Monthly Archives

August 2006

Havard hosts a lecture in Second Life

By | Web2.0 | No Comments

It will happen this autumn and cover argument.  Check out this post for details.  The video is comedy.

Watching this video made me think that my interest in real/alternate world convergence may be running way ahead of any chance of commercialisation.  It brings home how hard it is to make things happen in SL.

Facebook

By | Microsoft, Social networks | No Comments

Facebook logo 

There is a good profile on Facebook, the second largest social network here.  Of interest:

  • It is entirely advertising/sponsorship focused
  • Unlike all its competitors it is only available to a closed group – College Students
  • Their usage stats are amazing – 85% of college students have an account and 60% log in daily
  • It has had $40m in VC
  • Photos (a key driver of stickiness on many sites) are an important feature
  • As are real world event (read parties) organisation tools
  • They have sponsorship deals with Apple (10 million iTunes sample players to give away) and JP Morgan Chase for credit cards

They have done a deal with Microsoft that rivals Google’s Myspace deal, although the amount is undisclosed.

There is a deep penetration of a demographic here that gives a feeling of sustainability, particularly as it becomes a tool by which College friendships are maintained after school.

Evolution of VC model – Europe

By | Venture Capital | One Comment

Peter Rip of Leapfrog Ventures in the US last week started a series of posts on the evolution of the venture capital model from a US perspective. The first post is a great backgrounder which sets out how the venture capital cycle has worked over the last 40 years and gives the main reasons it will change.  As he says most of it will be obvious to people who know the industry well, but for those new to it there will be some interesting insights.

Here I briefly summarise what he says and comment on where things are different in Europe. Assuming his later posts live up to the quality of the first I will do the same as his series progresses.

The Summary

  • VC is a hits business – fund returns are driven by a few big wins 
  • Success breeds success – entrepreneurs want to work with VCs who have had hits, so top name VCs have enduringly fantastic franchises (Sequoia, KPCB)
  • For the last 40 years the VC industry has repeated the following cycle:
    1) high returns attract more capital to the asset class
    2) competition increases and returns fall
    3) capital becomes scarce, returns go up and the cycle begins again
  • The cycle won’t repeat again due to globalisation, abundance of capital across the cycle, IT is now mainstream and much cheaper, enterprises have a reduced appetite for risk (making it more difficult for start-ups to sell them innovation)

European perspective

  • The UK VC has only existed at any scale for ten years (less than that on the continent) so we have been through the cycle once
  • That cycle was EXTREME – encompassing the March 2000 bust and ensuing nuclear winter
  • There is still a scarcity of capital here so the cycle may repeat again – funds raised by limited partners in Europe fell c90% 2000-2005 and the last couple of years have been a great time to invest
  • The ultimate winners are not yet clear – although there are some leading candidates
  • I suspect that European VC returns are not as hits driven as they are across the pond – for reasons that I think are structural there are fewer mega hits and more 3-4x deals (this is a complex issue which to which I don’t have space to do justice here, suffice to say that our returns are lower over here and we need to eliminate the gap)

That makes the climate a little easier over here – as a result European general partners haven’t felt the same need as many of our US brethren to make risky departures from their business models and go to India or China or enter new sectors like Cleantech.

I look forward to the next posts in Peter’s series, but my feeling is that whilst there is change afoot in the VC industry here it won’t be as dramatic as in the US, mostly because capital isn’t as abundant.

Social network ad spending II

By | Advertising, Business models, MySpace, Social networks, Web2.0 | No Comments

In all my posts today on this subject I have been missing a key point – traditional internet ad spend is a tiny proportion of marketing spend on social networks.  The vast majority goes on profile pages and sponsorship.

To put some numbers around that estimates of spend on banner ads on MySpace built up from Nielsen/NetRatings data and estimated CPMs of $0.10 are $11.8m from Jan-May 2006.  That would make it 10-20% of Myspace revenues.

In contrast rumours are that sponsorship/profile pages deals are routinely in the $1m+ range now.  These deals are being likened to early web advertising deals – marketers are excited about experimenting with a new, extremely fast growing form of media.

Another interesting fact is that the silver surfer is on Myspace – well a little bit anyway.  In May 2.9% of unique visitors were over 65.  More interestingly 36.4% of them were 35-54.

Market share wise Myspace is 50%ish with Classmates and Facebook the next biggest.  YouTube is up there if you count that as a social network.

So what does all this tell us?

My 2 cents would be:

  • Profile pages and sponsorship will close part of the gap between how these businesses are being valued and the value I could see coming from advertising, but not all the way (regular readers will know I have been sceptical of some of the valuations being bandied around this sector)
  • Social networks are morphing from places where people meet each other to places where they meet businesses – this creates value for companies.  This reminds me of Yahoo!’s transition from “Jerry and David’s Guide to the World Wide Web” list of links to the behemoth it is today.
  • The age profile data is encouraging evidence that these businesses are sustainable.
  • But the market is still immature, new networks are springing up everywhere and models for networks and advertising/marketing on them are still changing fast.

Confused about internet stats?

By | MySpace | 2 Comments

You are not alone.

Data I have just seen has comScore Media Metrix and Nielsen/NetRatings differing by 20% on the number of unique visitors to MySpace.com and by 35% for YouTube!

Then there is all the talk I keep hearing about Alexa “being a little bit off lately”.

I think all you can infer from the precise data published is general trends.

Social network ad spending

By | MySpace, News, Web2.0 | 4 Comments

This is from eMarketer – analyst Debra Williamson.

She says ad spending on social networks in 2006 will be $280m in the US and $70m in other markets.  This is mostly on profile pages and sponsored promotions.  Social network ad spend will be 1.7% of total online ad spend in the US this year.

This is actually a great report which I will comment on in more detail later, but here are a couple of interesting things as a taster:

  • A quote from Rupert Murdoch –  “God knows what we are going to do with Myspace”
  • A definition (not many of those about these days….)

“eMarketer defines an online social network as a site whose main purpose is to enable people to connect with others by creating personal profiles, describing their interests and otherwise sharing content.”

  • Fox Interactive Media President Ross Levinsohn in Wired “You’ll see us morph from a content company into a marketing company” – will they have much choice as the price of content is heading towards zero??

Face to face meetings – the way to unlock value in social networks?

By | Networking, Social networks, Web2.0 | 6 Comments

The inspiration for this came from Thomas Power – Chairman and Founder of Ecademy.  A key value driver there is the large number of face to face meetings they organise between members.

Meetings are good because they encourage loyalty and you can charge for them.  They are a bit old school and are difficult to organise and difficult to scale – but then building a business isn’t supposed to be easy, and once you’ve done it you have a barrier to entry and source of sustainable advantage.  Something that social networks struggle with at the moment.

The other thing about meetings is that they seem to be the logical next step on from online networking.  Without them you are left with adverts and promotions.

This doesn’t work for all networks (e.g. Bebo is focused on schools and they see each other every day anyway) but is a large part of the story at Ecademy. 

By way of anecdotal evidence two of the most useful professional networks I belong to are Internet People managed by Robert Loch where the format is sitting down to dinner once a month and Mobile Monday where 100-200 people gather every month for presentations and networking drinks.  Both face to face networks.

Identity

By | Entrepreneurs, Identity, Innovation, Social networks, Venture Capital, Web2.0 | 5 Comments

One of the problems of advanced western society is that people struggle with their sense of identity.  In times gone by people found their identity in their religion, their standing in the local community or from their work.  To a greater or lesser extent these have all ceased to work for large portions of the population.

Social networks and the web are giving people a new way to express themselves and think about who they are and the growth of these phenomena are testament to how much was missing from people’s lives before hand.

Following the rise of social networks and other web services we are now seeing companies that want to help you manage your identity across multiple services.  Google, Yahoo! and Microsoft are playing at this, and there are a number of start-ups – Sxip, Marc Canter’s PeopleAggregator, and here in the UK Simon Grice’s ETribes are after this play.

This is actually a great area for start-ups.  I think people will prefer to use a company that is independent of the big boys to manage their identity and that there will be big bucks for the one that manages it.

It will be tricky though.  As well as overcoming the problem of finding a way to deliver a decent service before there is critical mass the complexity of identity needs to be understood.

I am a firm believer that our identity is multi-faceted.  We show a different face at work to the one for the family to the one for our friends for example.  Identity management services need to recognise that and allow you to choose which parts of your profile are shown where.  They also need to intelligently help you build your profile and then edit it – again allowing for multiple overlapping profiles for each individual.

So execution will be difficult, yet at the same time good execution will be critical.  If the site is difficult to use it won’t get anywhere, but dumbing it down won’t work.

BizDev goes all web

By | Business models, Entrepreneurs, Venture Capital | No Comments

Caterina of Flickr posted on how QOOP dealt with Flickr simply by building a service on their API rather than pursuing formal partnering and concluded with the following paragraph 

Traditional business development meant spending a lot of money on dry cleaning, animating your powerpoint, drinking stale coffee in windowless conference rooms and scouring the thesaurus looking for synonyms for “synergy”. Not to mention trying to get hopelessly overbooked people to return your email. And then after the deal was done, squabbling over who dealt with the customer service. Much, much better this way! 

Fred of Union Square Ventures gives several other examples of where he has seen similar things at work.

The falling cost of launching a service has been well documented.  Now the world is becoming more open the cost of business development is falling too.  That’s great – it’s getting cheaper and cheaper to build businesses.  Venture capital becomes more about small investments to get companies started and cash out deals when they are a bit bigger.