Posts from January 2008

Seth Godin listed 14 rules to live by in the music business on his blog yesterday. It’s a topic you all have heard me rant on endlessly for years. I am passionate about this issue because I love music and hate to see how messed up the business of music is. Taken together, Seth’s 14 rules are are great recipe for how to fix the music business.

I wrote a long post on the plane back from Australia trying to defend my assertion that for most web apps you can wait for scale to execute your business model. After reading it several times, I think it sounds too defensive and I am not going to post it. But there is one part of the post that I like and want to share with all of you. There’s something unique to most web apps that makes waiting possible and it’s this:

if you are building a media oriented business, particularly one that has low marginal costs, meaning you build it once and the cost to serve an additional customer is negligible, then you have the unique opportunity to focus first and foremost on building your customer base or audience

Most web apps will be monetized with some kind of media model. Don’t think banner ads when I say that. Think of all the various ways that an audience that is paying attention to your service can be paid for by companies and people who want some of that attention.

If the marginal cost to service an additional customer is negligible, then you can wait to monetize. If it’s not, then you are going to have to focus on your business model earlier in the life of your business. It’s really that simple.

Last week I wrote an annoyed post on the demise of one of my favorite music web services, Yottamusic.

I let Rhapsody have it for shutting down Yotta, which was an alternative web client for subscribers of Rhapsody. Here’s what I said:

Rhapsody should be like dial tone. You subscribe to it and use it wherever you want

The fact that they’ve shut down yotta shows that they are old school luddites without a clue.

Screw them. I am so off of Rhapsody as soon as someone like spotify comes along with the right model.

Ben Rotholtz, who is GM Web Services & Syndication at Rhapsody, left several well written comments to the post and he and I have been trying to schedule some time to talk which hasn’t happened due to my vacation and his trip to CES.

The story here is that Rhapsody’s API is governed by the terms of their content licenses with the record labels. Yottamusic was doing some things outside of their API and outside of their terms of service in order to fully replicate the Rhapsody experience for their users. Rhapsody had no choice to shut them down or be in violation of its deals with the labels.

So I guess I owe Rhapsody an apology here. It’s not entirely their fault. They are not luddites. They are in bed with luddites.

As one of my mentors in the venture business used to say all the time – "when you lie down with dogs, you come up with fleas."

My kids bought the first seasons of Heroes in Australia for the flight back to the US. It was one of several DVDs they bought in Australia. They watched them all on their laptops.

They didn’t finish it so Josh pulled the CD out of his laptop and put it in our DVD player. He got a blue screen (why is bad news always delivered in blue in electronics?) that said "region not supported" or something similar. He asked me what that meant. I told him that our DVD player would not play an Australian DVD. He was incredulous. How could that be? This is the generation of the Internet we are talking about. They think its one global economy and don’t understand why if you bought a DVD in Australia it won’t play in the US.

So he was bumming out and then I pointed out to him that we have a Mac Mini in every entertainment system in our home. So he just switched the input over to the Mac Mini and is watching Heroes just fine.

Kind of funny but also kind of ridiculous.

I was reading a Goldman Sachs research report on the radio business on the plane back from Australia. I came across this chart of EBITDA multiples versus EBITA growth rates for various media categories.

There’s not a ton of insight in that chart, but it got me thinking if I could learn anything about the various media categories from watching my teenage children. Here’s what I’ve observed over the past year.

1) When they walk into a DVD store, they rarely walk out with a movie. It’s almost always the first season of a TV show they’ve heard is good. They’ll go see a movie in the theater but don’t really enjoy watching movies at home or on their computers. They feel that TV shows are better written and more interesting.  And the entertainment value is certainly more compelling. For roughly $40US, they got something like 25 episodes of Brothers and Sisters. That’s almost 17 hours of entertainment for $40. That’s hard to beat. And they get the bonus of being able to stat watching the show on TV once they’ve caught up.

It makes me wonder where this is headed. I don’t know enough about the economics of TV shows versus fims, but it may be that digital technology is changing the way the younger generation will consume filmed entertainment in some important ways. Something to think about. And maybe why the writers are striking.

2) They will play games whenever given the opportunity. My oldest, Jessica, favors brick breaker on her blackberry and admits to be close to addicted. She claims to know kids who play it under the desk at school. My middle child Emily seems to have been pulled into gaming via her social network. She likes to compete with her friends for the high score on a simple but engaging Facebook game called Jetman. And my son Josh will play games on everything from his phone to his computer to my computer to his xbox. It doesn’t matter what game it is and what device its on. He likes TV, movies, and games and seems to move effortlessly between all these forms of entertainment as if they were all the same.

3) When we were without broadband internet for three days in the barrier reef, they were a little antsy but were able to stay on top of Facebook messages via my blackberry. When we got back to a broadband internet connection, they spent the afternoon happily entertained by the Internet for hours. Emily had a huge smile on her face so I asked her what she’d do without the Internet. She said, “dad, the Internet is my primary form of entertainment”. She’ll happily turn off Facebook and AIM and watch TV with her siblings at night, but she’d happily stay online too.

4) The only time they listen to radio is when we have it on in the car for short rides. If it’s a long ride, we almost always plug in the iPod and they’ll take turns DJ’ing. Jessica is an amazing DJ if I may say so myself. She has mastered the art of gracefully moving from The Beatles, to the Arctic Monkeys, to some obscure new band I’ve never heard of and not miss a beat. In my generation, she’d have been working the high school or college radio station. Now she’s more likely to start an mp3 blog.

Speaking of mp3 blogs, they find all of their music on the Internet via myspace, last.fm, hype machine, mp3 blogs, and social networking with their friends. And when they find a cool new band, they friend them on Facebook and get an invite to their next gig. Nothing’s really changed about music other than the way kids connect to it. They still use music to make friends, qualify someone’s coolness (or lack thereof), kickstart parties, and make doing homework a bit more tolerable.

5) They still read books the way we did as kids. That doesn’t seem to have changed a bit. They read them for school, they read them for entertainment, and they read them lying in bed waiting to be tired enough to turn off the lights. My son Josh read four 600 page Harry Potter books on our two week trip and he’s not a super fast or voracious reader. But he likes reading. All my kids do. Might books be the only medium that remains unaffected by the Internet (except the ease of finding and buying them)?

6) They love magazines and read all the fashion, cooking, and gossip magazines they can get their hands on. They read about the same topics online and on TV (particularly food), but they show no signs of moving away from the magazine. In fact, I detect a growing obsession with magazines among my family. They literally fight over a new issue the day it arrives.

7) They don’t seem particularly interested in newspapers. They get most of their news on the Internet. Josh will read the sports pages over breakfast and the girls will glance at the front page. Important current events and politics will sometimes generate enough interest that they’ll read the front page portion of a story and then launch into a discussion over breakfast. But I don’t see a commitment to newspapers like we have in my generation and my parents generation.

So what does that tell me about the Goldman chart and these various categories?

– video games and Internet should be enjoying the highest multiples but there’s no surprise there. the market has that figured out.

– newspapers and radio should be suffering from the lowest multiples and again the market has that figured out.

– there are sectors of the entertainment business that are better than others. if my kids are a good sample (and i have no idea if they are), then TV is a better category to be in than films.

– the music business is still a good business, kids are still listening to music the way we did. they are finding it differently and paying for it differently, but they still consume it as passionately as we did. it tells me that those who figure out the new model in music are going to do well. it won’t be the major labels though.

– mass market magazines might be undervalued. the goldman chart doesn’t show those multiples. and i don’t know if there are any good public market pure plays in the magazine business, but they might be a good contrarian play if there are.

– books may be the one category of media and entertainment that aren’t disrupted by digital technology. or maybe we just haven’t seen the technology that will do it. i honestly don’t know. and i don’t know how the book business is faring versus five or ten years ago. but at least in my family, books are still a growth sector.

Of course, my sample of three kids who live together, were raised by the same parents, and have access to most of what they want may not be and probably isn’t representative. which is why i posted this. i’d love to hear other thoughts on these categories and maybe there’s something we can learn and profit from.

When we seed funded Peter Semmelhack, Bug was just an idea and Peter pitched it to us with a bunch of wood blocks. I am not joking. But we liked the idea of a truly open consumer electronics platform that would open up the long tail of gadgets and so we took the plunge. Almost two years later, Bug is finally coming to the market.

Today, the Company is announcing pricing and availability to coincide with a launch at the Consumer Electronics Show in Las Vegas this week. Gizmodo and Engadget have posts on the news with some good comments as well.

Here are the important details:

Pricing

BUG Early Adopter Program – a discount on products for the first 60 days of sales

BUGbase $349 ($299 w/discount)
LCD module $119 ($99 w/discount)
GPS module $99 ($79 w/discount)
Camera module $79 ($69 w/discount)
Motion detector / Accelerometer $59 ($49 w/discount)

In addition, there will be a further discount for anyone who purchases a BUGbase and all four modules, which will be announced on January 21st.

Availability

The Bug Labs online store will be open for business starting Monday, January 21st.  At this point they will begin taking pre-orders for the BUGbase and all four BUGmodules.  They will begin fulfilling orders on or before March 17th, and will ship based on the dates the orders were originally received.  Their initial rollout will only include domestic orders, but they aim to fulfill internationally later in the year.

Bug also announced two other things that shows where they are going and who they are targeting with the initial launch.

1) There will be a heavily discounted pricing program called BUG+EDU.  BUG+EDU is actually a series of programs and promotions aimed at introducing BUG to the education market.  Different programs will be established for primary, secondary, and post-secondary institutions, as well as for individual students.  BUG is a great platform for aspiring engineering students as well as kids who just like to tinker.  BUG+EDU will hopefully get more units into the hands of those who will really use their imagination to drive the next generation of cool gadgets.

2) Bug also announced the Von Hippel module, a new addition to the collection of BUGmodules.  Named after MIT professor and "Democratizing Innovation" author Eric Von Hippel, the Von Hippel BUGmodule adds an interface of inputs and outputs to the BUG, allowing users to "hack" their BUG even further.  Think of this as an empty Altos mints metal case with the requisite BUGbase inputs. Final pricing and timing for the Von Hippel BUGmodule is not yet set, but the company is targeting the first quarter.

Bug is all about enabling hackers to build new innovative consumer electronic devices without having to be a hardcore electrical engineer. Getting Bug devices into the hands of students, particularly a module like the Von Hippel module which basically asks the question – what would you do with this? – is going to create some really interesting stuff and I am excited to see the innovation start flowing into the Bug ecosystem.

I’ve been twittering the top things I like about Australia for the past day.

Here’s my list in reverse order, plus a couple random posts that got into the twitter stream.

We are going to board a plane soon and head back home. As is always the case on these year end adventures we take, we are all ready to get home. Travel, hotels, meals out, constant on the go wears you down. But it’s been great. If you haven’t been to australia (as was the case for everyone in our family), you really should try to get down here.

We spent the final days of our trip up north in Queensland sampling the beauty of the great barrier reef.

The highlight of this part of the trip, as you’d imagine, was the day we spent out on the reef. The Gotham Gal has a full rundown of that day along with some cool underwater pictures she took with her Canon digital and a underwater casing.

My favorite photo of that day is this one, showing her and two of our kids checking out the sights down below.

But when I think back on this trip, it’s not the outdoors stuff we did that will stick in my brain (as much fun as all of it was).

It’s the cities of Sydney and Melbourne that really impressed me. I am an urban person. I live in a large city and I love cities. And Australia has two of the best I’ve been in. They are full of life and energy, but also very laid back and mellow at the same time. This photo, taken in the Fitzroy section of Melbourne kind of sums it up for me.

Great country – Australia. We’ll be back. Hopefully soon.

In an earlier post, I compared Melbourne to Los Angeles. From a topography perspective, I still feel that way. But in terms of cool factor, it’s more like NYC. We loved the neigborhoods and the overall vibe of the town. My favorite spot was this super cool movie theater on a roof in downtown Melbourne. This rooftop movie theater is set up to take text message drink orders. You just set up a tab, then text their short code your seat number and what you want. Can’t beat that or the really comfortable blankets they provide.

We ate dinner at a thai place in the same building called Cookie which was pretty close to the food we got in Bangkok. All in all, I’d have to say Melbourne is my favorite of the places we visited in Australia.