging – ads in video games, mobile phones, and DVR/IPTV boxes. Continuing on this theme, I wanted to point out a few interesting pieces that support this assertion:
- A Reuters story in which the Yankee Group is quoting an $800M in-game advertising market by 2009. While all industry analysts’ predictions should be taken with a grain of salt, this claim definitely points to the fact that this venue is going to be sizeable outlet for advertisers in the coming years.
- Two articles which point to emerging DVR/IPTV box advertising opportunity. The first is the release of a study by Accenture stating that currently 5% of all ads are skipped by consumers with DVR devices, and that figure could reach 22% by 2009. This effect could cost the industry somewhere in the realm of $27B. Again, what’s important here isn’t the exact figures, but the sheer magnitude or the problem (and opportunity for alternatives). Add into the mix the story of Tivo reportedly in partnership talks with Yahoo and Google. Of course, the two portal giants are looking to have their hand in delivering ads on this platform, however it eventually manifests itself. How that will happen, is still unclear. But what is clear is that linear television advertising is going wane, then fade, and be replaced by a new set of inventory on DVR/IPTV boxes.
Pamela Parker at ClickZ sums it up well in her assertion that, “[it’s] all about… online inventory.” As opposed to the late nineties when the demand for new media was feebly supported, this time around there are fundamentally solid business models and needs supporting the current surge. This demand will continue and soon spill over into New New Media types as they emerge and mature, while “traditional” outlets begin to whither.
April 15, 2005
Kill TV? Maybe Not, But It Will Chip Away…
Slashdot reports, “Video Distribution Platform Aiming to Kill TV.” The Participatory Culture Foundation (a new funded non-profit organization) is embarking on an open-source project to create a new platform for internet television and video.
While this effort may not kill television as we know it, my summary follows of it a simple equation: Bittorrent + RSS = Next Step in Video Publishing.
Take the power of distributing via Bittorrent technology, which disseminates the file-serving costs throughout the network, as opposed to on the back of the publisher. Then add the power of RSS in syndicating the content through a standard reception channel. The combination of these two creates a solid platform for true many-to-many video publishing. On the consuming end, while it’s not exactly as simple as turning on the TV and watching anything you could ever wish for, this project is taking a step in the right direction.
April 14, 2005
Fred Wilson's Talk is Del.icio.us
Two weeks ago, I wrote a post, “Social Tagging, What to Think?” Since then I’ve begin to come around to believe its power and potential importance in how information and content will be stored and retrieved on the web in the future. What I am still uncertain about is how exactly this notion is going to manifest itself from a geek buzz item into a service that my mother can and would use. And how a company or companies are going to make money off of it.
Today “A-list” blogger VC Fred Wilson posted his reasoning for his investment in del.icio.us, the now famous collective bookmarking site. I think that his fundamental premise is sound: “We believe tagging is important, its here to stay, del.icio.us is a very important participant in the tagging phenomenon, and we are really excited to be part of its development.”
The portion of his post that I think is more interesting reads as follows: “The question everyone asks is ‘what is the business model’. To be completely and totally honest, we don't yet know. This was a seed investment and none of the investors put up very much capital. Joshua retained complete control of the service and is going to focus on making it better. That is all anyone wants to see happen right now. In time it will become clear what the business model should be. And there are a number of them to choose from for sure.”
Hmm… does this sound reminiscent of talk from the last bubble? Are these Bubble 2.0 words? To be honest, I am still conflicted on the how big this social tagging / social bookmarking / folksonomies “phenomenon” will be and what the right way to approach it is from an investor standpoint. BUT, Fred is indeed a true visionary in the digital media space, and is placing his chips in something that he believes in. That, I can agree with.
“Me TV” at CNET
This week, CNET released a set of news articles covering the radical shift that television is undergoing. It covers everything from on-demand programming to custom-made home media networks. It provides a good general overview, although there’s not much depth to the coverage.
That being said, I am very interested in the current transformation of how/where/when we receive digital content, both from my own personal consumer interest and from an investor standpoint. Things are changing so rapidly, and the incumbent players and money at stake is so great, that startups entering the fray have a lot up against them. We’ve looked at a number of new companies in this space here at Masthead, but haven’t found anything that we could get extremely excited about - yet.
April 13, 2005
Online Communications Strategy for Startups
Microsoft’s visionary blogger Robert Scoble made waves in the blogophere two months ago by saying, “You should be fired if you do a marketing site without an RSS feed.” He’s absolutely right.
I would go one step further and say that you should be fired if you do a marketing site and you don’t have a coherent incremental content and digital constituency strategy.
Having a sound online communications plan is more than just putting up an RSS feed. It’s more than just launching a blog.
Who are the online influencers in your space? Do they know and talk about your product? What’s being discussed about your company in online communities? How is your company going to not only monitor and measure those discussions, but make an impact in them?
Answers to the above questions will determine whether you create your own relevant content (e.g. blogging), enable others to create it around you (e.g. discussion forums), syndicate it from elsewhere – or some combination of the three.
The right approach is going to be different for every startup. What matters is that the marketing department (or marketing person or a percentage of a founder’s time) is making a deliberate effort to determine the best way to communicate with important online constituencies through the use of incremental content.
And, of course, whatever you decide, you create a RSS feed for everything.
April 12, 2005
Are RSS Ads Really Controversial?
Are ads in RSS feeds controversial? Hardly.
Today Paul Kedrosky calls the notion that wide-spread adoption of ads in RSS feeds won’t happen “silliness.” I completely agree.
Dave Morgan, the CEO of Tacoda, wrote a great piece last week, “RSS Advertising, Coming Fast.” He concludes, “This [ad insertion in RSS] is a hot space to watch… It will… become an important supplemental revenue stream to a lot of content owners and small publishers.”
Just as there was some initial pushback to ads on web pages and in e-mail, it’s natural to expect some friction with any impending change. The heart of the issue is that free content needs support from advertising revenue to continue. The situation isn’t any different with RSS as it is with any other technology delivery method. In my opinion, there isn’t any controversy.
April 11, 2005
RSS Isn't Just For Blogs
RSS isn’t just for blogs. In fact, RSS is for so much more than blogs. Really Simple Syndication is a protocol that can and will be used for delivering any type of incremental content.
On the consumer end of things, there are so many pieces of information that users in the future will be able to receive on a timely basis – audio tracks, announcements about bestselling books, coupons or sales, relevant news articles, etc. The list is nearly endless. (Rok Hrastnik posted a great list of potential ideas of how RSS could be used for a marketing department communicating with its outside constituents.) User-generated microcontent is another great candidate for syndication through feeds. Already users can be updated on answers to questions like “Any good recipes for salad dressing?” and “What should I know about traveling in Australia?” at Helium Knowledge. As microcontent engines develop and evolve towards critical mass, these information nuggets will become increasingly relevant and timely for the end-user. And consumers won’t just receive RSS feeds on their PC, but also on any “connected” device, like mobile phones.
And in the enterprise, the number of use-cases is also lengthy. The NewsGator Enterprise product page suggests that corporate users will receive content from “applications, collaboration suites, content management systems, and portals.” All of that is in addition to outside third-party feeds entering the enterprise.
Others agree - Richard MacManus says, “Initiatives involving structuring or extending RSS will further push non-blog uses of RSS in the coming months.”
Bottom line: While blogging has brought RSS to the forefront, the myriad of other RSS uses will lead the Internet’s transformation towards the true Incremental Web.
April 9, 2005
Why is Boston Really Hitless?
In a great post by Jeff Bussgang, he laments the fact that there are so few VC-backed consumer hits coming out of the Boston area. As a Boston-area VC with a consumer/media background myself, I’ve thought a lot about this question, too. Jeff concludes “that Boston simply lacks the key ingredients for a great consumer start-up. All start-ups require the proper ingredients to succeed - visionary entrepreneurs, savvy professional managers and sharp VCs among them.” At fist read, his basic argument makes sense: the best talent around Route 128 lies in the enterprise IT/software realm, so that’s where the strong companies emerge.
But I think that the reasoning runs much deeper than available talent. I believe that it rests on the foundation of Boston culture. California’s roots are in the risk-takers who left their original situations on a “hunch” that a better life could be found out West. I think that this theme bleeds into the mind-set of the rest-coast entrepreneur, willing to bet their company on a belief in his or her intuition of consumer adoption. It’s an “all or none” proposition. By contrast, Boston’s strong heritage lends itself to entrepreneurs who take calculated, formulated risks – more akin to the step-wise function of the early adoption of big enterprise customer sales. It is this cultural difference, coupled with the available human resources, which creates a self-reinforcing circle. Enterprise companies are started, VCs and the talent pool develop domain-specific expertise, and the cycle is further perpetuated.
Regardless of the complex and subtle reasoning for why this situation exists, I agree that the situation is ripe for change. It is true that the talent that has immigrated and emerged here in the past ten years, which will provide a solid base for innovation. But more importantly, the current economic landscape dictates a shift away from innovation in enterprise information technology. The fact that the demand for such technology has severely declined leaves Boston-based entrepreneurs and VCs no other choice but to look elsewhere. With corporate IT spending expected to grow at just 4-5%, how can that industry support a supply of new innovation at return prices that venture capitalists expect? It seems very difficult to me. The upcoming demand for consumer-centered technologies (including the infrastructure to support them) nearly requires that Boston (at least partially) shift its focus towards away from enterprise IT in order for it to survive as a viable region for entrepreneurial innovation.
So I for one am personally looking forward to an upcoming consumer hit coming out of the Cambridge/Boston area.
April 8, 2005
The New New Thing - "New New Media"
“New media” has been around for the past ten years or so, and interactive media ad spending has exploded since its inception. Advertisers have found and are continuing to find this digital medium as an extremely effective way to reach and influence consumers.
Now with the advent of Tivo and other DVRs circumventing the stand-by traditional 30 second television spot, advertisers are scrambling find even more “inventory” for their messages. And they are succeeding, albeit temporarily, along a few fronts. For example, advertisers have moved to integrate their product directly into shows’ content, like in Trump’s Apprentice, with mixed results. But even successful efforts of this type cannot overcome the fact that individuals are spending increasingly substituting time watching TV for other forms of interactive entertainment.
With the decreased effectiveness and usage of traditional mediums in reaching consumers, we are now seeing the emergence of an additional set of promotional outlets. I see these “New” New Media advertising types surfacing as becoming powerful venues for reaching consumers:
• Ads in Video Games – Companies (like Massive Inc.) are creating ad inventory systems to directly insert interactive advertisement into game-play on both consoles and PCs. Why drive your racing car on a generic street when you can drive by dynamic promotional billboards strategically placed along side the road?
• Ads on Mobile Phones – Despite initial consumer resistance and early predictions that this trend has been “just around the corner” for the past five or ten years, this ad type will arrive as carriers become increasingly reliant on outside help to increase per-subscriber revenue metrics. Think about the power of a button, “Press here to talk to us.”
• Ads on DVRs / IPTV Boxes / IP Radio Boxes – While it’s unclear to me just how the home media entertainment center will evolve in the future, there is one thing that is clear: advertisements will become an integral revenue component in delivering media to consumers. For example, just this week, Tivo announced ad inventory pops displayed during their fast-forwarding function.
April 7, 2005
Google Q&A - A Small Step for Microcontent
Last week, I blogged that the “question and answer” search paradigm wasn’t dead at all. Earlier this afternoon, Google responded by launching its Google Q&A feature. Now users can type a one-line question into the search box, and if a simple factual answer exists in the company’s mining of open source encyclopedia-type information, the results page contains an answer in the OneBox section at the top. Gary Price at Search Engine Watch has a good initial write up on it.
For example, I typed in, “What is the population of Pittsburgh?” and Google responded with a simple reply, “Pittsburgh Population: 334,563” at the top of my results.
This Google Q&A is a great simple first step. But “question and answer” microcontent publishing still has a lot of progress to be made. And new startups will continue to make waves here as well, not just the old guard.
Most questions that people have can’t be answered with simple factual answers. Users already know where to get these – Wikipedia, dictionary.com, etc. This service just makes it easier by cutting out the middle man. Look for continuing innovation around answers that are deeper, more subtle, and opinion-based.
April 6, 2005
Portals and Startups
I’ve been rambling on in the past two days about Yahoo vs. Google. What does this have to do with startups and venture capital? Everything. These two companies, along with IAC and MSN, are likely acquirers of the new breed of startup that are emerging supporting the Incremental Web. All of the other topics I’ve covered in this short life of this blog so far – RSS, social tagging, microcontent, vertical search, web analytics – are fertile ground for innovation and new company creation.
Yes, there are a handful of companies in each of these “spaces” that have already emerged in the past year. On the extreme end, there’s del.icio.us, the company that was made “famous” in the blogosphere before the founder even quit his job and started full-time on the endeavor. And for every delicious out there already known, there’s a half-dozen still waiting to be discovered or even founded.
We’re in an exciting time. Even the mainstream media, exemplified by Newsweek, has a feature article this week about the new breed of startups. If a general news magazine thinks it’s a new story, then it’s been fact for the past nine months.
So when Google and Yahoo are upping their moves, vying for the top dog in the portal game, then it also means that we’re seeing just the beginning of feeding them with new startups. Now that’s a perfect topic for a genuine vc blog.
April 5, 2005
One More Yahoo!
Following up on yesterday’s post, an article in AdAge yesterday points out another reason why the Yahoo vs. Google war is soon going to tip the scale away from the media-anointed king, Google. Yahoo has the wind against it back with market trends: “rich-media advertising, driven partly by video technologies and certainly buoyed by consumer uptake of broadband, is predicted to surpass search marketing as the largest-spending online category this year.”
John Battelle has eloquently drawn a distinction between Yahoo, the media company, and Google, the media company. Because of this difference, Yahoo, culturally and structurally, is better positioned to ride this trend towards rich-media advertising. In short, the company has a leg up in catering to this set of advertisers in the coming year or two. Look for Google to make some moves to play catch up in this race, but Yahoo is already in the driver’s seat.
April 4, 2005
Yahoo! For Yahoo!
There has been a lot of discussion in the past week about “How Yahoo Got Its Mojo Back,” as Om Malik puts it. Some go even as far to say that “Yahoo is the new Google. Google is the new Yahoo.”
I wouldn’t go that far in discounting Google, but I do claim that Yahoo has been unfairly passed over in the past year. I say “Yahoo!” to Yahoo! for making strides when others weren’t looking.
While Google was busy soaking in the riches and hype from its IPO, Yahoo bas been busy catching up in developing a competitive AdSense product: rounding out its own API, and upgrading its free e-mail product. More importantly, the company has been quick to recognize the value of the Incremental Web. Incorporating RSS feeds into my.yahoo was a momumental first step. More recently, the acquisition of Flickr and the beta launch of Yahoo360 demonstrate that the company is forward thinking about the internet’s transition to an incremental user-generated content medium. As a media company, Yahoo is placing a solid stake in the ground.
If all of the above is true, it surely hasn’t been recognized in the stock prices. Paul Kedrosky wonders when the stock price pairing of the two companies will diverge. I agree. The question becomes – when will Wall Street realize that their darling Google has an older brother Yahoo that’s flexing its muscle?
April 1, 2005
Social Tagging - What to Think?
There's been a lot of discussion in the Blogosphere talking up social tagging / social bookmarking / folksonomies. I’m deeply interested in this conversation, as I think that user-generated information organization (as opposed to author-generated or thirdparty-generated information organization) has a lot of power behind it. Take the buzz around del.icio.us and flickr as an example of this excitement.
Or is this all hype without any true foundation?
I don’t know what to think – yet. I am still reading and learning more.
But I think at great first start in learning more about this subject is this academic paper by Adam Mathes at University of Illinois at Urbana-Champaign. His conclusion, though, reads, “A folksonomy represents the simultaneously some of the best and worst in the organization of information.”
No wonder I’m having a tough time forming my own opinion. I’ll keep digging and thinking.