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January 26, 2007
Wanna Be Startin' Somethin'
This morning I was reading this week's issue of Chris Shipley’s Guidewire report which addressed a popular topic du jour, asking whether or not we’re in a bubble for web-based businesses. The paper argues that "compared to the Dot Com boom of the late 90’s very little money has been invested Web 2.0 companies. Indeed, these companies required little or no investment in order to explore early concepts and put beta sites into the market." While it’s true that the absolute dollars put to work is in fact lower, that doesn’t seem like automatic cause for dismissal for an environment that feels frothy.
But further on in the introductory analysis of this report is a line that I can really agree with, "While the low capital requirements remove a significant roadblock to starting a web-based company, they mask the real economics of business building."
It rhymes very much with Fred Wilson’s post from a month ago "Web 2.0 is A Gift, Not a Threat, to VCs" in which he plots in a great chart the capital requirements for startups over their development, and further says that “It may take only two or three great developers to build and launch a web service. But it still takes a bunch more to maintain it, develop it from there, deal with scalability, deal with feature enhancements, take the service in new directions, respond to competitive threats, etc, etc."
And entrepreneurs are feeling the same way. These sentiments rang familiar a conversation I had with a serial web entrepreneur in NYC last week, who commented to me that while "the bar for launching a service is lower, but the bar for success is higher." In other words, web companies who are attempting to leverage network effects to drive sustainable long term value are having difficulty because of the volume of companies launching places a strain on the available pool of “true” early adopters willing to try a service. The loud echo-chamber marketplace makes it extremely difficult now (vs. two years ago) to rise about the noise to spread the word in the blogosphere or other natural communications forums applicable to the target market.
As a consequence, consumer web services are being forced to attract customers outside this ecosystem. While I’ve seen some entrepreneurs with successes in utilizing offline marketing to incite behavior online, my experience has shown that the best way to get people do something online is while their online – after all, they’re already there. I think that as some Web 2.0 shakeout emerges over the coming months, we’ll see a trend that the ones which endure beyond the initial flash are those which have incorporated the marketing of the service directly into the service itself.
Nisan Gabbay hit the nail on the head in his guest post on Masheable last month when he said that for a company to be an internet success story "it must either be a true viral marketing candidate (likely a communication service at its core) or it must be a strong candidate for leveraging natural search traffic." If a service is truly viral (i.e. the act of referring another user is deeply ingrained into service itself) or directly leverages natural search, then it possesses a more predicable sustainable way to continue to build traffic (and leverage network effects over time).
The title to the aforementioned Guidewire report is spot on – "Web2.0 is Dead, Long Live Web 2.0." We’ll continue to see experimentation with the launch of new services and companies, but we’ll also increasingly see those which haven’t generated traction fall away. And many of those with the potential to create an enduring company will need additional capital. It may be easier to start something these days, but it’s still difficult to make it last.
Posted by David Beisel at 12:18 PM | Permalink | Comments (1) | TrackBacks (0)January 23, 2007
Advertising in the WWW (Wide World of Widgets)
When there’s an article on something in the New York Times, as there was last week on widgets – you know the concept has gone mainstream. I’ve been spending a lot of time recently reading blogs about, thinking about, and most importantly, meeting with entrepreneurs creating endeavors which leverage the ramifications of an increasingly decentralized widgetized web. And the primary focus has been on advertising. How will advertisers play in a world in which widgetized microchunked content proliferates?
Hooman Radfar over at the blog Widgify recently pointed to Universal’s use of a snaggable movie trailer promoting this week’s debut of the film Smokin’ Aces (with the help of his company ClearSpring). When people post this snippet of code on their site, they are in effect standing behind it, creating a validating point that this is content worth watching, and consequently promoting the film in an engaging way that an interruptive advertising type couldn’t do.
With marketers searching for alternative means to reach consumers – even going as far as placing branding ads in airport security bins - Greg Verdino of the Emerging Channels team at Digitas recently cautioned, "Just as the smartest marketers are realizing that interrupting unreceptive consumers is no longer an effective means of spreading brand stories, other backward-looking media and marketing companies seem proud that they've found new ways to interrupt... you can't break through advertising clutter by simply creating even more clutter."
Interactive online widgets offer a viable alternative for spreading advertising and branding messages which rise above interruptions and facilitate direct consumer interaction with true engagement. Seeing this opportunity, UK-based social networking site Bebo announced just a few weeks ago that they will feature advertiser supported widgets in their widgets gallery in this upcoming year. Another example is that nearly all of the professional sports leagues are starting to embrace widgets to promote their teams and games. Many of the social commerce startups, like ThisNext and MyPickLIst, feature product-based widget apps. And this potential goes beyond just pure commercial advertisements. Consider ChipIn, a web service which allows organizations looking to raise money for causes to do so via an online widget proliferated via social network pages.
I agree with Radfar’s sentiment that “it will take some time for the right models to work themselves out, but with all of the [widget] activity mounting this year is promising to shake up the world of online advertising.”
January 8, 2007
Vertical Marketplaces - Connecting Buyers and Sellers
One type of company largely uncovered in the web 2.0 blogosphere is the emergence of vertical marketplaces - or at least the framing of them that way. Of course, eBay has traditionally been the ultimate marketplace brining buyers and sellers together. And certainly the general online classifieds (like Craigslist), job boards (like Monster), and dating sites (like Match.com) have flourished since the dawn of the internet of "Web 1.0." But I am beginning to see a set of additional verticals emerging outside these established forums, and it will be interesting to watch how they progress.
There are times when a general classified ad would do, but when a vertically focused connection service will better facilitate a transaction between interested parties. That is, as long as the market is liquid.
It’s amazing to observe the success that a site like Rentacoder has had over the past five years in creating a place for buyers and sellers of contract programming work to connect. Of course, interested parties could use a general-purpose classified site to facilitate the same exchange, but there is something unique about having a marketplace devoted solely to this vertical. Other interesting examples that I would place in this category are the few startups, like ClickForLessons, which are trying to the same thing for an entirely different set of groups – buyers and sellers of private music, dance, singing, acting, and art lessons. It’s also notable that social network for pets, Pawspot, partially differentiates from leader Dogster in promoting the exchange of petsitting services. Additionally, we have had a few companies pitch us at Masthead who are launching or have launched new marketplaces focused on connecting buyers and sellers within companies/organizations in specific industries. (What I am not talking about, however, is creating a set of vertical industrial supplier markets that many tried to approach during the late 90’s with a few resulting players emerged.)
The real opportunity here is in the business model itself – not just providing paid advertising listings (or even contextual relevant advertising adjacent to the listings themselves), but rather actually participating in the transaction as a percentage fee. The more intimate the relationship these marketplaces play in the transaction, the greater the value they can capture from it. As Rentacoder has demonstrated, this level of is engagement is possible by assuming the risk of the transaction, which gives both transacting parties the comfort in "paying" for the introductory services in a substantial manner.
Just as it looks like the all-purpose job sites are having trouble recently competing vs. niche sites (as paidContent and Businessweek report), perhaps there is a real opportunity for specialized vertical matching of buyers/sellers as well. Rather than just connecting for the sake of connecting, I think one evolution of the social networking space (and especially one towards monetization) will focus on these types of connections. Rumor has it that MySpace is already doing very well with its classifieds, but I hypothesize that more focused solutions (many from startups) will also make an significant impact in the future.
January 4, 2007
After Google is the Fourth Age of Computing?
I’ve enjoyed reading all of the blog discussion in the past few days in response to Rich Skrenta’s Monday "Winner-Take-All" post. He deemed Google the winner in this "third age of computing" (2001-) having succeeded the prior two of Microsoft (1984-1998) and IBM (1950-1980). A post well worth reading, as he is correct in assertion that "Google is the start page for the Internet," and the solid analysis which follows in his post is compelling.
Yet his conclusion that "it's conceivable that they [Google] could actually end up owning the entire net, or most of what counts" is too strong, in my opinion. He argues that because user switching costs are zero, a winner-take-all market paradoxically results in all other lucrative destination verticals. However, one failure in this analysis is that many of the emerging online vertical applications contain a social component to them – these create robust network effects that do yield rather high switching costs for users. If web applications evolve towards not just finding information, but rather participating in it, there are compelling reasons to start with communicating and not searching. As we continue to see greater trends towards social media, users will seek services which add value from other users, not because a service has a better fundamental underlying technology or because they go there out of habit; rather, users will seek services which provide established rich interaction.
Moreover, Mitch Ratcliffe counter’s Skrenta argument with other good points, citing historically effective CPM rates for Google and increasing customer acquisition costs. Ratcliffe further goes on to state that if one extrapolates from those periods of dominance (quickly becoming shorter) that "Google in 2007 has a year or two of dominance left." I would put forth that the "fourth age of computing" (following the above meme) is going on a different platform - a mobile-based one - and from this perspective, Google has anything but a dominant position. While the vision of many in the industry is for "one web" in which "the same information and services available to users irrespective of the device they are using," the road towards this point will be a long and winding (uncertain) one. There are too many interested constituents in the value chain with real power (like the domestic carriers and handset manufacturers) for the battle for dominance over mobile applications to be already won by the likes of Google.
So while I agree that Google currently dominates search now, I have difficulty believing that they will "own the entire net" as we know it today, and there is certainly much question about who will dominate the apps of the mobile device web of tomorrow.
January 2, 2007
MIT EF "Brave New Web" Conference / A Call For New England Startups
For the past couple months, I’ve been co-chairing a committee with Henry Houh of Podzinger which is organizing this winter’s MIT Enterprise Forum conference. Entitled "Brave New Web," it’s going to be held on February 7th at the Colonnade Hotel in Boston. We’re focusing the conference’s content with sessions on how the web is dramatically changing the way that people and communities communicate, contribute, and collaborate. I’d encourage regular readers of this blog who are in the area to attend, as many of the themes which I’ve written about in the past are going to be explored with some notable speakers (see list at the end of this post). You can learn more details and register for the all-day event on the conference website.
In addition to "traditional" conference content of keynote speakers and panel sessions, the Brave New Web event is also going to have a "Demo Lunch" where local web startups will have an opportunity to present their service to attendees. I am also heading the group which will be selecting this set of seven New England based self-, angel-, and VC-backed companies whose business model integrates pioneering use of the next generation web. Each chosen company will receive a table in a designated area adjacent to attendees' lunch seating and the opportunity to walk through live demonstrations of their offering or service. If your startup is interested in presenting in this forum, you can learn more and apply online here.
The two keynotes for the MIT Enterprise Forum Brave New Web conference are:
* Jeremy Allaire, Chairman and CEO of Brightcove (keynote)
* John Furrier, CEO of PodTech (keynote)
And other notable speakers to date (with more soon to be announced):
* Adam Bain - Executive Vice President, Technology & Production, Fox Interactive Media
* Laurie Baird - Director of Technology Partnerships, Turner Broadcasting System, Inc.
* Jose Castillo - President of thinkjose.com
* Steve Garfield - Blogger, videoblogger and Boston correspondent, Rocketboom.com
* Tom Gerace - Founder and CEO, gather.com
* Nick Gogerty - Founder and CEO, InClue
* Phil Hollows - Founder and CEO, FeedBlitz
* Henry Jenkins - Co-director, Comparative Media Studies Program, MIT
* Joseph B. Lassiter III - Professor of Management Practice, Harvard Business School
* Amber MacArthur - New media reporter/host, CityTV
* Andy Plesser - Founder and CEO, Beet TV
* Juliette Powell - CEO and executive producer, Inspiration Festival
* Scott Smigler - Founder and president, Exclusive Concepts
* Jeff Taylor - CEO, Eons
* Jon Udell - Evangelist, Microsoft