Archive for the ‘revenue models’ 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…

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Why the New York Times Should Stop Selling the News…

I’m sorry to everyone for being away from a while… I am writing some new research on product launches and studying for my graduate school exams, so I haven’t had the time to keep this up-to-date.

However, I am still posting sporadically on my Quoting Tumblog and updating my favorite news stories in this blog’s sidebar.

That said, the New York Times continuing poor financial performance has led many to discuss new business strategies for the firm. Since I am a loyal Times reader and do not want to see it disappear, I want to add my two cents from a product perspective…

The New York Times should (slowly) refocus it’s business away from providing the news. Why? Because the NYT’s competitive advantage lies in its opinion editorials.

Two elements make a good news story…

  1. What you cover, and
  2. How you cover it.

The “what” includes the key facts of the story, while the “how” involves the discussion and insight the author adds. Both elements are important to any news story, but they are not mutually-exclusive.

The “what you cover” is easy, and everyone with access to a computer (or even a mobile phone) and a blog account can cover the news. Therefore, the leaders in the news are the people who can get it to you the fastest. With all of the bureaucracy and editorial barriers baked into a newspaper, the Times will never be the first out of the gate. Their publishing cadence could never be as quick as the 24-7 news stations, bloggers, and services like Twitter and Outside.In.

The newspaper is not the best way to get late-breaking news stories. A few months back, there were rumors around my office that a fire has closed DC’s metro lines, and some people were trapped in between stations. To see what was happening, I search “red line fire” on Summize (now Twitter Search) to see if anyone was tweeting about it. Sure enough, some people were talking about the fire and linking to a few relevant sources.

By the time I knew what had caused the fire, it was 9am that morning. A newspaper couldn’t have published this story until the next day, or at the earliest on the web, a hour or two after the incident. Because I tracked the events in real-time, I wouldn’t want to hear the facts while reading the next day’s headlines.

If the NYT is going to be a day late in recapping a story, they must give you a little bit more than just the facts. This is why we still read the NYT today… not for the headlines, but for Thomas Freedman, Paul Krugman, Maureen Dowd, and many others.

Very few news sources provide the consistent level of insight as the New York Times, and this paper’s voice is important to educating and informing the public. From a financial perspective, I agree with Silicon Alley Insider’s analysis, but from a content perspective, the paper should focus its limited resources on giving readers the opinion editorials we all love.

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.

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.

Think Creatively to Generate Revenue, and “…connections go for a premium”.

I love creativity… I have a great deal of respect for people that think about something in a new and unique way. And for this reason, I’m excited about entrepreneurship. If you have a good idea that effectively solves a problem, you will be rewarded… handsomely.

Business creativity doesn’t lie solely in product design and development. It should also be evident in your business model. I’ll be writing about this topic soon, but I don’t think people should design a great product, and then get lazy by figuring that they must monetize it through advertising.

To effectively monetize a product, you must dig deep to identify the true value, and put a price tag on it.

And, that’s just what Scripped is doing. According to a post at the Silicon Alley Insider, Scripped will provide their web-based script-writing software for free, and charge for add on services, such as “script consultations” and “brokering meetings with producers and the like”.

Now, I don’t know much about the movie business, but it seems like these guys thought hard about what a screenwriter would pay the most for… experience and expertise. Can they deliver on that promise? We’ll have to see…

Questions to think about when monetizing your new product/service

During DC Startup Weekend, I asked one of the seasoned entrepenuers in the room if there were any tools in the market to help people develop a revenue model that exploits a product’s unique attributes. He said “no”. So, I am taking a crack at developing some tools which help business developer create a revenue model or monetization strategy. Here’s what I’ve come up with so far:

1) What specific added value does this product give to your customer (i.e. the end user)?

2) Would the customer be willing to pay for that added value? If yes, how much would the added value be worth? If no, why not (you may have a dud product)?

3) If the answer to question 2 is “no” or “not enough to turn a good profit”, what differentiating value could you provide to a third party (advertisiers, etc.) who wants to access that customer?

Based on these questions, would you add?