Category: Digital Media

My first post about portfolio company Visible World and the future of television advertising was in October 2004 (see here).  In the post, I wrote about how television advertising needed to change and how the advertisers and those with inventory had to adapt to the rising online threat and offer new technology to make their ads more targeted and measurable.  Visible World has been pushing this vision for quite awhile and over the years it has built momentum through investments and relationships with Time Warner and Comcast. And just recently the company announced a deal with Google TV Ads to bring this to Google's automated auction system.

Google Inc. is teaming up with Visible World Inc., a well-known New York technology company that uses software to create multiple versions of a given ad, in its push to offer TV advertisers more targeting options.

Google will combine the technology with its Google TV Ads, an automated auction-based system for buying TV ads by choosing which shows best fit the advertised product or service. The idea of such "addressable advertising" is to send a TV ad promoting a sale on minivans to a household with children, for example, and the same basic ad with a promo for a sports sedan to a childless household.

Pioneering a new way of doing things is expensive and tough, but I am glad to see Visible World's efforts starting to pay off.  A lot of companies are starting to look at the hundreds of billions spent on television advertising, and I can bet that we will see as much innovation in the next couple of years as we have seen in the last ten years in this market.

I have written a few post about the future of television advertising (10/2004, 11/2006, and 12/2006).  Yes the web has taken over and yes video on the web is advancing rapidly but that does not mean that the $60b spent on television advertising will disappear overnight.  What is needed for the industry is a way to make television commercials more relevant, targeted, and dynamic.  In other words, some of the best practices and technology from Internet advertising should be brought to television advertising.  Throughout the years Visible World (full disclosure: my fund has an investment in the company and my partner is on the board) has been working on making this a reality.  Today, there is a great article on the front page of the New York Times business section discussing Cablevision's launch of targeted commercials.  Visible World is the company that is helping Cablevision do this.  We still have a long way to go but it is great to see forward thinking companies trying to redefine television advertising instead of giving up and letting the web take over.

"Beginning with 500,000 homes in Brooklyn, the Bronx and some New Jersey areas, Cablevision will use its targeting technology to route ads to specific households based on data about income, ethnicity, gender or whether the homeowner has children or pets.

The technology requires no hardware or installation in a subscriber’s home, so viewers may not realize they are seeing ads different from a neighbor’s. But during the same show, a 50-something male may see an ad for, say, high-end speakers from Best Buy, while his neighbors with children may see one for a Best Buy video game.

It is great to see my friend Andrew Erlichson getting some rave reviews for Phanfare Photon, his iPhone photo app.  According to ReadWriteWeb:

"Phanfare's Photon is currently the best photo sharing and photo management app on the iPhone. It is important to note that Photon puts less emphasis on social feature than other services like Radar, which we reviewed last week. Instead, it concentrates mostly on giving you easy access to all of your photos, while also providing you with the option to share them with your friends.

Phanfare's CEO Andrew Erlichson strongly believes that the iPhone and other smartphones will disrupt the traditional point-and-shoot photo camera market in the long run and will allow new players like Apple to get a foot into this market. This app is Phanfare's first step in following the market in this direction by marrying the iPhone's camera feature with a very capable cloud storage and photo sharing service."

I first started using Phanfare in late 2004 and have been a fan since.  Andrew and I go way back as I invested in his first startup, Flashbase, which we subsequently sold to Doubleclick a year later.  As I wrote back in 2004, Andrew believed in the idea of client software which was network enabled and sought to create an iTunes like environment for photos with smart caching and local manipulation of media with smart synching so albums and photos could be viewed from anywhere.  As the online photo sharing market has become more competitive, I have watched Phanfare evolve from a pay only service for sharing photos with small groups to a more wide open version with more community and collaboration.  And now Phanfare has staked its claim in the mobile market with its iPhone app (get it here).  Once again, what I love about the iPhone app is its rich client interface which also has smart caching so my albums and videos can pull up almost instantaneously with limited wait time.  So Andrew's vision of rich network connected clients have moved from the desktop to the next battleground, the mobile handset. As you know, seasoned entrepreneurs know how to be flexible and make course corrections in their business model and distribution strategy as the market evolves. Andrew has clearly done that over the years and it will be interesting to see how his bet on the smartphone market and the iPhone in particular pays off.

My brother-in-law, composer and recent Emmy winner, Ben Decter, is kicking it this week in Sundance while two of his movies Heart of Stone and We Live in Public make the rounds. This summer he and I spoke about We Live in Public and Josh Harris.  It took me a few minutes to remember who he was and meeting him more than a few times while he was out raising capital for one of his many projects, Pseudo.com.

Josh started Jupiter Communications which during the mid-90s was the go-to research firm for market growth numbers for every startup business plan.  As a VC, you couldn't believe them, but it didn't stop every entrepreneur from using the hockey stick projections in their business plans.  Anyway, he went to start Pseudo.com, one of the first production companies for webisodes and streaming media.  In an old New York Magazine article from 1999 Josh proclaimed that ""The potential for a company like Pseudo is to start from a Website and replicate the success of ABC, NBC, or CBS — a long shot but an enormous payoff." He then went on to wire his house with heat sensing cameras so that his and his girlfriend's every move would be streamed live over the Internet."  Anyway, Pseudo.com went under in 2000 and Josh subsequently disappeared in isolation for quite awhile. 

As the writeup for the movie mentions, Josh "proved how in the not-so-distant future of life online, we will willingly trade our privacy for the connection and recognition we all deeply desire.  Through his experiments, including a six-month stint living under 24-hour live surveillance online which led him to mental collapse, he demonstrated the price we will all pay for living in public."  While his predictions were dead on in many respects, it is also quite tragic to see the pain that it inflicts on his own life. Who would have thought how quickly our private lives have become public as we leave a digital trail of ourselves, our loaction, our videos and pictures, and our thoughts all over the web, social networks, and Twitter.  The question we should all ask is where will all of this connectedness leave us 10 years from now.  I hope you enjoy the trailer and more importantly my brother-in-law's music 🙂

Every day it seems we are reading about the power of social networking to transform the Internet and how we communicate online and also consume and discover new content.  While that is true and clearly changing the consumption habits of online users, today seems like a flashback to the old school Internet days where traditional content was king.  First IAC announced the acquisition of Lexico Corp which owns dictionary.com, thesaurus.com, and reference.com and then CBS announced the acquisition of CNET.  With $400+ million of revenue in 2007, it seems like a good buy for CBS at a little over 4x trailing revenue.  So looking at the fact that people are recognizing that social networks are not as easy to monetize as previously thought and the understanding that old school content can still be monetized, I wonder what other old school content companies may be in play in the future (can anyone say the Knot.com or the thestreet.com – full disclosure, i bought shares of these companies for my own account during the last couple of months).  Given the weakening ad spending environment and the fact that many of these small public Internet companies reported lower guidance for the rest of 2008, it is clear that now is a good time for strategics to buy and expand their uniques and ad inventory.  As I have always said, when it comes to the web, scale matters!  Also see Silicon Alley Insider for some comments from the CBS conference call regarding scale and the value of premium content:

CNET’s been very disappointing for past few years. What are your strategy for improving CNET revenue growth, margins?

CFO: We think that they have the asssets to do that, they’ve revamped a number of the sites. Combining with us is good because there’s very little overlap with our advertisers (auto, pharma, etc), but CNET audience demo very attractive to our advertisers. And then they reach advertisers (electronics, etc) that we don’t. Other efficiencies: One public co instead of two. Combining some ad platforms, etc.

Given MSFT/YHOO, other consolidation, does this make you big enough on the Web?

Les: We just tripled our digital platform. Are there possibilities to do tuck-ins? But right now, we have taken a major leap forward. We are very happy with the cards we’re holding now.

CFO: We’re now a top 10 Internet company. Could we be a top 5 over time? Sure. But would be through growth, not acquisition.

Les: Remember! Premium content!

First of all, Google announced some amazing numbers growing its revenue over 50% and its earnings around 17%.  That being said, investors in Google have high expectations and the stock fell in after hours trading.  One note that many in the blogosphere seemed to pick up on is the higher cost of traffic acquisition from partners and the fact that social networking is not delivering results as expected( read Between the Lines for more)

CFO George Reyes said social networking advertising is not monetizing as expected. When questioned further Sergey Brin, president of technology, said: “We don’t talk about individual partners or anything like that.” Brin noted some things were tried that didn’t pan out. While Brin won’t talk about partners it’s fairly obvious that MySpace is an issue. Google is obligated to pay at least $900 million in minimum revenue guarantees to MySpace through 2010. Later, the question was revisited again. He noted that Google also has Orkut and other social networking partners. “We have an incredible amount of this inventory,” said Brin. “I don’t think we have the killer best way to monetize social networks yet. We have had a lot of experiments (and some disappointments).”

I wouldn’t ring any alarm bells yet for social networking sites in general, but it is clear that there is much work to be done to get these sites to monetize.  We all know that social networking sites mean that people are there to interact with each other, not to click and view ads.  I remember one of our portfolio companies in the early days of the web had automated bots for instant messaging where we could insert ads into the stream of conversation.  It sure sounded like an interesting idea but people just did not care.  They were on the system to IM  not to view ads.   The sames goes with social networking sites.  I do agree with Sergey that there is tons of inventory and much more learning to be done to monetize more effectively.  With that much inventory every penny increase in effectiveness per page means big dollars.  Better and different ways of targeting will surely be one of the keys to understanding if there is a there there in making big dollars from social networking.  That means we should all closely follow MySpace’s hypertargeting ad system to see how it performs for the company over the next year as another data point for advertising effectiveness on social networks.

NBC just announced that it is going to offer free TV show downloads online allowing viewers to take more control of their content.  I agree with Fred ,however, that while this is a smart move that this is only half a step since they are limiting the view to 7 days before it self destructs.  More importantly, this makes me think about the free vs. paid discussion and how media companies are increasingly understanding the possibilities and scale that free can provide over paid.  Finally, this move by NBC, I believe, will help open the floodgates for all kinds of video advertising technologies.  In the first iteration of the NBC download service, users will not be able to skip commercials.  My thought here is great, NBC needs to get paid, but they will also have to be innovative and creative and test many different forms of video ads to maximize viewership and revenue.  As we all know, the web is great for targeting and with this move I see a world where one-to-one customized video messages will be delivered directly to the viewer based on location, time of day, content, etc.  Of course, I have to give a shameless plug here for one of the fund’s portfolio companies, Visible World, as this is what it does for video advertisements on broadcast, cable, and web.  Based on our experience to date, better targeting, more relevancy, and customization equals more satisfied viewers and more revenue.  Of course, this is just one example of video advertising that should flourish with free downloads.  I would also love to hear your thoughts about other potential forms of advertising that you believe will be delivered around this content

Congratulations to Fotolog for their pending sale to French company Hi-Media for $90mm. This is a great event for the company as John Borthwick, current CEO, helped stabilize the infrastructure and prepare the company for further growth. It was John who also first introduced me to the company in July of 2004 when I decided to participate in their angel round. At that time the company had around 300k or 400k members and did not have the backend technology to scale further. The company had 3 full time employees and had a nice problem on its hands-it had to limit its growth because it needed more capital to scale and meet user demand. Yes, there was no revenue model at the time but it was quite clear how engaged the audience was and we knew that we could eventually layer in contextual advertising and other sources of revenue. Strategically, what the company did well was go with the flow and recognize that most of its audience was global and that one day down the line, having a global, engaged audience would be worth some real dollars. Rather than try to make it more US oriented, the company stuck to its core user base and ultimately realized a nice exit having grown the registered accounts in 3 years to over 10 million! Once again, great work to John and to two of the cofounders, Adam Seifer and Scott Heiferman, for recognizing where the value was and creating a nice return for all of the shareholders.