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.