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
The constant battle between revenue and usability
I am definitely the first one to understand that there is no free lunch on the web. At the end of the day, someone has to pay for all of the great services and content out there. To boot, I am a big believer in the ad-driven model of content. To this point, there is a battle being fought at every web content company on a daily basis between product manangement, engineering, and ad sales. What is clear on the web is that every little change can make a huge impact in terms of usability, traffic, and revenue. The more you err on one side vs. the other can help companies make or break their numbers. It is this battle between usability (simple and clean) vs. revenue (balance between getting what you want vs. being cluttered) that is constantly fought behind the scenes.
Take Forbes.com as an example. I have always liked the content but over the last 6 months I have basically stopped going to their site or any link that someone sends me from Forbes. Why? I cannot stand the in-your-face advertising and the clutter. First, it starts with a big-ass splash page before getting you to the site and once there a Forbes.com video clip starts with a pre-roll ad. Once I click on another page, I am confronted with another video ad that starts right away. Once again, I like the writers but honestly this site has become too revenue focused and consequently too cluttered. As a user, I feel like I am spending more time dealing with turning off video and audio ads and skipping splash screens rather than reading content. I am sure the Forbes.com business folks have done their analysis between lost unique visitors versus more revenue per page, but in the long run striking the right balance between usability and revenue is key. And as I sit down with my portfolio companies, it is also this balance that we all seek to achieve because we understand that what we may gain in short-term revenue increases may hurt us in the long run if our audience base declines over time.
Board meeting advice
Over three years ago, I wrote a lengthy post on how to run a great board meeting. And after having been at a few board meetings in the past couple of weeks, I was reminded again of one of the most important rules of running a great board meeting – be prepared and make sure there are no surprises for you and for the board members.
Here is an excerpt from that post:
1. Be prepared: Board meetings are like theater. Like any play, I expect the CEO to have a well thought out and scripted agenda for the meeting. The most efficient way to do so is to lay out an agenda and get feedback pre-meeting from the other board members to ensure that the board covers appropriate topics and allocates the right amount of time for each one. From an update and preparedness perspective, the CEO should always go into the meeting having a complete understanding of where the various board members stand in terms of any major decisions. There should be no surprises. This means that the CEO should have individual meetings and calls in advance of the board meeting to walk each director through any decisions that need to be made and the accompanying analyses behind them.
If all you do is follow this advice then I can guarantee you that your board meetings will run more smoothly. As for my point on board meeting being like theater, my thought here is that I really believe that much of the work between active board member and CEO happen behind the scenes and not at a board meeting. Regardless of your viewpoint, I suggest leaving ample time for pure discussion. The best board meetings that I have attended are loaded with discussion on various key strategic issues and the worst are ones where we are expected to view powerpoint slide after powerpoint slide for simple updates. If you are interested in hearing more about my thoughts on board meetings, I suggest reading my earlier post.
Do you believe in the Red Shift theory?
The first time I heard the term Red Shift was from my portfolio company, Greenplum. Greenplum has used red shift to characterize the nature of the existing database market where exponential data growth driven by network computing and internet applications have outstripped the capacity of existing mainstream vendors. Hence, a new approach was needed (our database software running on commodity clusters) which would allow companies to load and query terabytes of data at 10-100x performance and scale over traditional vendors. Ok-enough of the sales pitch. Moving on, it is clear that red shift data requirements are only a fraction of what’s necessary to meet this exponential growth as it will put tremendous strain on the existing IT infrastructure consuming ever-increasing amounts of CPU cycles, energy, storage, and more. If you want to read more about this red shift theory, I suggest checking out a great article by Richard Martin in Information Week. Martin neatly summarizes Red Shift as defined by Sun’s Greg Papadopoulos to be:
- Red Shift refers to companies experiencing exponential growth in demand for raw computing power
- Red-shift companies tend to be Web 2.0 focused like YouTube and MySpace, or big financial, energy, or pharmaceutical companies
- Those companies, Sun CTO Greg Papadopoulos says, will experience similarly high levels of growth in users, revenue, etc., while blue-shift companies will grow relative to GDP
- Along with the cost of powering and cooling in-house data centers, the red shift is driving a surge in utility computing and software as a service
Based on my experience with both consumer Internet and companies selling infrastructure, I can say that this all feels right to me. It is also no wonder that virtualization which helps IT consolidate servers and increase capacity utilization and utility computing are top of mind again. Think about Amazon’s S3 and EC2 which I have written about before as utility storage and processing for the masses. I am definitely meeting more and more startups which are starting to offload some of their computing requirements to these services. And of course, while Greg Papadopoulos is pushing this vision of the red shift, he has put Sun in a great spot to execute on this with new platforms and ways of keeping up with this exponential demand. The only question as Mark Anderson points out in the article is not if there will be an exponential increase in servers sold but how many of them will be Sun servers running Solaris versus open systems. Either way, it looks like the stock market has been voting with its feet as Sun has been performing quite well as of late. And as a VC whether you believe in the red shift or not, we would all like to find companies experiencing hypergrowth where one of the main uses of capital will be for scaling the infrastructure to meet demand. That is what I call a good problem to have.
Congrats to Fotolog on $90mm sale to Hi-Media
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.
Skype down…try Gizmo Project
I am sure there are alot of you who are frustrated Skype users since the service has been done over 24 hours. To be fair, the company has done a great job leading the marketplace with user signup and an incredible job with uptime of its network. Yes, this has been a pretty huge outage which is not fixed yet, but they were up for the last four years with very few problems. As an investor in Sipphone, creators of Gizmo Project, I have always believed that our opportunity was to create a next generation carrier for VOIP and IM traffic leveraging open standards like SIP and Jabber to allow any device (mobile, Palm Treo, computer, etc.) or web application to easily integrate our service. To that end, we have put alot more emphasis over the last 18 months on the mobile opportunity as you can see from our client that works with Nokia devices and Palm Treos. I assure you that we will have more to come in the next couple weeks with respect to our mobile strategy and expansion of our device support. Despite the fact that our emphasis has not been on the desktop, Om Malik points out that Skype’s problems, have been Sipphone’s gains:
The company saw a 400% increase in traffic this morning, with 4 times increase in sales, calls and downloads of its Gizmo Project software. “It is interesting to see that voice callers are transitory,” Michael Robertson, founder, SIPphone wrote in an email.
So if you are still a frustrated Skype user, give Gizmo Project a try on your desktop or mobile device where you can not only communicate with any SIP or Jabber user but also do metaIM with AOL, Yahoo, Gooogle, and MSN users as well.
The GPhone
As I have said before, Nokia’s biggest competitor in the future may be Google. If Nokia doesn’t offer value added services and software on its phones, Google, Yahoo, and Microsoft will. In a world of shrinking margins on handset hardware sales, finding every valuable cent per user per ad or selling services for monthyl revenue is incredibly important. Where is Motorola in all of this? Take a look at this article and excerpt from the Wall Street Journal about the pending Google phone:
Now it is drafting specifications for phones that can display all of Google’s mobile applications at their best, and it is developing new software to run on them. The company is conducting much of the development work at a facility in Boston, and is working on a sophisticated new Web browser for cellphones, people familiar with the plans say.
The prize for Google: the potential to broker ads on the mobile phones, complementing the huge ad business it has built online. Google even envisions a phone service one day that is free of monthly subscription charges and supported entirely through ad revenue, people familiar with the matter say.
I’d say Nokia is still in pole position right now – the stock is up 7.7% after it sold 100mm handsets in Q2.
"Though sales grew more slowly in mobile phones (+1 percent), and much faster in multimedia (+42 percent) and enterprise (+94 percent) than we expected, margins were way ahead in each case," he wrote.
Notice the phenomenal growth in the multimedia division – that is where the n-series phones, many with wifi and other computer-like capabilities are situated. This is also the division that will reap the many benfits of their software/Internet services acquisitions like Twango and Gate5.
Club Penguin and Mickey Mouse
I wrote about Club Penguin a few times in the past (here and here) and it looks like Mike Montgomery at Montgomery and Co was able to find an even better buyer than Sony, DIsney for $350mm in cash and potentially $350mm more in an earnout (see Paidcontent for more). That is pretty impressive for a company that raised money from friends, family, and angels and would not take any venture money despite my best efforts and many other VCs. It is amazing that Lane and team were able to ramp the business up in 24 months to over $60mm in projected revenue and $30mm in projected 2007 profits. That is one capital efficient business and goes to show that many times spending your way to success is not the answer. Anyway, my children seem to be on to some pretty big ideas as they pointed this out to me awhile back. Given that they have been spending more and more time on Webkinz, I wonder what Ganz will do with that property – potential spinout and IPO or rollup strategy or just outright sale?
And if you thought getting into Harvard was hard…
How about getting a QA job in Bangalore? Take a look at this line on a Saturday afternoon. There are over 1000 people in front of Xora’s (a fund investment) office. Sanjay Shirole, CEO of Xora, definitely runs a hot company in the wireless GPS space, but when I saw this picture I couldn’t have imagined that the people had come to do walk-in interviews for a couple of QA positions and not for autographs. Not only is it incredibly competitive and tough to get a job in India as there are lots of candidates, but Sanjay pointed out the tremendous strain it puts on Xora to find and qualify the right person. By the way, Xora did end up finding a couple of strong candidates from the crowd so it was well worth the effort. Hat tip to Sanjay and my partner Ned Carlson for sharing this with me.
Learning lessons from Amp'd Mobile
I am not here to pile on the Amp’d Mobile situation, but I find it is always important to learn as much as you can from your mistakes and from other people’s mistakes. Rafat Ali has a great interview with Peter Adderton, the former CEO of Amp’d Mobile. Here are a couple of interesting points that Peter says helped to ultimately bring the company down:
— You don’t raise $400 million in 18 months by spending time inside the office. Trying to ambiguously raise that amount of money, while at the same time trying to create something new and different was a challenge that caught up with us in time.
— On the financing, we were learning as we went along. With the amount of cash that we required, it probably made more sense to go with one or two big pockets than a lot of smaller pockets.
— The biggest struggle I had [with the board] was agreement on where the company should go. We had way too many board members and then we had observers at top, and the any partner could dial in, to a point where it became very difficult for the management to manage.
Rather than dive into some of the operational or economic lessons like how a company that raises $400mm can’t get to profitability, I thought I would focus more on the financing side that Peter discussed with Rafat. In short, some of the lessons learned from Peter include having too many investors and too many board members. One VC once told me that having a great board did not guarantee success but having a bad board can almost certainly guarantee failure. Speaking from personal experience, it is pretty easy to see how differences in strategic direction and plans combined with egos can get in the way of real productivity. The more people you add to the mix and the more complicated and time consuming it can get. In fact, I remember spending at least 3/4 of my time on one of the weak boards dealing with bickering between other board members instead of spending my time helping management and focusing on the important issues. The CEO also had to spend just as much time massaging egos and different incentives to keep driving the company forward. At times, It was close to impossible for the board to come to agreement on a budget, hiring plans, and strategy and ultimately the company missed many opportunities. I can only imagine what Amp’d board meetings were like when you mix in a number of VCs, hedge funds, and strategics, all of whom invested in different rounds at different prices and with different preferences. So one of the lessons to be learned is to choose your partners wisely and less is more. Rather than try to spread out ownership of your business with lots of investors so one or two don’t have too much control, you are better off looking for a couple of investment partners who share the same vision of the business and who you believe will act rational through both good and bad times. This is where references can help tremendously.
One other point, every second you spend fundraising is another second you are not running your business. Companies have to be well prepared and go through a number of meetings to raise $5mm let alone $400mm in 18 months. It is not hard to see how the CEO and management can get distracted and not spend enough time on operational issues when they are constantly raising capital. And of course, the more money you raise, the bigger the exit you need to get investors their 8-10x. I am not saying this happened in the Amp’d situation, but when capital is abundant and the pressure to create significant returns exist, it can force companies to try to get big fast and try to spend their way to success instead of finding the right mix of organic and inorganic growth. That is why I have always loved capital efficient business models.