Nic Brisbourne’s view from London on venture capital and exploiting change in technology and media
When I updated the look and feel of The Equity Kicker a couple of months ago I also updated the CAPTCHA I use to keep out comment spam. That has turned out to be a retrograde step, and I am suffering quite badly at the moment.
As a result I have been slow to approve a couple of your comments recently, for which many apologies.
The future continues to look bleak for record labels as they are becoming less and less important to their artists. This is from Dave Cushman’s blog (tks to OpenGardens for the pointer):
Robbie Williams had made five times as much money from his deal with T-mobile Sony Ericsson in one year than he had from his record label.
and
He made most of all from touring (the because effect in full effect!)
Not only are record labels not the primary source of revenue for Robbie any more, they are also not his primary source of promotion (in Australia anyway….).
Interesting also that Sony Ericsson spent six times as much promoting Robbie’s latest album in Australia than EMI did.
As Dave explains it record companies are being dis-intermediated. Artists don’t need them to get to their fans anymore, at least not the established ones. And one could argue that Myspace is providing an alternative to their A&R function.
A few years ago it was impossible to see a music industry without labels - now that doesn’t seem like a totally unrealistic prospect.
I wonder if we might be saying something similar about broadcasters in a couple of years time.
In both the music and video industries the function of aggregating demand and managing distribution looks very different in a networked world.
News Corp reported it’s results yesterday and is becoming more cautious on the outlook for Myspace. The results statement was a mix of good and bad news for the world’s leading socnet.
First the bad news (all the following data and more can be found on Silicon Alley Insider).
Revenues at Fox Interactive Media (FIM) of which Myspace is the largest part were 10% down quarter on quarter to $210m. The reasons given by News Corp COO Peter Chernin were summarised by Silicon Alley Insider:
there are specific challenges [with social media] 1) Tons of inventory. Lack of scarcity creates a liquidity challenge. Working on bringing big brands aboard. 2) People who are visiting social networks there for different reasons, different uses. Figuring out how to target. 3) What’s the value of a “friend”? Trying to figure out new metrics to communicate with marketers.
There is nothing new here, but it is noteworthy that News Corp is now saying these things out loud and actively tempering expectations for Myspace.
Revenues are obviously the most important indicator, but there were some nuggets of good news, including their report that revenue per unique (display + search) is up 49% over the year before.
There was also good news for Myspace fans with regard to market share - they take 54% of US socnet ad dollars and are twice the size of Facebook in the US as measured by users (73m v 36m).
Putting this into context the interesting question is what this means for the value of social media generally and the need for revolution in the online advertising world (e.g. via VRM or recommendations as per RunToShop a startup I met here in Finland for the first time this morning).
For me it is pretty clear now that Myspace is a big, valuable and growing media property, but that it still has it’s challenges. That is good news for established socnets and online ad businesses, but maybe the lesson for online advertising is that we need evolution rather than revolution.
A couple of weeks ago I wrote that Facebook is maturing as a platform - a post I wrote in response to uproar from the developer community about how Facebook was making life difficult for them. My point was that Facebook was right to make life more difficult for application spammers, and the uproar was best understood in that light.
I think it is helpful to see Facebook as an emergent system where as the community grows the rules need to evolve to maintain both the consumer experience and a healthy growth rate.
We are now witnessing a period where Facebook observed that application spam was ruining the consumer experience and is sensibly tinkering with the rules in response.
The question is whether the rule changes will have the desired effect - or whether they either fail to improve the customer experience or choke off growth.
Which brings me to the point of this post - according to data on 20bits the lead indicators are that developers are deserting the platform. Specifically, activity in the Facebook developers forums is declining rapidly.
Monthly Statistics for the Facebook Developer Forum Posts per day 461 225 -51% Threads per day 80 44 -44% Highly active users 461 225 -47%
20bits also reports that new applications on Facebook are less successful than they used to be. Apparently apps launched at the end of January were 1.5 times more successful than new applications launched at the end of March.
The bull case for Facebook is that their actions have cut out low quality applications and that developer activity will rise again as they start producing better content. Three months is a long time in the social network world though, and I would guess they are a bit worried by these trends.
Further, Facebook won’t have helped itself by not playing fair:
This is not to forget mini-scandals like the Facebook/CBS partnership, where Facebook removed invite restrictions on CBS’ sponsored March Madness application, even though there were other, independent applications in the same category. It’s hard to say how this affected developer morale, but it showed that Facebook was willing to hurt independent developers when it benefited them.
All of this comes at a time when competition from other social networks is hotting up. Facebook needs developers to choose it’s platform in preference to Myspace, Bebo, OpenSocial and others. Right now the indications are that it isn’t doing a great job of that.
Like Everyclick users here in the UK Hotmail customers worldwide can now elect to join the i’m initiative and have part of the ad revenue generated by their usage of the service is given to charity (see Techcrunch).
In the case of Hotmail users who opt in get an i’m specific ad at the end of their emails and then choose which of the ten supported charities they want to support. Microsoft then makes a small donation for each message sent. The i’m Initiative works in a similar way across a bunch of other Microsoft services and in total $1.4m has been donated since the service went live in March 2007.
In the case of Everyclick the idea is that you use them to search instead of Google (results powered by Ask) and they donate half of the paid search revenue to the charity of your choice - and they have just about all the UK charities on their list. So far £434k has been raised for charity through Everyclick.
Clearly this is good news for charities and good news for the world as a whole. Furthermore as integrity and genuineness become more important these initiatives could become big business.
I genuinely welcome these developments, but do so with a little nervousness, because money given to charity means lower margins and hence less profit in the industry as a whole.
From Social Times:
Over the past couple days, MySpace launched a new page which includes a “featured” section as pictured to below. For the past 2 days all of the applications in that space are Slide applications. Developers began inquiring with MySpace about why only Slide applications were showing up there. The result? At least one developer I’ve spoken with found out that MySpace is in fact charging for those apps to be “featured.”
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So how much does it cost to be featured? My sources have been pitched to at between $50,000 and $100,000 for one week as a featured application on the MySpace applications page. This is the first platform which has actively attempted to generate revenue directly from application developers. Additionally, this could be bad news for companies with application ad networks as MySpace is now directly competing with them.
I think this is a short sighted move. In the short term I’m sure they will generate more revenue, but in the long run this will result in less apps being developed and used on the platform and hence a less vibrant ecosystem. There will be no thousand flowers blooming.
Jeff has been around tech investing for as long as I can remember, so when I saw a post from him on Techmeme entitled What I look for in Startups I clicked through straight away.
He says:
These days when I’m making a decision about a startup opportunity to invest in, I put the people first, I consider their vision and then weigh-in on my take on their ability to be a disruptive force in their chosen market space. As someone who believes that we are living in an industrial revolution that our parents and grandparents never experienced, I’m looking for people (and teams) who look to leverage “the Internet” and are building software/application/services that do something different and something that wasn’t either practical or possible to do before. Having the vision is one thing, but vision ithout market timing is a recipe for failure. That said, some of the most interesting companies I’ve met with were with people who were early in one market segment and were inspired to use their experiences to morph themselves into something else.
I agree with everything he says, but I’m going to break it down a little, because when you do that it starts to sound a bit different.
First, some background.
I think most people would agree that the three drivers of startup success are market, product and people. VCs like to debate endlessly whether it is more important to get the market right or the people right, and people is definitely the more fashionable answer.
This is where Jeff has come out - but he says ‘I put the people first, I consider their vision’. For me a vision is a statement of what market you are going after and the product you will build to win. So despite the heavy lead on people, Jeff also stresses the importance of market and product. Note also that he is looking for people leveraging the internet. A market statement.
I would also bet that it is pretty hard to get a conversation with him about a market he isn’t already excited about, whoever you are.
Ideally of course we want everything - to invest in great people with an awesome market and product story, but in reality there is always compromise on these objectives and as you may have gathered by now I think the honest answer to the question of which is most important is ‘market’. The most valuable startups are always leaders in large markets - look at Google in search advertising or Microsoft in operating systems. I would say you almost can’t think too much about market.
The other piece I wanted to pull out of Jeff’s post is:
When meeting with an early-stage startup looking for funding, if I am interested in the company, I look to connect with the founders and find out the inspiration behind the company they are creating. I try to understand the problem they are solving and the opportunity they are seeing. I also look to see how as a team they get along, work off each other and I try to get a feel of their creative energies. I look for teams where each member is watching each other’s back and a core team whom I feel will be together for the long term. I look for people who are both smart and creative who can be focused when necessary and whose personality allow themselves to be open to change directions and re-map themselves when needed.
Couldn’t agree more. The one thing you know for sure is that there will be huge stresses and strains in every startup and getting on well with the team and having a team that gets on well with itself is the best recipe for weathering the storm.
Regular readers will know I think there are problems with the display ad market as currently set up, and that we need innovation in this area so that advertisers will get good value as they continue to bring their ad dollars online. Google’s problems at YouTube which I posted about this morning are but one example.
In this vain I have previously posted Jakob Nielsen’s studies of how much we see (or rather don’t see) ads when we look at web pages. This afternoon I came across some new data which I wanted to share:
The Warren, R.I.-based marketing research and consulting firm [MarketingSherpa] commissioned Eyetools to run an eye-tracking study in February with the goal of finding out how and whether on-page placement affected overall calculations of return on investment and return on ad spend (ROI and ROAS).
The study found that while an ad placed above the fold is visible to 100% of site visitors, only about 60% of them actually see it. At best, below-the-fold units are visible to roughly 70% of viewers, but only about a quarter of them actually see the ads. The ratios continue to trend downward as the ad units move from center placements to columns and spots on the far left side of the page.
So 40-70% of ads are simply not seen. This stat is much less frightening than the Nielsen studies I linked to above. I would guess that a similar percentage of TV/magazine/outdoor advertising is also not seen. So despite the negative tone of the MediaPost article I think this is encouraging news for the online ad industry.
Thanks to Bart for the pointer.
I’ve been hearing rumours to this effect for a while now, but yesterday Eric Schmidt confirmed that YouTube isn’t exactly throwing off oodles of cash. Reported here on News.com and here on Sillicon Alley Insider.
I wish this were not the case for two reasons.
Firstly, everyone with an interest in the startup ecosystem wants to see more top-dollar transactions like the Google acquisition of YouTube and that will only happen if a decent proportion of the ones that have happened to date are deemed successes. Following ebay’s Skype writedown it has become even more critical that Google finds a way to make YouTube work. This is a point I’ve made before and I’m making it again, because it is very important.
Secondly, Google’s ability to monetise Google’s video/social media inventory is a guide to what we will all be able to achieve on the other properties out there. If they can’t do it, I think it is safe to assume it will be very difficult for everybody else too.
Schmidt said the following about how they are addressing this issue:
We believe the best products are coming out this year. And they’re new products. They’re not announced. They’re not just putting in-line ads in the things that people are trying. But we have a number–and, of course, Google is an innovative place. The Yahoo! team are trying various new forms of advertising, ones which are much more participative, much more creative, much more–much more interesting in and of themselves. Google believes that advertising itself has value. The ads literally are valuable to consumers. Not just to the advertisers, but the consumers.
I have been saying for a while now that there is a need for innovation in the online advertising world and in business models for consumer internet more generally. It will be interesting to see what they come up with.
Techcrunch reports the following March stats for Twitter:
These are apparently not official figures, but they are consistent with the rumours I have been hearing.
I’m a big Twitter fan and it is one of the few services I use every day, but given all the hype and the rumoured $15-20m new round of financing I have to say these are not big numbers.
