Posts from April 2011

SoundCloud & Tumblr

I'm very excited this morning. I got to do something that I've wanted to do most every day for the past few years. I posted my song of the day from SoundCloud to Tumblr.

Soundcloud

For those that don't know, I post a song every day to Tumblr. It shows up on my tumblog and is the first song on my internet radio stream, fredwilson.fm.

I spend hours every day streaming music on the web and mobile and when I discover something great, I add it to the list of songs to post to Tumblr. Many times, I discover the music on SoundCloud. But getting the song from SoundCloud to Tumblr has hard and at times impossible. Many tracks on SoundCloud don't allow download of the mp3. And so I've had to go out on the web and find the mp3 somewhere else. And there are times when it is not on the web in mp3 form. It's a time consuming and often futile exercise.

Sometime in the past day or two, Tumblr added the ability to enter a soundcloud URL into the audio posting flow. I discovered it this morning. And almost jumped out of my chair with joy.

I hope that SoundCloud adds a share to Tumblr link in their UI soon. That will make it even easier.

But what we've got now is great and I'm very very happy about it.

Here are some other tumbloggers who are using the SoundCloud/Tumblr integration this morning:

Kirk Love with Santogold and The Beastie Boys

Andy Weissman with Vetiver

Enjoy



A Month Of Traffic To AVC

It's 5am and I've got to catch an early flight to Toronto and will spend the day on the road, returning around 8pm. So I don't have much time to blog today. 

I thought I'd share what a month of traffic to AVC looks like. Monthly visits to AVC average 300k and page views average 400k, but how you get there is always fascinating to me. It's not 10k visits per day every day. Far from it.

Avc traffic
Some days are slow with 5k visits or less. Some days are big, like yesterday, with almost 20k visits. In fact there are very few days where the daily visits are near the average. Blogging traffic depends on lot on the post that day and how it reverberates around the social web.

Finding And Buying A Domain Name

I believe that a good domain name is an important success factor in building and launching consumer web services. It's not in my top ten but it could be. It's certainly something we think about a lot when making investments and working with companies post investment.

A number of our portfolio companies have acquired their domain names in connection with or shortly after our investment. Del.icio.us purchased Delicious.com with some of the proceeds of our investment. Foursquare purchased Foursquare.com with some of the proceeds of our investment (they launched with playfoursquare.com). We've advised and assisted a number of our portfolio companies in this effort.

A good domain name is short and memorable. It doesn't need to mean anything. Etsy is a good example of this. The word etsy doesn't have any meaning in the english language. But it is short, memorable, and fits well for a handmade marketplace. As a marketing person once told me "find a name that means nothing and inject your meaning and brand into it." All you need to do is a google search on Etsy to see that is what they've done with that word.

I remember walking home one afternoon from the office on the phone with Mark Pincus. He had launched texas hold'em on Facebook operating under the name Presidio Media. We were talking about what he should call the company. He knew it needed to be a consumer brand. He said "Domains are so hard and expensive. I'd like to use a name I already own." And he preceded to list a bunch of names he owned. He stopped at zynga.com which was his dog's name. I said "you own the .com of your dog's name?" He said "of course I do." I told him I liked the idea of naming the company after his dog and it had the added benefit of being a short and catchy name. He agreed it was a good idea. A few weeks later, after thinking about it some more, running it by a bunch more people, that was the name Mark chose. It is a fantastic name and brand.

That conversation with Mark was in the summer/fall of 2007. Since then domains only gotten harder and more expensive. We've noticed the average price of a good domain has risen fairly dramatically in the past year. We used to advise companies to spend $10k or less on a domain, then we upped that recommendation to $25k. We recently upped it again to $50k. I suspect domain prices and pre-money valuations of newly launched startups are highly corrrelated.

Here are some suggestions on finding and buying a domain name:

- Don't obsess about getting a name that is descriptive. It's great to be Kickstarter if you are buidling a funding platform for creative ideas but it is not required. Do focus on a word that is short, catchy, and memorable.

- If you own a domain that can work, give it serious consideration. You'll save yourself a ton of pain and agony.

- Be prepared to pay up for a good domain. It is very unlikely that you'll find a great domain name these days for less than $10k. And it could cost a lot more.

- Think about rent to own. My friend Jamie Siminoff is a proponent of this approach and he clued me into it a few years ago. If you find a great domain that you can't afford but you absolutely love, you can often rent it for a few years with an option to buy it at any time. Let's say you are launching a website to buy boats online and the person who owns boats.com wants $100k for it. There's no way you can afford it right now. But the owner is willing to charge you $5k per year for it and will let you buy it anytime over the next three years for $100k. You do it because you figure that in three years, you'll be selling 10s of millions of dollars of boats and your business will be worth 10s of millions and $100k will be easy to raise for not a lot of dilution. And if you don't sell any boats online then you don't need the domain and it didn't cost you much.

- Think about offering equity instead of cash. Many owners of sought after domains have this idea that their domains are going to be worth millions some day. And who knows, they might be right. So it is hard to pry the domain out of their hands. The one thing you have that might be worth millions some day is the equity in your company. If you have a hot company (like foursquare was when it purchased foursquare.com), you might be able to trade some equity for the domain.

- Find an intermediary. We've used a few different intermediaries and played that role ourselves. Eric Friedman, who worked at USV and now works at Foursquare, was a very useful intermediary in a number of transactions. There are also a few lawyers we know who specialize in this kind of transaction and are very experienced and skilled at procuring domains. A neutral third party who can hide the identity of the buyer is often very helpful in domain transactions.

This whole exercise in finding and buying a domain is a huge pain in the rear. I've seen startups spend endless hours on it. It is an important issue, particularly for consumer web startups, and it is worth getting it right. But there is also a limit to how much time and money you want to spend on this effort. Remember that a name is what you inject into it over time. So don't let getting the perfect name be the enemy of getting a really good one.

Correction: The Zynga story in this post is not quite right. Here is the correct story straight from Mark: "I did not own zinga.com, her real name. I had tried and failed to buy that domain for 8 years. One of our engineers had the idea to spell it as zynga so we could get the domain."



Office Hours

Yesterday I did office hours for the second time. We started doing office hours in the fall of last year and try to do them once a quarter. Brad, Albert, Christina, and I all do them. Christina does office hours way more often than the rest of us. But we all do them.

We were inspired by Josh Kopelman and Brad Feld who have been doing their equivalent of office hours for some time now.

Here's how we do them. We use Nate Westheimer's Ohours platform. Here is USV's Ohours page. And we broadcast office hours openings on the USV Twitter feed. Signup is on a first come first serve basis.

I block out a three hour period and take meetings in 15 minute blocks. So I did twelve short meetings yesterday. About half of them were in person and about half were on skype video.

Because there is absolutely no screening and signup is drop dead simple, the lineup is completely random. And that is what I like most about office hours. I doubt any of the people I met yesterday would have gotten a meeting with me any other way.

The two most common uses of the fifteen minutes was a funding pitch (I got three of them) and advice on which of two or more ideas the entrepreneur should focus on (I got four of these). But I also got people looking to get an intro to a potential customer, people looking for advice on scaling an organization, and people looking for me to promote what they are doing to others.

Earlier yesterday morning I had breafast with a young VC. He talked about finding "outliers" and how important that is in our business. He is so right and although I've yet to meet an entrepreneur I immediately wanted to back during office hours, I am equally sure that it will happen and it will be a person we would not have met through our usual process.



Locale

I wrote a post on saturday asking for an android app that would turn my wifi on and off when I was in certain locations. I got a ton of great comments and installed a bunch of apps on my phone as a result, including Locale, JuiceDefender, Y5, and Tasker. I promised that I'd write a blog post telling everyone what was the best solution for me. This is that post.

Locale, JuiceDefender, and Y5 all do the thing I wanted (turning wifi on and off based on location). Y5 is drop dead simple. You don't need to do any configuration. JuiceDefender is very powerful and can do a lot of things.

But I'm really taken with Locale and it is the solution I opted for in the end. It's not a battery saver app, it's a location configuration app. And I think it is a very smart idea. With Locale you can tune your phone to do different things in different places. Here's some copy from the Locale website:

With Locale, you create situations specifying conditions under which your phone's settings should change. For example, your "At School" situation notices when your Location condition is "77 Massachusetts Ave.," and changes your Volume setting to vibrate.

It's been almost 30 years now, but I still remember that 77 Mass Ave means school (MIT). I guess the team behind Locale is out of MIT. If so, I like this app even more.

Here's what I've done with Locale so far. I've set up Home and Office as "situations" and geolocated them on my phone. I've set wifi to turn on whenever I arrive at eiter location. And I've set wifi to turn off whenever I leave either location. I've set volume to vibrate at the Office and to ring loudly at home (I leave my phone by the front door and don't take it around my house).

I'm trying to figure out how to make Locale turn on Bluetooth when I get in my car and turn it off when I get out. I'm going to try to geolocate my garage and see if I can make that work.

The user interface of Locale is simple and yet fairly powerful. I think it can do so much more and I hope they keep adding features to this app. The idea that I have an intelligent phone that configures itself depending on where I am is very powerful and I think there's a lot of potential here.



LTV > CPA

A couple weeks ago, in a comment to an MBA Mondays post, Dan Lewis wrote "LTV has to be higher than your CPA or you're not going to make it." I asked Dan to elaborate in a MBA Mondays guest blog post on this topic and he agreed. Here's Dan's post:

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LTV stands for “lifetime value” of a customer.  CPA stands for “cost per acquisition” of a customer/subscriber.    LTV has to be greater than CPA or you won’t be able to scale – or, for that matter, survive. To demonstrate, let’s go to the video tape:

Monday through Friday, I publish a free daily email newsletter (which you can, and should, sign up for), putting to words the notion that you should – and can – learn something new every day.  Oddities, like the fact that Abraham Lincoln created the Secret Service the day he was shot, carrots used to be purple, there is only one Jewish person in all of Afghanistan, etc.  It has about 4,000 subscribers.  It’s basically a blog, sure, but I send it as an email newsletter.  Long story; one for another day.

The main costs involved – the costs of writing and editing the email – are fixed costs.   (At this point, it’s also entirely a time cost – mine to write it, and a volunteer who very generously edits it before I send it out.  But even if I hired writers and editors, the cost of producing the content is, at least in this context, a fixed cost.)  Write it once, send it to many – as many as subscribe.  It costs the same amount to write the email to one person as it does to one million (God willing!) subscribers. 

The marginal costs are, relatively speaking, minor, and consist of the fees paid to the email service provider I use, Mailchimp.  At the number of emails I send and the number of subscribers I have, it’s about a twentieth of a cent per email, or $0.05 per 1000.   Let’s say I can monetize the emails pretty easily at $1 per 1000 (or $1 CPM, as in “cost per mille” from a fictitious advertiser’s perspective), and my margin is 95%.   Your blog, twitter account, etc.?  It’s probably even better, unless you’re somehow paying on a cost-per-post basis.

Let’s say that an average subscriber sticks around for 10 months, and that I publish 20 issues a month.  And, while I’m making up pie-in-the-sky numbers, let’s also assume I can get $5.00 CPM from advertisers, on average, over the course of those ten months.  The lifetime value of each subscriber?   $1.  Each subscriber receives 200 emails, and at $5 per 1000, that’s a buck.

That LTV – $1 – is my upper limit.  Spend any more to get a subscriber and I am losing money with every additional subscriber, and that’s bad news.  So while word of mouth, Tweets, Facebook posts, guest blog posts (did I mention you should subscribe to the newsletter?), etc. are all very good ideas — that’s how I’ve made it to about 4,000 people signed up thus far — are also pretty close to the only viable ways to grow the subscriber base.   

Other ideas?  AdWords or Facebook ads would cost about $0.25 per click to advertise on “learn something new every day,” requiring that I convert a quarter of clicks to subscriptions just to break even – a tall task for email newsletters, akin to getting 25% of visitors to subscribe to your blog’s RSS feed.  A lot of list-building (cue ominous scare quotes) “best practices” – co-registration, contests/incentivized signups, etc. – will hurt the CPM level and likely lead to a much lower LTV.   And buying lists?  No thanks.

This inability to turn money into new subscribers, customers, etc. is a huge limit on the speed and potential for growth.  Sure, things can break well and the newsletter can grow by itself, via the methods noted above.  But those methods are a mix of elbow grease, dumb luck, a solid product, and a lot more of that dumb luck stuff – the hallmarks of the “secret sauce” which somehow, some way turns a hobby into a viable business, in a manner and fashion beyond repetition.

LTV > CPA applies, of course, beyond newsletters and beyond media, digital or otherwise.  It’s generally easy to apply, as even estimations based on guesses and conjecture are enough to make sure that you’re not making a huge mistake.   After all, it may be a great idea to spend a ton of capital and spend it to grow your customer base, but not if you’re spending more money to get each additional customer than that customer is worth.

The Word Bubble

In all the posts over the past year or so outlining my thoughts on the financing and valuation environment in the internet sector, I've avoided using the word Bubble. It is intentional. For me Bubble will always be inexorably linked to what went down in 1999 and 2000 in the internet sector. And I agree with Mike Arrington that what is going on now is different. I do not think we are in a Bubble per se. That is why I don't use the word.

But I am equally sure that we are in the glass is half full part of the cycle. Investors are focusing on the upside and ignoring the downside. That part of the investment cycle lasts for a while and then things change and investors focus on the downside and ignore the upside. Markets are defined by greed and fear. We are in the greed mode right now.

I don't view this as whining. There is nothing to whine about. Investors are making money hand over fist. Why would I whine about that? But I do think it is important to point out the inevitability of the market cycles. There will come a time when the environment we are in will be in the rear view mirror. And entrepreneurs should be crystal clear about that. This is a time to raise money and sock it away for a rainy day. Because it will rain.

And investors should recognize that the current valuation environment will not exist at some point in the future. The companies we invest in will need to grow into these valuations or we will face writedowns and writeoffs. We should not let the greed emotions cloud our judgement. Yes, that hot deal sure looks damn good right now. But deals are actually companies and most venture investments are held for five to seven years. I've likened them to marriages over the years. Don't let the lust for the deal lead to a bad marriage that you have to be in for the next decade.

I've made all of these mistakes. I know what happens. I am prepared for it. That doesn't mean we aren't investing in this cycle. We are as active as we've ever been. But we are investing at this stage of the cycle with our eyes wide open. And I'm writing about it in the hopes that others do the same.



An Android WiFi App I Need

I use wifi a lot on my android phone. I use it in my office, my home, my beach house, cafes I frequent, and offices of companies I frequent. I save the profiles for all of these locations and replace my carrier’s data service with wifi when I am in these locations.

But I don’t like to leave wifi on all the time on my phone. It eats the battery and it auto connects to weak wifi access points with generic names like linksys, netgear, etc. The latter situation can be particularly frustrating when I’m streaming audio or doing something important. It causes a lost connection and a broken session.

I’ve looked in the android marketplace for an app that solves this problem and can’t find it. Here’s what I am looking for:

I’d like to keep wifi off by default on my mobile phone. I’d like an app that wakes up the wifi every so often (user configurable but defaults to every 30 mins). The app then looks for a wifi access point that I have in my “whitelist” which would be the locations where I normally switch on wifi. The whitelist would be different from my saved profiles because I have saved profiles for names like linksys, netgear, etc. If the app finds one of these wifi access points with a good signal, it connects and leaves wifi on. If it doesn’t find a whitelisted wifi access point, it shuts down wifi.

The app would also check every so often to see that the phone is still connected to a whitelisted access point. If it is no longer connected, it would shut the wifi off on the phone.

As I said, I’ve looked in the android marketplace for an app that does this. I couldn’t find one. If one exists, I’d love to know the name of it so I can get it. If not, I’d love for someone to build this. There are quite a few apps that help manage wifi (quick switching on and off, etc). Maybe one of those apps can add this feature.

The wireless carrier’s data networks are congested and getting more so with the explosion of smartphones and bandwidth heavy applications. If phone users can efficiently and reliably switch on wifi when they have it, it will offload data traffic from the carrier’s networks and help reduce congestion. Mobile phone operating systems don’t do a great job of assisting with this stuff today. Over time I expect they’ll get better at it. But until then, I hope third party app developers can come in and fill the void.

UPDATE: I’ve downloaded three apps that were suggested in the comments; Tasker, Y5, and Locale. I’ve set up two of them, Y5 and Locale, and both seem to solve this problem. I think Locale does it in a more sophisticated way. But I am running both of them right now. I will let everyone know what works best for me in a future post.

comScore Total Universe Report

For the past three or four years, I'd look at Twitter's numbers on comScore, or Alexa, or Quantcast, or some other third party measurement service and I'd wonder "what would they be if they included mobile devices like phones and tablets"? Twitter was one of the first companies to have this issue as so much of its usage is on mobile. But now, there are many companies that have this issue. So looking at third party measurement data is becoming harder and harder.

Yesterday, comScore (a company I was on the board of for ten years but no longer am involved with) announced the Total Universe Report, "which provides audience measurement for 100 percent of a site’s traffic, including usage via mobile phones, apps, tablets and shared computers such as Internet cafes". Websites must run comScore's UDM tag to participate in the Total Universe Report. You can learn more about the UDM tag here.

I think this is a big deal. I'm eager to see the numbers for companies with large mobile user bases when the first numbers are out as part of comScore's April reporting (usually around the 10th of the following month). The internet has moved beyond the web onto mobile devices and that trend is only accelerating. I'm happy to see the measurement marketplace adapting and I am not surprised to see comScore leading the way.

Some Thoughts On The Music Business

Over the past week, I've had several conversations with friends in various parts of the music business and there are a number of recurring themes that I thought I'd blog about. This post is about the recorded music part of the business, not publishing, not touring, not movie or video game soundtracks.

Physical distribution (ie buying CDs in stores) is still more than 50% of the recorded music business but it won't be long before digital revenues will eclipse physical. It might happen this year. Physical revenues won't decline on a straight line. They will collapse at some point as retailers start to take away shelf space. Within five years, physical distribution will likely be history.

Digital distribution is largely files (mp3 and aac) sold via iTunes and to a lesser extent Amazon and a few others. Digital also includes streaming license revenues, both compulsory license revenue from Internet Radio (Pandora, radio.com, etc) and licenses from on demand services like Rhapsody, rdio, Spotify, Napster, etc.

Digital revenue today breaks down as 95% files, 5% streaming. And within the 95% that is files, iTunes is 80% or more. But iTunes is not growing that much. It was flat last year and is growing only slightly this year. Amazon is still growing nicely but from a much smaller base. File based digital revenues are maturing and are not likely to make up the loss in revenue from physical distribution.

Streaming is growing very nicely and has the potential to develop into a large business but the companies that provide streaming services are struggling under the weight of the license fees.

The average iTunes customer purchases music that generates roughly $50 to $60/year to the record companies after Apple takes its cut. So the record companies want to get $50 to $60/year from the on demand services. The on demand services have not been able to make that model work for them yet as it requires a $100 to $120/year subscription to breakeven. And worse, the record companies are reluctant to support freemium models out of fear that they canibalize file based revenues.

I've long said that music listening is going to move into the cloud and that the dominant model will be streaming via free ad supported Internet Radio and paid subscription services. If that is to come to pass, the record companies will need to take some risks to grow this market. Converting user behavior takes time and requires free trials, subsidized offers, and a concerted marketing effort by the entire industry.

I'd advise the record companies to partner with the innovators in the digital music sector, something that they have largely been unwilling to do as long as physical distribution pays the bills. But the end is near for CDs and iTunes isn't going to replace physical at the rate it is growing. So it is high time to invest to build the streaming market. And for the record companies, that investment means subsidies and attractive license terms so that innovators can profitably build the services of the future. You have to invest in new businesses to grow them. That's what I do all day long. And I'd love to see the music industry do the same.