Archive for the ‘online’ Category

Some great advice from the venture capital world…

I spent the Thanksgiving holiday with my brothers in North Carolina.  I headed down a few days early so I could take a break from my most recent product launch and do some food shopping (I was the chef this year).

During my trip, I was able to meet some venture capitalists to talk about my future ambitions in the startup work.  I am in the process of changing my career direction, so I couldn’t wait to discuss my ideas with these individuals.

Here is some of the great advice I got:

  1. Begin at a startup, end as an investor – Since the venture capital world is very closed and selective, the best way to become a VC is to join a venture-backed startup, find some success (obviously, this is the hardest part), and do some investing yourself.  That way, you can bring real-world experience to a firm as a partner.
  2. Focus on a sector – It is difficult to be “all things to all people”, so you should find a niche and be the best you can at it.  Personally, I am not sure what my niche will be, but I have a few ideas…
  3. Product experience helps, but it isn’t necessary – Since I am by no means an engineer or a coder, this thought was particularly helpful for me.  For example, someone with operations or biz dev expertise can be just as valuable as a CTO.
  4. Revenue is king – I asked one VC which he prefers in a business he’s investing in… a great product with a large audience, but without a defined business model, or a smaller product with a strong revenue model.  The VC said he would invest in the latter.  I think I’d have to agree, but some other very smart investors I respect a great deal may disagree.

I can’t wait to act on some of this advice soon…

Really, conservatives?!

I used to identify myself as a conservative. Growing up, I studied the ideas of limited government and personal choice, which I considered to be the pillars of the conservative movement.

However, when I read articles like this in The Slate, I’m reminded why I’ve stopped calling myself a conservative. Here is the money quote:

From the National Review to NewsBusters and InstaPundit, some of the country’s most prominent conservative opinion journals and news sites have published stories and blog posts denouncing Google for subtly pushing a liberal worldview in its doodles (that appear within the company’s search engine logo) while steadfastly refusing to commemorate patriotic or religious holidays.

Conservatives have moved away from the rational views of freedom. They now judge the values and beliefs of a society. I have a problem with this way of thinking… beliefs are so subjective and personal, and I’ve meet plenty of good people that have varying belief structures, regarding subjects that include religion and politics.

As a result, I care less about what a person believes… what’s most important is why a person chooses those beliefs. Since conservatives seem to insinuate “believe in our values, or you’re against us”, I can no longer associate myself with conservatives.

And, I totally understand that this isn’t endemic of conservatives. I’m not calling myself a liberal, either. Extremists on both sides of the coin make stupid proclamations.

That said, I wouldn’t expect the National Review to publish stuff this myopic, as I wouldn’t expect the New York Times to take a blanketed swipe at Christianity.

In the end, arguments like the ones made against Google aren’t about finding truth… they’re meant to further careers of biased, opinionated journalists.

My Thoughts on “Freemium” Business Models

A few days ago, I read an interesting post from Andrew Parker on why freemium business models (users can pay a monthly fee to remove ads from a service) are bad for advertisiers. Here is the money quote:

Advertisers pay a premium in order to reach people in their specific demographic with disposable income. This idea of people paying to remove ads ensures that the audience for your ads are actually CHEAPER than the average internet audience.

I’d never thought about this before, but Andrew is right. Why would an advertiser pay high CPM to reach a customer who can’t (or won’t) pay to remove ads? This is a bit of a catch 22.

That said, I wouldn’t totally discount freemium (no pun intended). I still like the “upgrade to a premium version with more features or unlimited access” business model, as long as you create a premium version that is compelling enough to the customer.

In fact, Rhapsody’s freemium strategy converted me into a customer. Like most people my age, I was used to downloading music for free… Napster was hitting its peak in popularity during my freshman year of college. However, I hated Napster for two reasons: 1) the songs were of suspect quality, and 2) I couldn’t always find what I wanted. So, I decided to try Rhapsody on a recommendation from a friend. I started with the free service, which gave me 25 free on-demand streams and unlimited access to a handful of radio stations. After I used the 25 streams up in 2 days, I decided I was willing to part with $14 a month to listen to all the music I wanted, whenever I wanted it.

Even though there are many flaws to Rhapsody (no user-generated recommendations, no playlist search, nothing from Tool’s catalog…), I am now addicted. I can honestly say I would have never bought Rhapsody if it weren’t for freemium.

Can Enterprise Software Be Social?

A few days ago, a fairly prominent entrepreneur named Jeff Dachis (he founded interactive ad agency Razorfish) is “creating an industry leading strategic consulting practice and an enterprise class Social Software-as-a-Service (SaaS) suite.” Other new outlets have called this a “social network for corporation”. Here are a few articles about the announcement:

Silicon Alley Insider

Austin Ventures Press Release

Based on this quote from the Austin Ventures press release, it looks like Dachis is building a service to help business collaborate internally on projects, as opposed to our focus on helping executives collaborate externally.

I believe there is enormous opportunity in helping companies devise and implement a strategy to engage their constituents in a meaningful dialog throughout the enterprise. As companies begin to see the benefits of utilizing “social” technology to engage their customers, employees, suppliers, shareholders, and communities in an active and transparent dialog, they will need a trusted partner to help them navigate the opportunities, and an integrated set of scalable, robust, and secure enterprise class tools to implement them. We are here to provide both expertise and implementation.

Related to this announcement, there has been some discussion in the blogging community as to the question “can an enterprise use social applications”?

One discussion I thought that had a great deal of insight was from Fred Wilson, a leading Web 2.0 venture capitalist. He contends that social media and enterprise applications are inherently misaligned, due to security issues and the inherently protective nature of businesses over their “secret sauce”. However, the comments on Fred’s blog have countered some of his argument. Here is one of my favorite comments, as to the difference between traditional social media and enterprise social applications:

I think that the fundamental difference between social applications and enterprise application is that social applications are, at their core, about self expression, whereas enterprise applications are about process automation.

Enterprise applications may borrow elements of social apps to facilitate collaboration (still a big enterprise opportunity) and ease of use (always a winner), but fundamentally self-expression is not a goal for the enterprise.

As much as I admire Fred, I would disagree with his points here. Self-expression is not the core goal of social media. Social media works because people find value in sharing with one another.

The community experience can serve enterprises as much as individuals. Brand managers, payroll administrators, and HR reps all over the globe are essential doing the same tasks, building the same reports, and facing the same challenges on a day-to-day basis. An external enterprise community would give those people the ability to share work, exchange idea, and collaborate on large projects at little or no cost.

Imagine if we could all share the work we created with one other? Why would you ever create a new market analysis report, if you had the template from your “buddy”? That would give us all more time to catch up on our dozens of unread Facebook messages…

P.S. – I know there are security and privacy issues here. How do I suggest we overcome them? I’m not sure… but I do know that someone will, and I look forward to that day.

Why Silicon Alley Insider is the king of creative valuation…

I’m going to take a moment and profess my love for the Silicon Alley Insider… it is not only an insightful place for news on digital business (not just product innovations, which TechCrunch tends to focus on), it has a smug humor than comes from its roots in NYC and Wall St. That style makes it different from other destinations for business news I’ve found.

One of my favorite themes from their reporting is “what we would do if we ran these companies”. Better than anyone else I have read, SAI have great opinions on how to extract the true value from the companies they cover. Some great examples include: Craigslist, Yahoo, CNET, and AOL.

But, my favorite post was on Wikipedia… SAI showed how Craig Newmark could earn around US$900M annually for the Wikipedia Foundation, if he ran Wikipedia as a competitive for-profit business, and donated the profits to charity (ala Newman’s Own).

Key lesson – Hidden value lies in almost every business… you just need to know where to look and how to find it. And, that’s why SAI is the king of creative valuation.

Making Money Through Advertising: Harder Than It Seems…

I seem to be reading a lot of articles recently on why internet services must be free. Everyone from Seth Godin to Fred Wilson makes the argument that free is the internet strategy de jour.

However, when most people think of providing a free service, most people like to fall back on one simple revenue model… sell advertising. However, building a sustainable business around internet advertising is harder than it seems.

According to some reasonable assumptions on page views and RPM (revenue-per-thousand page views), you need to find a pretty big audience before you’ve built yourself a health business. Let’s say you have a well-targeted website with an active base of users. If this is true, than a RPM of $10 is high, but reasonable. In order to build a US$25 million business, you will need over 208M page views per month. To put it in perspective, you need to be close to becoming one of comscore’s top 100 most visited sites… That’s a lot of people viewing a lot of content.

Key lesson – don’t get lazy and fall back on advertising. Get creative… if you’re smart enough to create a product that people find valuable, then your certainly smart enough to turn that value into cash.

P.S. – Lightspeed Venture Partners wrote an good article with some useful assumptions for building an ad-supported online business.

NIN gets (even more) creative…

Yesterday, I saw on Digg that Nine Inch Nails had released a digital album called “Ghosts I-IV” for $5. So, I bought it.

However, I don’t think anyone realized how popular this album was going to be…

When I got home to download the tracks, the site had crashed from too many users. So, I had to wait until the morning to download the music (which took 45 minutes… ugh). Short story… the album is still not on my iPod.

As I was waiting for the album to download, I got a chance to look around the Nine Inch Nails web site, and I was impressed. Trent Reznor released this album with a Creative Commons license and encouraged people to remix the music. And, he created an area on the site for users to post the remixes.

This is a great strategy… not only any I spending more time on the NIN web site to hear these remixes, but I’m more engaged with the product (I hate to equate anything Trent creates to “product”, and I apologize profusely).

If I love a product and stay engaged with it, you can be pretty sure I’ll continue to spend money… not because I am forced to, but because I WANT to. Every company should hope they can find customers that enjoy giving them money.

P.S. – Here’s a great New York Times article on NIN’s innovative business model for “Ghost I-IV”.

Why are t.v. ad rates still so high?

I was having a drink a few weeks ago with a couple of friends, and the conversation veered towards the Internet. I argued that Internet advertising was much more effective than traditional media (i.e. television) because:

1) at it’s best, online advertising is active, as opposed to passive,

2) customer have the ability to spread your message virally online (I use the term “viral” based on Seth Godin’s definition of word-of-mouth versus viral), and

3) you have more transparency tracking online channels.

This is nothing ground-breaking, but I got the following question from my friend:

“If this is true, why do company still pay more for television ads, or pay for t.v. ads at all?”

I didn’t have a good answer for him… I tried the “marketers use what they know” argument, but this did not sway my price-focused, economist buddy. However, I think that I have an economic concept that helps to make my point:

Path Dependence

In short, path dependence states that adoption of new technologies is subject to its own history. By nature, businesses are conservative and have trouble adapting new technologies. However, the one that learn to adapt succeed, and the ones that don’t fail.

Hopefully, this helps me win the argument with my friend. That said, I’m going to research more into how people/organizations/companies overcome path dependence, as I’m sure it will be valuable someday

A Slew of Interesting Advertising Articles

This week, the New York Times has been good to us who enjoy advertising, media, and content. Here are a handful of the articles I found most interesting:

Now, the Clicking Is to Watch the Ads, Not Skip Them

They’ve Just Got to Get a Message to You

It’s an Ad, Ad, Ad, Ad World

I might do a longer post at some point about one of these articles, but I have been bogged down with “stuff”. However, I have read a lot of good stuff this week, so I may write a post this weekend.