Tuesday, November 29, 2005
Most recently, he founded and ran Zingy, which pioneered ringtones and other content for cell phones in the US. While living in France five years ago, he observed the growth of this new media category in Europe and Asia, so he packed his bags for NY and in about three years had created a $100 million mobile media company in America. He sold Zingy to Forside (a public Japanese company) last year and resigned as CEO this week.
Before Zingy, he immitated eBay's early success by founding Aucland in several European countries and Deremate in Latin America. Aucland was acquired by QXL (a publicly traded UK company), and eBay purchased Deremate just recently.
I'm curious to see how Fabrice settles on his next entrepreneurial endeavor, and I plan to read his new blog to watch his thoughts evolve.
Tuesday, November 15, 2005
When I set up my Blogger account, I erred in selecting the setting that allows for anonymous comments. I wanted to encourage anyone to disagree (even violently) with my blog entries, and I thought anonymous comments would allow for maximum openness. Unfortunately, it seems too much openness is a bad thing as the setting simply invited blog spam.
Virtually every one of the deleted comments went something like this:
You have a really great blog here. If you're interested in
digital cameras, check out my site.
At first, I was actually impressed with the ingenuity of the 'bot' that automatically posts these lame ads on blogs. But after about a dozen of the annoying intrusions, I got tired of manually removing them, so I tooled around with Blogger and figured how to turn off anonymous commenting. Lo and behold, the blog spam ceased.
Sadly, though, I fully expect the blog spam will return when more sophisticated 'bots' are developed to log on to Blogger with bogus user accounts. When that time comes, expect to see another flurry of deleted comments.
Of even greater concern, though, is the impending invasion of spit, which I recently learned is the spam equivalent for voice-over-IP. Over the last several months, the percentage of my phone calls involving Skype has steadily increased to the point where it probably represents 10% of my conversations. What a nightmare it will be when Skype starts ringing randomly throughout the day because some spammer figures out how to program a 'bot' to make a VOIP call.
I just hope anti-spam leaders like Postini and Ciphertrust are already working hard on solutions to the next round of spam wars.
Sunday, November 13, 2005
To my (admittedly limited) knowledge, KDDI operates the only all-IP cellular network on earth. Skype helped prove that for terrestrial networks, voice is just an application, and KDDI is taking this concept to the wireless world. This is a big deal.
Why? When wireless carriers embrace the idea that their cellular networks are just IP connections to the small computers we call mobile phones, endless possibilities will spring forth. The first post-voice, breakout application seems to be music.
In the US, today's "MP3 phones" are tethered to a PC. There's no way to load music onto these devices without connecting them to a computer. In Japan, KDDI users download music directly to their phone, which means music is a real impulse purchase. KDDI sold its first million tracks in January, just 48 days after launch. This is particularly impressive because only 410,000 KDDI subscribers had phones with music capabilities. That's more than 2 songs per subscriber in less than two months.
KDDI has since surpassed 20 million downloads, and customers are defecting from DoCoMo in droves. The key is flat rate, high speed service. It takes under 20 seconds to download a full MP3-quality track on the KDDI network.
Apple's iPod product line is fantastic, and the iTunes experience clearly works well for most consumers (1 billion served is obvious evidence). But when some company figures out how to replicate KDDI's offering the US, it could take a serious bite out of Apple's music dominance and capture cell phone share faster than by, say, acquiring T-Mobile. I won't hold my breadth for it to happen, but when it does I'll be ready to sign up.
Wednesday, October 26, 2005
However, I'd still bet against some of Google's choices. One strategy I disagree with is Google's often-cited policy that its engineers can devote up to 20% of their work time to personal research projects. Google justifies this as an investment in innovation presumably because its talented employees will cook up some new ideas that will, over time, flourish into billion-dollar businesses. This August 2005 Always On article does a decent job overviewing Google's innovation efforts.
But every entrepreneur knows it takes a *lot* more than a 20% effort to innovate. It takes more like 120%. I'd much rather bet on a charged-up entrepreneur who is fully dedicated to an innovation than on a Google engineer spending just a fraction of his time.
Of course I do find myself thinking (and asking entrepreneurs) about how a new startup plans to address the "Google risk," but it's not out of fear related to Google's 20% innovation time policy. In fact, I wonder if the 20% innovation time is really just a distraction from productive work for most of Google's staffers.
Meanwhile, I'm delighted to be working with and investing in entrepreneurs who give more than 100%, because it's impossible to get anything done with any less effort.
Monday, October 10, 2005
With a group that large, you can find just about everything. In fact, you can find thousands of anything.
Well, imagine I told you that a college-bound kid put up a web page with a giant grid on it. Let's say he offered to sell squares on the grid -- each 10 pixels x 10 pixels -- for $1 per pixel (or $100 per square). How many could he sell?
If you're like me, you'd probably guess zero. Or maybe a handful to some friends as a gimmick. Well, you'd be wrong. Very wrong.
I haven't done the research to verify this isn't a sham, but it certainly looks real. Check out The Million Dollar Homepage. Start at the very bottom of the associated blog and read up. A teenager named Alex in the UK put up the site 6 1/2 weeks ago and has collected $323,200 as of this morning! The site is a wild hit. Here is its Alexa ranking growth:
With a simple, clever, gimmicky idea, Alex found a way to strike that certain chord with a large segment of consumers. Ostensibly, he launched the site to pay for his university education. The $300 grand he has already collected buys a few degrees with a couple of sports cars on the side. Yet people keep buying his virtual real estate.
Last week I spoke on a panel organized by the Young Venture Capital Society in New York. The event was titled "Understanding Consumer Media." My fellow panelists included Danny Schultz, Andrew Zalasin, Steve Brotman and Mitch Davis. We each had a slightly different take on consumer technology investing and entrepreneurship, but I think one of the most important points we discussed was the difficulty of predicting what will work with consumers. The Million Dollar Homepage is a wonderful example of that challenge. It may also be an illustration of an age old maxim: "A fool and his money are soon parted."
Hats off to Alex for a creative idea and an entertaining blog to go with it.
Friday, October 07, 2005
Well, I am delighted finally to see some evidence of hissing. No, I'm not referring to the rapidly inflating Web 2.0 bubble (see David Cowan's comments on this week's Web 2.0 Conference here). I'm referring to the bubble that just refuses to pop even after 12 years of near-constant inflation. I mean the Manhattan real estate bubble.
For almost 18 months now, there have been articles every day in all the major newspapers describing an ever intensifying real estate run-up. Finally, this weekend, the first major cracks appeared. And for someone who has been (foolishly?) sitting out of the real estate market for 10 years now, it's an enormous relief.
I hope the articles like this one from Sunday's New York Times continue. The article quoted a report by Miller Samuel, one of New York's most reputable appraisal firms, and by Douglas Elliman, one of the region's top real estate brokers, claiming average sale prices declined 13% in Q3 from Q2. The same report said that median prices fell 3.2% (to what remains a whopping $750,000). Of course that means the high end of the market is collapsing the fastest, and I hope that's a strong indicator of additional compression to come.
As Rob Stavis put it to me recently, "Not owning any real estate is effectively equivalent to being short a unit." He argued that since we all need a place to live, not owning any property is like being short relative to one's long-term real estate needs.
Well, I'm anxious to cover the short, and I hope the market finally cooperates.
Monday, September 26, 2005
Monday, September 12, 2005
The latter attribute, however, is becoming a problem.
Friendster was among the first social networks, and it was a social network for social networking's sake. It didn't have any real functionality. I think that's part of the reason it atrophied (poor performance is another). By the time it tried to become an online dating site, it was too late; users had already started to abandon it in droves.
Eventually, almost every consumer web service will incorporate social networking as a feature. Companies such as Yelp, Trip Connect and Flock serve a valuable function and overlay social networking on top. Yelp is a slick yellow pages. Trip Connect helps with travel planning. And Flock is a new browser. With my social network embedded, I can find out which restaurants or plumbers my friends (and their friends) like on Yelp, which hotels they recommend on Trip Connect, and what web sites and blogs they frequent with Flock (when it launches in the next few months).
The smart incorporation of social networking makes Yelp, Trip Connect and Flock much more powerful than their Web 1.0 counterparts (Superpages, Trip Advisor and FireFox).
The problem, though, is that I will have too many social networks to build and maintain. In addition to Yelp, Trip Connect and Flock, there's LinkedIn for developing new business contacts and GoodContacts or Plaxo for keeping the information in my digital rolodex up to date. I'm building yet another social network of blogs, and the respective bloggers, that I read regularly. Popular blog sites like MySpace and Xanga basically incorporate social networking functionality to facilitate cross-blog interaction.
So, I'm already up to 6 social networks, and I'm sure others will soon emerge.
What I think Web 2.0 needs is an independent social network that individual sites can integrate. Today, I have to invite my friends and colleagues to join each new system that emerges so we can re-establish our personal connections. With an independent overlay, my entire social network would exist in one place and be instantly transportable to new venues.
Since no idea is original, I suspect someone has already started working on a solution to this problem. Now I just need to find it.
Sunday, September 11, 2005
I used to be one of those people with file cabinets full of “documents” and “records” at home. But I have always harbored a few ounces of doubt as to whether I should actually be keeping all these files. Would I ever need to consult an old brokerage statement or credit card bill?
More concerning was that I definitely wanted to keep some of the files, like old tax returns, but if anything ever happened to them (fire, flood, or most likely – a misplaced box), I wouldn't have them when I needed them. The last thing I wanted to do was make extra copies.
After a little shopping research, I found the answer. And it lives up to every rave review on Amazon. It is Fujitsu’s Scansnap FI-5110EOX2 scanner.
I can put stacks of 50 pages in the feeder at once, and in a couple of minutes, I have a digital document.
- it scans double- or single-sided pages in one pass (and accurately auto-detects)
- it never jams
- it can do color or black and white images
- it comes with Adobe Acrobat and outputs PDF files
- it allows you to trade off quality/resolution vs. file size using 4 distinct settings. The lowest is fine for most business documents and requires about 50kb per page side scanned; the highest produces near-photo quality JPEGs
- it comes with a USB 2.0 (or 1.x) connector
- it takes up hardly any space (it’s about 10” tall with a 6” x 13” footprint)
- it retails for less than $450.
I have since emptied and scanned several drawers of files. These documents, and the file cabinets that used to store them, are now teed up for a trip to the garbage.
Can anyone recommend a good shredder?
The closing theme of Jobs' speech was borrowed from the tag line of The Whole Earth Catalog: "Stay Hungry. Stay Foolish."
As I thought about it, I came to the conclusion that almost every entrepreneur I know adheres to that tag line much more so than most people do. I suppose it's quite fitting that those words help to inspire Steve Jobs, one of Silicon Valley's pioneers.
Friday, September 02, 2005
The "2.0" part of the name is quite fitting. Like most ".0" releases, it only sort of works.
I added Bloglet to my blog last week to allow readers to subscribe via email. I have posted a few entries since, but not a single email has been delivered.
No doubt this is partially just an illustration of the adage "you get what you pay for" (Bloglet is free). Still, for those of us who don't want to wait for Web 2.1, tolerance is a prerequisite.
Meanwhile, I've converted my budding email subscriber base from Bloglet to Feedblitz. Please adjust spam blockers accordingly.
Thursday, September 01, 2005
Take the television remote control, for example. Today's models have dozens of buttons, but the vast majority of people use no more than the same five buttons which debuted on the original models 20 years ago: power, volume up/down, and channel up/down. There is a 2% portion of the population that appreciates all those other buttons, but the other 98% simply get confused, and if they accidentally press one of those "extra" buttons, they can spend hours struggling to get their tv working again.
As our office PCs invade our living rooms, the complexity is confounding most consumers, and it seems to be getting worse by the day.
Several months ago, I met an experienced technology lawyer in New York who was excited to tell me about his recent discovery of Gracenote, which happens to be one of my portfolio companies. His circuitous path to Gracenote astounded me.
First, he spent a couple hundred dollars buying 99 cent songs on iTunes. Eventually, he started complaining to a friend that he felt suckered by Apple because the cost of his new iPod paled in comparison to the cost of all the songs he bought to fill just 5% of it. He had no idea it was possible to rip CDs!
But the story gets even better. He didn't have a broadband connection at home, and he didn't think to dial up to his ISP before ripping (who would?). At first I didn't understand why he would weave that fact into his story, but then it dawned on me. Without internet access, there was no way for iTunes to connect to Gracenote's servers and download all the metadata (song names, artist names, genres, etc) for each CD. The poor sap was so relieved to be avoiding iTunes fees that he didn't mind manually entering the metadata for the first 85 CDs he ripped. He just didn't know any better.
Then one day he happened to be online while ripping his 86th CD, and he was quite pleasantly surprised to find the metadata appeared automatically when iTunes connected to Gracenote. After $200 of wasted iTunes purchases and several hours of unnecessary typing, he finally figured out the right way to load music onto his digital music player.
And he's no dummy. He's a college graduate with a degree from a top-10 law school. The technology is just too complicated.
BVP partner Ron Elwell recently met with executives at one of the top consumer electronic superstore chains. He learned that these are among the most common questions posed to the chain's in-store employees:
"I'm trying to decide whether to buy an MP3 player or an iPod."
"Will I break my CD when I rip it?"
"Isn't it illegal to download music?"
It also turns out that the chain was struggling to keep memory cards in stock. After some research, the store executives realized most consumers don't know how to get pictures off their digital cameras. Many just fill up their memory cards, put them in a shoe box, and then buy another card!
I suspect most of my blog readers will laugh at these anecdotes (I sure did). But most consumers can actually relate. Consumer technology products are just way too complicated for the average Joe. This stuff needs to get a lot simpler before consumer products can really "go digital."
Tuesday, August 30, 2005
EasyRoommate is headquartered in New York City and all of its employees are in a single office just off Union Square. Everyone speaks English, but rarely as a first language. The Italian woman who operates www.EasyStanza.it sits next to a Spanish woman responsible for www.EasyPiso.es who sits next to a French man working on www.Appartager.com. Between the three of them and another half-dozen colleagues, they operate an identical roommate-finding service on web sites in 19 countries and six languages from a single office in New York.
They host the sites at a data center in nearby Westchester County, and they outsource most of their technology development to programmers in Latin America and India.
Despite all the complexity involved and the fact that most of his paying customers and advertisers are thousands of miles away, the entrepreneur behind it all earns a profit every month.
Sunday, August 28, 2005
Ten years ago I didn't have a cell phone. Today, it accounts for more than half of my calls. With EVDO's "near-broadband" wireless service at just $60/month, I'll have unlimited internet access and international phone calls via SkypeOut's super cheap $0.02 per minute rates. Add WiFi connectivity, and you'll even be able to reach me on airplanes. Lufthansa already passed
the two-year anniversary of its first WiFi enabled jet.
So, all I need is an EVDO capable handheld device, and I can say bye, bye to my cell phone?!
On second thought, it's not that simple:
These two requirements are simple to describe, but I have feeling they could take 15 years to achieve. For now, I'll have to settle for my Motorola v710.
Thursday, August 25, 2005
I have never been able to verify its authenticity, but my favorite Dell tech support interaction goes something like this (circa 1990):
- Customer: I just set up my new PC, but the foot pedal is not working.
Tech support: The foot pedal?
Customer: Yeah, I keep stepping on it, but the computer won't turn on.
Tech support: Sir, the on/off switch is the orange button located in the middle of the front of the computer case. Try that.
Customer: Oh, okay (presses button). Yes, that worked. My computer is finally on, but now what do I do with the foot pedal.
- (After a few minutes, the tech support rep figured out that the customer had mistaken the mouse -- then a new PC accessory with the first pre-installed shipments of Windows-386 -- for a foot pedal.)
I recount this mix-up because most of my favorite software operates just as well with my mouse out of reach on the floor. Every required click is often a waste of time. It is so much easier for an experienced user to press a key or two (or even three or four) then to transition a hand from the keyboard to the mouse, line-up the pointer, and click away.
Still, almost 15 years after Windows usurped DOS as the primary PC OS, many software developers don't get it.
I love My Yahoo, I have it carefully customized, and (for the foreseeable future) it is my homepage. Yet I manually navigate to Google every time I want to do a web search (ALT-D, google, CTRL-enter is faster/easier than clicking in the My Yahoo search box). It baffles me that the Yahoo web developers haven't designed the My Yahoo page to load with the search box in focus. I wonder how many people with mouse allergies like mine use similar workarounds to avoid the extra clicks.
My Yahoo is just one example. What I'd really like to see is an evolution of web UI standards to facilitate better keyboard navigation. It is possible to tab through all the links on a page and navigate to the one in focus by pressing enter. But many pages have enough links to make tabbing impractical. I can think of a few potential solutions, but I'm hoping the clever Firefox UI designers (or plug-in authors) will come up with something great.
These little things really do matter. For example, I think Firefox's real "advantages" over IE are just an amalgamation of subtle usability improvements. Similarly, Skype's dominance of PC VoIP is driven by its slick software that gets every little feature just right. Getting the little things right often leads to fantastic user adoption.
But based on the rarity of truly elegant software UIs, sweating the small stuff is no easy task. I sure wish more developers did it well.
Sunday, August 21, 2005
- Networked CE (consumer electronics) -- I anticipate a day in the not-so-distant future when every CE device -- TVs, stereo components, and even clock radios -- will have a built-in network interface. I do not think this means we will see new CE brands (though Sonos may prove me wrong) as I think the brands we already know and trust (Sony, Samsung, Panasonic, etc) will add networking on their own. But I do think there will be untold new digital services and software to tap the potential of these new connected devices. I am looking forward to the day when my networked clock radio automatically checks my Outlook calendar to ascertain when I need wake-up.
- Tech support for the home -- I have not verified the claim, but a few sources have told me that one of BestBuy's fastest growth engines is its GeekSquad service. As PC and CE networking at home get ever more complicated, the typical household will fall farther behind the tech learning curve. While consumers may let the VCR flash "12:00" ad infinitum, they won't sit idly by when bits stop flowing over their home LAN, which, no doubt, will soon include several PCs, their telephones, and their living room electronics. I expect we will soon see innovative business models aimed at solving the home tech support problem cost-effectively and profitably.
- Video games and the massive ecosystem around them -- video games' widespread appeal continues to blow me away. Whether it's casual games for the masses (who didn't whittle away at least a few hours experimenting with Minesweeper when it first appeared as a Windows accessory?), realistic simulations like EA's sports series, or fantasy alternative realities like World of Warcraft, there is already something for everyone. And the breadth and quality in every category continues to improve. Some people actually play video games for a living. Others pay hundreds of dollars for -- or even steal -- "virtual goods" for their on screen characters. At least one has been fingered for knifing (in real life!) a friend who stole his virtual property. For a wonderfully entertaining read on the subject, try this. Video gaming growth rates are staggering with no signs of letting up.
Sunday, August 14, 2005
So I plan to use "short" to describe new ideas/businesses/phenomena that I do not believe in or that I think will be roadkill in the history books. And of course I'll say I'm "long" things that strike me as having, quite appropriately, great long term potential.
A recent investment in Quadriserve, by my colleague Rob Stavis, inspired this first post of shorts and longs. The inspiration is two fold. First, to sell something short, you need to borrow it from someone, and Quadriserve's business is about helping investors, typically hedge funds, borrow the stocks they want to short. Second, Quadriserve epitomizes what I call "eBay for" ideas, and I'm very bullish on "eBay for" businesses.
Longs (actually just one long in this post)
- "eBay for" businesses -- these are marketplaces which make money by providing a forum for buyers and sellers to come together. As marketplaces, these businesses don't need to worry about things like inventory and working capital. As a result, they often have highly attractive economic models. Gerson Lehrman Group (eBay for information), StubHub (eBay for event tickets) and ComputerRepair (eBay for onsite technology services) are three successful "ebay for" businesses. Hopefully Quadriserve will join this esteemed group.
I am on the lookout to go long other "ebay for" businesses -- especially those run by entrepreneurs with smart plans to build liquidity, which is always the hardest part. Once they achieve critical mass, it's nearly impossible for a competitor to overthrow them.
- Video blogs -- I don't doubt we will see lots of video blogging hit the web, but I'd short a business based on the idea that this will be a moneymaker. I think people really value high production quality, and I don't think that's coming any time soon from amateurs. It's easier (and a lot cheaper) to write reasonably well than it is to make decent videos.
- The French economy -- I just returned from a brief vacation including a short stop in France. On a beautiful Sunday in Paris, everything was closed. Not a single shop to visit. Only the cheesiest tourist trap restaurants were open. When the entire country takes off for the month of August, it's no wonder they've got 10% unemployment.
During lunch last week, John Hiller, the CEO of Xanga, a top blogging site and one of the 30 most visited web sites in the world, pointed out to me that blogging isn't really about publishing; it's about conversation. Sure, there are blogs like Gizmodo and Blogspotting that actually are "publications" in a traditional sense. But the vast majority of Xanga and MySpace blogs are basically conversations among friends or colleagues. One person's blog entry is often a response or reference to another. The community and conversational aspects are big drivers of the blog phenomenon, and that's much harder to achieve with video. I have a hard time seeing how you'd respond to a video with another video.
All that said, I do think people will want to share their videos (of their kids, trips, etc) much like they privately share their photos on sites like Shutterfly. And I do enjoy an occasional trip to Stupidvideos, but I'd still short video blogging.
I intend to add to this list of shorts and longs with future posts, though I admit it makes me nervous to make a public record of them. Someone will undoubtedly rub my nose in any bad calls I make. So I ask that if you think I'm off base with any of these, tell me now before it's obvious.
Monday, August 01, 2005
The internet has introduced many new businesses built on donations. Fortune's David Kirkpatrick refers to the whole industry as the "contribution economy" in his recent article. It appears that consumers are willing to donate quite a bit of their time.
There are thousands of open source software projects that represent literally millions of donated programming hours from developers around the globe.
The Wikipedia is another great example. It started in 2001 but already includes more than 600,000 English-language articles and rapidly growing versions in nine other languages are not far behind. It will not be long before the Wikipedia turns the Encyclopedia Britannica from a crucial library staple into an obsolete relic. The cost of producing the 1M+ articles in 10 languages: $0.
Even more curious to me, though, are for-profit businesses that simply could never have been born without the generosity of countless free laborers. Companies like Redhat and XenSource, for example, make money by packaging and supporting open source software (Linux and Xen, respectively) . The software they "sell" would have cost them tens of millions of dollars to develop, and yet most of their R&D was contributed for free.
Another example is Gracenote, which is one of my Bessemer investments. Countless consumers manually entered the meta-data (artist, song name, genre, etc) for more than 50 million music tracks into Gracenote's CDDB over the last decade. Gracenote now licenses that data to many consumer electronics and software publishers. A free version of the data still exists from FreeDB, but much like Redhat and XenSource, Gracenote supplies the support and service level agreements critical for commercial offerings.
There are many other money-makers built on the backs of the contribution economy. A couple of additional examples that jump to mind include Blogger and TripAdvisor.
There is an emerging crop that has recently attracted my attention. They are focused on the local search problem by using user contributions to rate things such as restaurants and service providers. RateItAll, Yelp, and Tribe are early contenders.
I'm trying to figure out how to predict which of these contribution economy startups will succeed. Any ideas?
Tuesday, July 26, 2005
Information Week's Mitch Wagner thinks Gates has himself to blame. Wagner thinks today's kids see the writing on the wall. He cites reports that technology jobs are getting exported to countries with low-cost labor and that fewer US employers are offering IT-centric summer internships. Why pursue a computer science degree if there might not be enough IT jobs upon graduation, he argues.
I think they're both missing a bigger point.
Rather than focusing on the sheer quantity of US college graduates studying computer science, they should be highlighting the quality (or lack thereof) compared with their international brethren. The results of this year's ACM International Collegiate Programming Contest were telling. Only three US universities finished in the top 29 (and none of them was in the top 15).
The ACM winners are some of the brightest technology students in the world. They represent tomorrow's innovators. They are most likely to found the next technology giant -- the Microsoft (or Intel, Cisco, Apple, etc) of the future. Over time, the center of the global technology industry will emigrate from the US and, based on the ACM contest results, will probably land somewhere in Asia. The venture capital and related investment banking ecosystems will follow the technology entrepreneurs. Then will go the lawyers and accountants who help these technology companies to grow up. This is not just about IT jobs.
Fortunately, the average video-game playing American kid has good hand-eye coordination and nimble wrists. Both are good for flipping burgers.
Thursday, July 21, 2005
Of equal interest to me, though, are the buyers/users of these online ads. An entirely new way of building brands has emerged, and I think it will have a major impact on how future consumer products and services are brought to market.
Creating a new consumer brand used to require a ~$50 million marketing budget. You would design a new consumer offering, spend boat loads of money to let the world know about it, and then pray the "dogs would eat the dog food" (that's venturespeak for "consumers would buy your stuff").
In the late 90s when venture capital seemed to grow on trees, many companies were funded to pursue this gutsy brand building approach. A few actually made it (Amazon, Buy.com) but most did not (Webvan, Pets.com, eToys and countless others).
Eventually, the venture capital community adjusted its attitude. No one wanted to make such large, high-risk bets, and in late 2000, capital for new consumer businesses dried up.
Highly effective, ROI-positive online direct response advertising could not have emerged at a better time. You no longer need $50 million to build a new consumer offering. With online direct response advertising, you can start by spending $100 to acquire a few (or even just one) customer. If your offering "works," those customers will generate more than $100 (say, $150) of marginal contribution. Now take the $150 and buy more ROI-positive online advertising. Rinse, lather, repeat. You have a cash generation machine.
It is now possible to bootstrap your way into a consumer business. Companies like Lowermybills (online mortgages), Stubhub (online tickets) and Zappos (online shoe store) are great examples of emerging consumer brands than never burned big dollars on brand advertising. Virtually every penny they spent yielded a tangible, positive ROI.
These penny-at-a-time brand builders represent both ideal early stage and late stage venture capital investments. The early stage investors love them because the core business models can be demonstrated with a small amount of capital. The late stage investors love them because once the models are proven, more capital clearly accelerates growth, and smart entrepreneurs are always willing to part with some equity to increase their growth rate.
So in addition to its profound impact on the online advertising market, Google has paved the way for new consumer brands that might otherwise have never made it off the ground.
Monday, July 18, 2005
Yahoo acquired Geocities for a few billion dollars around the height of the personal homepage craze in 1999. But I managed to skip the internet's first "diary" phenomenon altogether. True, I was partially dissuaded by the hassle of learning enough html syntax to make a decent looking personal web site, but the main reason I never created one was that I didn't think anyone would ever visit it. So why bother?
When internet diaries resurfaced, en masse, in the form of blogs, I scratched my head thinking here we go again: everyone still wants to be a publisher even though none of it will ever get read. Yet as I've been sitting on the sidelines waiting for blogs to go the way of the personal homepage, just the opposite has happened. Pubsub's Bob Wyman estimated that the number of blogs reached a whopping 24 million earlier this year.
My two cents on why Blogs, unlike personal homepages, are here to stay:
- Blog editing software like Blogger, Typepad and the like have made it easy enough for those with more writing talent than coding and design talent to publish on the web
- Features like Comment and Trackback emerged to facilitate interaction rather than just promote one-way communication
- Google's AdSense, which didn't exist a few years ago, created a (micro) business model for blogs. Rather than brag about the tally on their cheesy page view counters, the world's desk chair entrepreneurs can earn advertising dollars.
- As of late, probably half of the new ideas I have encountered were introduced to me by blogs. New ideas are the lifeline of venture capital, so I decided to step-up my participation in the blogosphere.
- I found inspiration in the blogs of a couple venture capital investors that I have been following for quite a while. Fred Wilson of Union Square Ventures and Brad Feld of Mobius Venture Capital both author blogs on my weekly reading list. I was particularly impressed to learn that even the venerable Walt Mossberg reads Fred's blog frequently enough to defend his point of view when Fred attacked.