Posts from January 2010

I was very pleased to see yesterday that the NY Times has made the decision to adopt the FT's subscription model over some of the other options they had. I wrote the following last summer and thought it would be useful to reblog it today:

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Monetize The Audience, Not The Content

There's a lot of discussion out there about how online content should be monetized.

In particular, the newspaper industry is doing a lot of soul searching for the right revenue model. For many publications, particularly legacy publications with higher cost models, advertising alone isn't covering the nut.

Let's leave out the discussion of the print side of these businesses for this discussion. I think most papers would be better off without the print business but I also understand why many won't walk away from a print based product just yet.

For those content owners with a cost model that can't be covered with advertising alone, subscriptions seem like the obvious choice. And yet, for most, subscriptions have not worked very well.

The worst examples of subscription services are those that break the content up into free and paid. It's as if some content is worth more than other content. I think that is the wrong idea most of the time, and especially in news and news related content.

I like the subscription model the FT has been using for some time now. I may get the exact details wrong but its the idea that's important anyway. You can visit the ft.com domain something like nine times per month for free. They cookie you and when you stop by the tenth time in a month, they ask you to pay. And many do.

This model recognizes a few fundamental facts about the internet. First, you need to make your content available for search engines and social media linking. That drives as much as half or more of the visits these days. And if you have an ad model at all, and most newspapers do, then you need those visits and that audience.

Its also true that the 'drive by' visits will bring new audiences, some of whom will become loyal and ultimately paid audience members.

The other thing I like about the FT's model is that its an elegant implementation of freemium. The best freemium models allow anyone to use the service for free and then convert the most serious/frequent/power users to paying customers.

Apparently the NY Times has been surveying its readers in an effort to find the right subscription model. I hope they'll ask them about the FT's model. Its simple to understand and my guess is most will like it.

If they roll it out, I'll gladly sign up because I visit the NY Times at least ten times a month and I would like to help pay the costs of the people who create it.

Well I'm stuck at the Virgin America terminal at JFK this morning. Due to the stormy weather today in SF, my flight has been pushed back by three hours. Fortunately, I've got my laptop, wifi, my sleeper hoodie with headphones cranking, and some interesting stuff to write about.

Our portfolio company Boxee announced its payments service this morning with this line:

Users want to see more content on Boxee. Content owners want to be paid for what they produce (whether that’s TV Shows, movies, music, or applications). We don’t believe these are conflicting interests.

Contrary to what Boxee's competitors have been telling big media for the past year, Boxee aren't pirates. They have always respected rights holders and their desires to find a new business model on the open internet. And this payment platform should make that abundantly clear.

Here's how it will work:

users will be able to make purchases with one click on the remote. The content partners we launch with will offer shows, movies and channels that were previously not available to Boxee users. The content owners will be able to package and price as they wish, including pay-per-view and subscription. Content partners will have the flexibility to decide what they make available, whether it’s premium content, content from their existing library, or extras that will never make it “on air”…. Boxee will charge a small fee (i.e. lower than the 30% charged by many app stores) for transactions which we enable. 

For those who don't know, Boxee is free open source software that you can download and run on Windows, Mac, and Linux powered devices that are connected to your TV. Boxee's software is also free for consumer electronics companies to build connected devices and TVs for the family room and living room. I like to think of Boxee as "android for TVs."

I watch my kids and here's what I've seen. There is almost no difference between a laptop and a TV to them. They move seamlessly between the two. The only difference is what content is available on each. What do they want? They want all the content in the entire world available to them on their laptop and their TV. They want them to be the same thing. And they are very willing to pay for content. What they are not accepting of is content owners prohibiting them to watch what they want to watch where they want to watch it.

The new model for entertainment is "over the top" and it's going to happen. As Avner Ronen says in the Boxee payments blog post:

It’s our belief that the Internet is ready to become the 4th method of distribution for broadcast & premium content after Cable, Satellite, and IPTV (FiOS, u-Verse, etc.). In the case of Satellite and IPTV, it took an act of congress to open up these delivery methods. This time it’s people who are demanding this change.

If you are a content owner and want to partcipate in this new open model for content distribution, either free and ad supported or subscriptions powered by Boxee payments, please reach out to Boxee. They will be happy to help you make the transition and make money doing it.

Fast Company is doing a five part series on startup hubs outside of Silicon Valley. Part one was Boulder, Colorado, featuring my friend Brad Feld. I know there is a piece coming on Seattle and two other cities that I can't recall right now.

Part two was published yesterday and is about NYC. I talked to Laura Rich last month and she did a great job of capturing my thoughts on why you should start a company in NYC.

If you are in the startup sector in NYC or are thinking of relocating here to do a startup, you should read the piece.

I'd like to highlight one part of the article. Startup hubs take time to develop. You do need infrastructure and that takes time to build, but more importantly, you need mentors and role models. And that's what we have now in NYC that we didn't have ten years ago:

we're into the second decade now, and what the second decade is really turning out to be is serial entrepreneurs who've done it one, two, three, sometimes four times now, who can bring teams together very quickly, often teams that have worked together very quickly, can get on opportunities fast, can get money raised fast, can build companies pretty fast.

And now you have role models. So the first time entrepreneurs can find angel investors. It's exactly what has been going on in Silicon Valley for three, four decades now. Marc Andreessen becomes hugely successful, makes a bunch of money, becomes an angel investor, backs a bunch of people, mentors them, becomes a VC. That migration path is now playing out here in New York, and so most of the investments we do at the first angel-round stage is ourselves and a bunch of serial entrepreneurs in New York who are now making twenty-five- to fifty-thousand dollar investments as angels in these companies, sometimes acting as informal advisers and mentors to the first-time entrepreneurs.

So now we have the best of both worlds. We can back first-time entrepreneurs and have mentors and role models for them and we have those role models in their second, third, and fourth startups and that's the magic–that creates a sustainable startup economy that Silicon Valley has had for four decades now. We're three or four years into our second decade and I think it's going to be a great period for New York. I feel like we have just taken it to another level sometime in the past couple of years.

I'm very pleased to see Fast Company highlight startup hubs like NYC, Seattle, and Boulder. All three cities have nicely developing startup communities that are poised to produce some big companies in the coming years. Entrepreneurs and developers don't have to move to Silicon Valley to chase their dreams anymore. They've got options to fit their work to their lifestyle. And that's a good thing.

Entrepreneurs and the companies they create are the raw material of the startup world. There has been an ongoing tug of war for their hearts and minds between big companies and VCs.

For a while the big companies were winning. From the internet bubble burst until recently, most every hot company to come out of the Internet startup scene was acquired or at least seriously considered being acquired by a big company. Skype is the iconic transaction. Yahoo!'s failed bid for Facebook also comes to mind. But it appears that VCs are making a strong comeback led by newly energized later stage investors and even some hedge funds.

The innovator in this trend is a russian investment firm called DST, which did a $200mm financing for Facebook last May. That financing was a combination of primary (money went into the company) and secondary (money went to buy shares from employees and existing shareholders). Since then DST has also done a similar transaction in our portfolio company Zynga.

But there's something new going on that bears mentioning. VCs are starting to compete directly with the M&A market. 

Last winter, when word broke that our portfolio company Twitter had rebuffed a $500mm acquisition offer from Facebook, I received several calls from late stage VCs who essentially said "well if that didn't work for you, how about an investment'? I introduced those VCs to Twitter who did two rounds of financing in 2009.

And now comes word that Elevation Partners is doing a $50mm round (primary and secondary) in Yelp in the wake of Yelp's rebuff of the Google purchase offer. Apparently these kinds of deals are being called "DST deals". Silicon Valley is all about recognizing a good idea and running with it. And I expect we'll see a lot more "DST deals" coming.

I was discussing this trend with the CFO of a large public company last friday morning. He asked the right question, "will DST and the others make a good return doing this"? I told him we'll know in three to five years.

The reason that is such a good question is it gets to the sustainability of this model. M&A is and will always be a sustainable exit model for entrepreneurs and VCs because big companies are always in need of new products and technologies and don't always need to be able to extract a cash flow stream from their acquisitions.

But companies like Facebook, Zynga, Twitter, Yelp, etc, etc will need to go on to become large profitable public companies in order to justify these financings. 

Of course, it is possible that these late stage deals are simply prolonging the time before these companies are bought. That would be the natural outcome if any one of these companies concludes the "go it alone" strategy is not going to work. In that scenario, there may still be good returns for these late stage investors. But there may not be.

Left out of this discussion is the IPO. I do think we will see a resurgent IPO market this year and going forward. But entrepreneurs are waiting longer to take their companies public and that's a very good thing for everyone. With the emergence of this new layer of late stage/primary+secondary capital, we can all wait a bit longer. And not sell out. And that's a very good thing.

John Borthwick, co-founder of Betaworks, parent company to bit.ly, twitterfeed, tweetdeck, chartbeat, and many other interesting web services, posted yesterday on "Ongoing tracking of the real time web …" 

Through these various Betaworks companies, John and the team have access to a tremendous amount of data and if you are interested in this subject, you really should read John's post.

I develop many of my theses based on what I see happening on this blog. And I've been seeing something on this blog that has gotten my attention.

Traffic is way up to this blog in the first half of January. This blog has seen as many visits in the first half of January as a normal month.

So I went to Google Analytics to find out why. And I didn't see anything particularly new and different in the first half of this month.

 

But that direct number bugs me so I sent John an email to see what I could learn. The first thing I learned is that he was planning a post (link above) on this exact topic. And he sent me some data on the clicks to avc.com from bit.ly in the first half of January. Here's a snapshot from John's email to me:

 

Now, where would google analytics be capturing those 35,147 clicks? Well Twitter.com for sure. But that's only 7,567. Could the other ~28,000 clicks be in the "direct" number? I am absolutely positive that a bunch of them are.

But think about this for a second. Of the 35,000 clicks I got from bit.ly in the first half of January, only 20% of them came from Twitter.com. So exactly how big is Twitter.com vs the Twitter ecoystem?

Well, let's go back to John's post and pull my favorite chart out of it:

 

John's chart estimates that Twitter.com is about 20mm uvs a month in the US (comScore has it at 60mm uvs worldwide) and the Twitter ecosystem at about 60mm uvs in the US.

That says that across all web services, not just AVC, the Twitter ecosystem is about 3x Twitter.com. And on this blog, whose audience is certainly power users, that ratio is 5x.

Just to double check, because this is a seriously big deal, I checked all the links I bit.ly "ized" this past 30 days. Here's where they were clicked on:

So the links I put out into Twitter in the past 30 days generated almost 39,000 clicks. Nice. But only 10,000 of those clicks happened on Twitter.com. The rest happened elsewhere in the Twitter ecosystem, including Facebook which is part of the Twitter ecosystem when they showcase a post that is generated on Twitter, as all of mine are.

So that's a 4x ratio. That's a good double check. Whether its 3x (John's post), 4x (my links), or 5x (incoming traffic to AVC), it is clear that there's a big difference between the two.

My point is this. You can talk about Twitter.com and then you can talk about the Twitter ecosystem. One is a web site. The other is a fundamental part of the Internet infrastructure. And the latter is 3-5x bigger than the former and that delta is likely to grow even larger. 

Last night I sent my friend Steve a text message. It was late and I didn't check to see his reply before going to bed. When I was working on my computer this morning, I remembered the text and wanted to see his reply. I thought to myself, "I wish I could just go to a website and see his reply and reply back."

That's the twittter experience bleeding into the text messaging experience. The beauty of twitter is you can send the message on your phone, get the reply on the web, and see the continuation of the conversation on your desktop.

Of course email works that way too and has for at least ten years. Twitter brought the model to short messaging. It will be interesting to see if SMS can evolve or if services like Twitter will replace them because of the ubiquity.

While I'm on the subject of Steve, he's launched a new web series on chefs and their signature dishes called BeyondTheDish.TV. I grew up eating veal schnitzel and this episode on Kurt Gutenbrunner's version is fun and informative. 

I am typing this post on my Android phone with an add on to android called Swype. Swype lets you drag your thumb across the keyboard instead of typing. Its really quite easy to use. Ive never used it before doing this post and yet it took me no more than a couple tries to get used to it.

I have to thank the readers of this blog for tipping me off to Swype. I knew it existed but did not know there is a test version for the android. You can get it here: http://www.androidcentral.com/download-beta-version-swype-android

I did this post in less than five minutes. I could not have done that with the on screen keyboard. Thanks everyone.

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At the end of the Boxee board meeting this past week, co-founder Tom Sella pointed to my Google phone and asked me 'can you type a three or four paragraph email on that?'

I thought about it and honestly answered 'no, I can't.'

My colleague Eric is also trying to switch from Blackberry to the Google phone and he said to me yesterday that his email replies have suffered in the transition. I told him that mine have as well and I am compensating by reading email on the phone and tagging it for replies later. I am doing more browsing on the phone and less on the desktop. But I am doing more email replies on the desktop and less on the phone.

Last night after a long phone call on my Google phone I noticed my battery was low. So on the way to dinner I took the sim card out of the Google phone and put it in my fully charged Blackberry.

That's what I have in my hands now as I type this post on the eliptical trainer at the gym.

The quandary I am facing is the one I've always faced in the Blackberry vs iPhone debate. I cannot type nearly as fast on a screen as a keyboard. I've given the Google phone a month. That's about as long as I've ever given the iPhone

I could carry both the Google phone and Blackberry and swap the sim when necessary. I think I may do that since both have wifi connectivity and are useful as 'iTouch' type devices. 

We will see. But here's how I look at it right now. The Google phone is a better mobile device for me than the iPhone. Multitasking, streaming vs file based audio, and a spare battery are key for me. But what is not yet clear to me is whether the iPhone/Google phone style device is better for me than the Blackberry. There are big compromises to make with each choice and I fear that the ability to type something this long on my mobile device may trump everything else.

As always I'll keep you posted.

Status is a powerful motivator in social systems. People go crazy over their follower counts on Twitter, or number of friends or business contacts in Facebook and LinkedIn. So it makes sense that social status can be leveraged for social good.

Yesterday I logged into my Tumblr dashboard and saw this set of posts from my friends Jason and Dave, and my colleague Andrew.

 

You'll note that Dave and Andrew's avatars have a ribbon on them. I thought "well how the hell do I get one of those?"

And then I noticed at the top of my dashboard, the Tumblr logo had one of the ribbons next to it.

 

So I clicked on the ribbon and it took me to Tumblr.com/Haiti where I was presented with this choice of charities to support.

I chose Doctors Without Borders because my daughter Emily is a big fan of their work and gave a donation.

After I did that my avatar got a ribbon on it as you can see in the image above. 

I don't know how many Tumblr users got ribbons yesterday but it could be a lot. Tumblr has millions of users. Even if only 5 or 10% of them did what I did yesterday, that could be hundreds of thousands of donations. Maybe Tumblr will post about this at some point. I'd certainly be interested to know how well this works.

In a post on the Zynga blog yesterday, Zynga announced that their users have already raised $1.2mm for Haiti though the Sweet Seeds offer in Farmville. And now Zynga is going to step it up:

Zynga will run a special relief campaign in three of its top games that reach over 40 million users daily. Users can purchase limited edition social goods in FarmVille, Mafia Wars and Zynga Poker, and 100 percent of the proceeds will go towards supporting emergency aid in Haiti. 

Social services like Zynga and Tumblr reach millions of people every day. And they have powerful status driven systems that can drive users to do good things. That's a big deal when something awful like the earthquake in Haiti happens.

Disclosure: Tumblr and Zynga are both Union Square Ventures portfolio companies.