Posts from 2012

Fun Friday: Doing Good

Tyrone suggested this fun friday theme to me. He was inspired by Scott Harrison's talk at LeWeb.

The question in Tyrone's words is "what is everyone doing this Holiday for someone else, probably best if its not family or friends. Just helping out someone in need."

These fun fridays always start with me weighing in on the topic. So the thing I care most about right now is doing what I can to change education in our city, our country, and our world. The Gotham Gal and I have a bunch of initiatives going on that front.

When I think about helping someone in need, this chinese proverb comes to mind:

Give a man a fish; you have fed him for today. 

Teach a man to fish; and you have fed him for a lifetime

So my favorite form of giving back is to do for others what society did for me. Which is giving them the skills to succeed and build a rich and fullfilling life for themselves and their loved ones.

Now it is your turn.

#hacking education

The Absent Bartender

I'd like to apologize for being mostly absent during two back to back fantastic conversations here over the past two days.

It's one thing to take 30 minutes to compose some thoughts at 5am in the morning when nobody else is awake. It is entirely another to stay engaged in a two or three hundred comment thread.

I am headed to Japan with my family on saturday for two weeks and there are a ton of things that have to happen before we leave, mostly related to USV business but also a fair bit of personal business. It is, as they say, crunch time.

I have caught up on the mobile web post and I am getting caught up on the demand a plan post. But a day late is a dollar short and I understand that as well as anyone around here.


Demand A Plan

Regular readers of this blog know of my great admiration and appreciation for the work of our NYC Mayor Mike Bloomberg. One of Bloomberg's signature issues has been gun safety. When you ask Mike about this issue, he tells you that after a few visits to the wives and children of NYC police officers who have been shot and killed on their job, you get pretty worked up about this issue. And worked up he is.

Bloomberg and many of the urban mayors around the country have created the Demand A Plan organization to fight for gun safety. It is currently the leading gun safety group in the US.

Many leaders in the Internet/tech industry have been working with Demand A Plan over the past few days to kick off a large and sustained social media and regular media campaign to pressure our leaders to do something about the gun safety problem in our country. I have been involved in this effort and I support its goals completely.

Here are a few things that are launching today:

1) A full page ad in the New York Times which I have signed personally

2) A viral social media campaign at the Demand A Plan website

3) Change your twitter avatar (I changed mine)

I will update this post with additional efforts that launch today. Like the PIPA/SOPA efforts last year, this effort is diverse, distributed, chaotic, and hopefully effective and powerful. I am not aware of everything that is going on right now. There is a lot of activity out there. But I will try to stay on top of it today and keep you all up to date as well.

In addition to our Mayor, I would like to thank Ken Lerer, Ron Conway, and Eric Hippeau for their excellent leadership of the tech sector's work on this issue in the past few days.


The Mobile Web

A friend sent me an email last night suggesting that now is the time to start building mobile web applications and services so that we can bring the web we know and love to the mobile world.

I am curious what this community thinks about the following:

1) would a mobile web that is open and interactive like the web be preferable to the app ecosystem we now have on mobile? And if so, why?

2) what technologies, apps, and services do we need to get there?

3) are there any obvious investments that one should make to help jump start the mobile web?

I should be clear that this is not (yet) a declaration of intent to make such investments. I have been thinking about and sleeping on my friend’s email since last night and I would like to consult the collective wisdom of this community as I consider his advice.

BTW – I wrote this post in chrome on my nexus 4


MBA Mondays: Revenue Models - Commerce

Commerce has to be the oldest business model. Sell something to someone. Or maybe it was barter back then. In any case, ecommerce revenues topped $200bn in the US in 2011 and are growing at close to 10% annually. Global ecommerce revenues are at least double that, maybe as much as $500bn depending on who you ask. So selling something to someone online is a big business and getting bigger.

Retailing is by far the largest component of the online commerce market. Retailing is buying a product at wholesale and selling it to the customer at a markup. Retailing involves inventory. You stock up on inventory so you can provide the goods quickly to the customer.

Amazon is the world's largest online retailer. Amazon's revenues in the past four quarters were approximately $55bn. Clearly some of that revenue is non-retailing but let's assume their retailing revenues are about $50bn annually. They are roughly 10% of the global ecommerce market.

Retailing is a tough business. The difference between what you buy the product for at wholesale and sell it at retail is called your gross margin. Amazon's gross margin ranges between 20% and 25% depending on what time of year it is. The holiday quarter brings the lowest gross margins because retail makes up a larger perecent of revenues. At Amazon's size, a 25% gross margin turns into a lot of money. But a smaller online retailer can really struggle at these margins. Let's imagine a retailer of bicycles on the Internet does $50mm in revenues. That sounds great. But that means that only $10mm to $12mm a year actually stays in the business. The rest goes out to the bicycle manufacturers. And then the retailer has to pay for the website, the traffic acquisition, the staff to operate the business and a lot more. Pre-tax margins for online retailers will typically be in the sub 10% range, often less than 5%. To put that in context, the bicycle online retailer that generates $50mm in sales will keep a couple million pre-tax at the end of the year. It's a business for sure but not an easy one.

The reason that online retailing is so tough is that it is hard to differentiate one retailer from another. You want a new mountain bike? Go to Google and see what's out there.

Mountain bike
Retailing has always relied on location to provide some margin protection. There is no "location" on the Internet other than SEO. So gross margins online are going to be lower than they are in the real world. And on top of that, you have the capital outlays required to stock up on inventory and the markdown costs associated with getting out of unsold inventory. And then there are the shipping costs which increase the price to the customer unless you are willing to eat them.

I have never invested in online retailing. I don't like the economics of this business even though it is a huge market.

Beyond retailing, there are a number of other ways to do commerce on the Internet. The next is marketplaces. Marketplaces are places where buyers and sellers come together to transact. Marketplaces have always existed in the offline world. It turns out that the Internet is a terrific place to create marketplaces. And they have much better economics. There is no gross margin for the marketplace operator, just a transaction fee. There is no inventory. There are no shipping costs. All of those costs are born by the seller. I have invested in quite a few online marketplaces. I love the economics of these businesses. I plan to write an entire post in this series on peer to peer business models and marketplaces will be a large component of that post, so I will move on.

One way to get past the gross margin and differentiation problem on the Internet is to make all the goods you sell yourself. This is called "vertically integrated retailing" and it is a growing trend in online commerce. A great example of this model is Warby Parker which makes and sells a line of fashion eyeglasses. Warby Parker has no stores (at least they didn't when they started out). The Internet is their store. Vertically integtrated retailing has better economics because your products aren't commoditized by Google and the other search engines. Customers seeking your products must come to your website to purchase them. But these businesses have other issues. Building a brand is tough, particularly from a standing start. Manufacturing, most likely overseas, can be a challenge. The capital costs remain high because you still need to stock up on inventory. And you can face markdowns if your SKUs go out of style. Although I like this model much better than straight up retailing, I have never invested in this model either. The Gotham Gal has made a few investments in this sector though.

Another flavor of retailing is flash sales and daily deals. This is not a new concept on the Internet. There have always been clearance sales in the retailing world. But the Internet brings new tools to drive immediacy and rapid transactions. A french startup called Vente-Privee brought the concept of the flash sale to the Internet over ten years ago and it has been adopted widely across the globe, particularly in the past five years. Flash sales have better economics than traditional retailing. They are often acquiring the product at discounted prices. The inventory costs are lower because they blow out of the product quickly. And there is no competing for the buyer's loyalty on Google every day. Flash sales sites leverage mailing lists to bring their customers back again and again. The issue with flash sales is customer burn out. It is difficult to maintain a vibrant flash sale business over many years.

Auctions are another way to drive commerce online. eBay is the canonical company in this category. The nice thing about auctions is they leverage a set time frame to drive toward a clearing price. It is game of sorts and can be quite addicting and engaging. Auctions work particularly well in marketplaces where there are unique items to be bought and sold. eBay's gradual adoption of the "buy it now" model suggests that there are limits to the auciton model at scale and that consumers prefer a straight up retail model because of its simplicity. I suspect that auctions make up a substantially smaller percentage of online commerce revenues than they did ten years ago.

The revenue model hackpad includes a number of other forms of online commerce which I am not going to dive into in this post. If you have questions about any of them, I would be happy to take them in the comments.

In summary, commerce represents the largest and most common online revenue model. But it is not an easy one to execute profitably. It lends itself to commoditization and margin compression in most cases and the economies go to scale players like Amazon, eBay, and Walmart. While there has been substantial venture capital investment in this sector, particularly in recent years, it is not a sector that I like very much, other than marketplaces which to me are really peer to peer businesses. I will cover them more in a few weeks.

#MBA Mondays

Museum Of Math

Last night the Gotham Gal and I were out and about town attending some holiday parties. One of them was on 26th street, on the north side of Madison Square Park. As we arrived at the building we were headed to, I saw this:

Museum of math

Somehow I had missed the news. The Museum of Mathematics has opened in NYC on the north side of Madison Square Park.

We did not go in. The museum had closed by the time we were there. I am eager to return and check it out. I am and have always been a math geek. And I love teaching math to my kids and anyone who will listen. It is magical stuff when you understand it.

I am so happy we have a place where we can take kids in NYC, either on field trips or family outings, to get them into math and all that it can lead to in their lives. Here’s a short photo tour that gives a glimpse of what it is like.


Jason sent me this video. I am adding it to this post.

#hacking education#NYC

Video Of The Week: Cities, Networks, and Growth Curves

Kirk sent me this TED Talk yesterday. It is the Physicist Geoffrey West talking about cities, networks, and growth curves. Regular readers of this blog will recognize a bunch of themes that I am obsessed with in this talk. So check it out and let me know what you think in the comments.

#VC & Technology

Fun Friday: Song Of The Year

What's your favorite song of the year?

Here's mine

I always wondered who plays the guitar solo at the end of the song. Brian told me the other night that its John Mayer. That's cool.

#My Music

Gurley and Om

The first thing I do most morning is check #discover in Twitter. This morning I saw this in my feed:

Bill Gurley and Om Malik are two people that I deeply respect. They are thoughtful and have been in the game for a long time. They know their stuff and they focus on what’s important.

There are six videos up on GigaOm, each about five or six minutes long, that captures a conversation they had recently. I encourage everyone to watch all of them, but this one is my favorite. It’s about nine minutes long even though the player says 17mins. Bill is such a great analyst and historian of our business. And he’s 100% correct as well.

I am going to put this quote on my office wall:
“You can’t make money with a consensus accurate prediction”
I just love that way of thinking.

#VC & Technology

Support E-Hailing in NYC!

Last year, at about this time, USV met Jay Bregman and Ron Zeghibe, who are two of the cofounders of Hailo, a mobile app for hailing taxis, that had just launched in London. If anyone has been to London in the past year, you probably know that Hailo has taken London by fire with over half of all cabbies in London accepting rides on Hailo. Hailo has gone onto launch in Dublin, Toronto, Chicago, and Boston, and they hope to launch in NYC in 2013. Imagine being able to hail a yellow cab in NYC from your Android or iPhone? I cannot wait.

But before Hailo, Uber and other e-hailing apps can hail yellow cabs in NYC, we need changes to our taxi cab regulations. And that vote is TOMORROW. So I've asked Jay Bregman to pen a guest post explaining to all of you, and hopefully all of NYC (and especially five reluctant regulators), why we need e-hailing to be allowed in NYC.


Every ten seconds across the world a licensed taxi driver accepts a Hailo E-hail. And with each match, Hailo helps chip away at the millions of dollars lost by drivers and hours wasted by passengers due to inefficiency in the market. E-hailing apps help solve the line of sight problem – they are the natural evolution of the arm-flail, the doorman’s whistle, the light outside the hotel – and nowhere will our impact be greater than right here in New York City, my hometown.

Right now, cab drivers (and prospective passengers) are limited by their line of sight at any given time. A passenger can be very close by, but if a driver does not see them, they will not get picked up. As a result, the fare is lost, and the passenger misses out on a cab ride. Drivers currently spend up to half of their time cruising empty in NYC, desperately looking for passengers.


This does not make any sense.

E-hailing is now commonplace in cities across the globe – including London, Dublin, Boston, Toronto, Chicago, San Francisco and many others. In London, half of London’s 23,000 drivers safely use apps to get up to 30% more business every day. Hailo passengers on average wait only two minutes from tap to taxi.

This Thursday, the NYC Taxi and Limousine Commission’s nine-member board will vote on proposed rules which will allow E-Hailing in NYC, subject to a balanced and sensible licensing scheme similar to those already in place in cities such as Chicago and Toronto. If adopted, the rules would take effect in mid-February. But politics – in particular outcry from adjoining industries such as black car and livery companies seeking government protection against change – are currently threatening whether the rules will pass and therefore whether this technology will be allowed in NYC, where, like London, cabs provide a critical, cost efficient service.

Four commissioners have already expressed support for the rules – meaning New Yorkers are just one vote away from a substantial technology improvement to the iconic Yellow Cab. I am writing this post as the Founder & CEO of Hailo – one such E-Hailing provider – to explain why E-Hailing is important, why it is ready for NYC, and what you can do to help convince the commission if you agree. To be very clear, these rules do not select a single supplier or favor Hailo over anyone else; they merely establish an open marketplace in which E-Hail providers may compete for the hearts and minds of Yellow Cab drivers and the riding public.


There is overwhelming evidence that E-hailing works, it has been proven on New York style scale and sophistication, and it will do nothing but good for passengers and drivers – so why do TLC commissioners remain unconvinced?


The TLC must pick up the reins of innovation and competition and finish the task started when credit card machines were introduced in 2005, when the contracts with these providers first contemplated smartphone apps. We pledge our support to the drivers and people of New York, and the TLC, to make sure this time we get it right.

To make your voice heard, please email the TLC at [email protected] or contact the Chair here. The vote is Thursday, 13 December.

Further Information

Hailo’s testimony at a recent TLC Public Hearing on the E-Hailing regulations: