Monthly Archives

September 2006

Tech Track 100

By | News | No Comments

FastTrack logo 

I try not to plug Esprit or our portfolio too much on here but today I’ve cracked under pressure from my colleagues.  We had five companies in the Sunday Times Tech Track 100 – out last Sunday.

They were:

Well done to Affiliate Window for getting in at number 14.  What guts me is that our portfolio company Buy.At is a direct competitor, had better growth, BUT WASN’T IN THE TOP 100.

You can check out Max’s blog for info on what the tech track is all about from a VC perspective.

MySpace TV – it could be better….

By | MySpace, Social networks | No Comments

MySpace logo

I am a big believer in cementing your online brand with offline activity and have posted previously on meetings as a way of doing this.

So MySpace TV and Bebo TV are good ideas.  But reading about MySpace TV on mashable I’m thinking it might not be so good in practice.  You can read the details on Pete’s post via the link above, but obvious and boring are the two words I would use to describe what they are doing.  This is gen Y we are talking about here – they get turned off by obvious marketing.  MySpace should know that better than anyone so I hope they don’t alienate their own members by promoting a terrible TV show.

Bebo TV (details again on Mashable) sounds much better.  The story of a singer trying to become famous rather than a three teenage girls wandering around doing nothing very much.

Stardoll meets Morph – now that is something I would pay to see.

MySpace ships more videos that YouTube

By | MySpace, News, Social networks, Web2.0 | 5 Comments

MySpace Video logoYouTube Logo

Back in August MySpace started talking big about taking on YouTube – as I commented here.

Well now they have got ahead.  And by some way – 20% more streams in the period.  Yahoo! is also bigger than YT and about the same size as MySpace.  All the data is US.

I first saw it in the FT this morning but I am linking to Fred at A VC because he he has more detailed numbers and no DRM.  Note that YouTube videos served through MySpace count the YouTube total and not MySpace – so no lies damn lies and statistics.

So what?

Well, as Max pointed out in his comment on my Web2.0 investment spiralling upwards post, this is a game where the winner takes nearly everything.

Myspace overtaking YouTube doesn’t change everything, and YouTube is still a big and successful business, but the lesson here is that there could be another which grows faster.

At this point in the cycle when good exits depend on big strategic premiums the loss of market leader status could do bad things to YouTube’s valuation.

In general though, market leaders should be able to sustain their position.  Scale is important in social networks:

  • There is a network effect from large number of members analagous to liquidity on a stock exchange
  • Big memberships should enable better innovation via consultation and trialing
  • Leaders can copy cat the best ideas from competitors before they hurt them

YouTube is less of a social network than many of these sites and as such was always more vulnerable to competition than many other niche market leaders.  (Admittedly video is a BIG niche….)

Clickfraud and CPA v CPM/CPC

By | Advertising | One Comment

Business Week Cover click fraud

Click fraud just doesn’t seem to want to go away.  Despite Google’s $90m settlement and Yahoo!’s uncapped but similar settlement both of earlier this year the issue continues to rumble on.  The Oct 2 issue of BusinessWeek leads with it and there is a lot of commentary in the blogosphere – e.g. Esther Dyson here and.  Eric Frenchman here critiquing the BusinessWeek article.

As Esther says this is an issue of accountability.  One of the big benefits of CPC (cost per click) when it started replacing CPM (cost per thousand eyeballs) was that the click was supposed to evidence genuine interest.  Unfortunately it also opened up the possibility of fraud.  The value per eyeball is so low that fraud is a waste of time, but as the price of popular keywords like pension and mortgage regularly head north of £10 there is enough cash to fund a bit of organised crime, as the BusinessWeek article describes.

I have long thought that moving to CPA (cost per acquisition) pricing was the answer to this.  That way the network only gets paid if a customer has parted with her cash and has been truly acquired.  No way to fake that, so no fraud. 

Over the last couple of years CPA has become more prevalent but I have been getting a sense recently that the rise in CPA has flattened out.  That was confirmed for me in two conversations at Adtech in London this morning (great show with a great buzz – the sector is definitely feeling good).

The thing is that as far as I can tell just about all advertisers (of any scale at least) are indifferent as to whether they buy CPM, CPC or CPA – they all track the downstream metrics so it doesn’t matter.  For example a CPM rate of £5 per thousand where one visitor per thousand clicks through and makes a purchase is equivalent to a CPA of £5.  Because the terms can be calculated from each other they are interchangeable and the industry has standardised on CPM to make it’s life simple.

Advertisers can make use of blind networks from Google, Yahoo! and others without worrying about click fraud provided they know what a customer is worth to them and monitor conversion rates from clicks to purchases.  So long as their CPA (cost per acquisition) is less than they think a customer is worth then they shouldn’t worry too much about how much click fraud there is.  Advertisers who adopt this model will drift towards networks with less click fraud anyway, as they will, all things being equal, be more efficient and give a lower CPM/CPC/CPA.

The whole beauty of web advertising is that is measurable and trackable.  So long as advertisers take advantage of that they should be OK and click fraud should in the long run disappear.  The measurability and trackability is also what makes the distinction between CPM/CPC and CPA moot, at least for the larger campaigns.  At the smaller end where the volume isn’t enough that the law of averages kicks in then maybe we will continue to see a trend to CPA.

Web2.0 investment spiralling upwards

By | News, Web2.0 | 4 Comments

Fred at A VC and Val at alarm:clock both posted on the recent Venturesource data which shows that in H106 $262m was invested in 49 web2.0 companies in the US.

Their perspectives differed – Val felt it wasn’t much out of a total of $13bn.  Fred was ambivalent – web2.0 is a hot space after all.  My reaction was worse – this worries me a bit.

There were 51 web2.0 deals in the whole of 2005 and now 49 in H106.  This is still a young sector – there have been a couple of big trade sales and no IPOs thus far – and if this growth rate continues we will surely end up over-funded.  And lets not forget the large number of start-ups that won’t have made the venturesource list because they only took friends and family money.

By way of evidence I was looking into social bookmarking today and found this list of over 200 social bookmarking sites.

Advertising – trend to online will continue

By | Advertising | No Comments

An article in the FT this morning “Ads send wrong message, says survey” (most of it hidden behind a DRM wall) cites a survey which found that “nearly one quarter” of baby boomers were insulted/put off buying certain brands by their advertising.

The article makes more of this than is warranted – advertisers don’t expect high hit rates, think direct mail as the extreme targeting low single digit conversions – but my point here is you can solve these problems by advertising on the internet.

You can target ads MUCH MUCH more effectively.  And that is today when (in my opinion overblown) privacy concerns prevent the effective use of profiling.  Plus, as an advertiser you can choose to pay on results only (CPA or cost per acquisition in common parlance) which means that your goals aligned with your media partner.  He will be honest with you as there is no benefit to him carrying your ads if they don’t work.

I posted last week about Yahoo!’s share price decline following their warning on the online ad market and said I hoped that demand from adverisers wouldn’t dry up just as more inventory (supply) from social networks was coming online.  I now think that the worst that could happen would be a short term blip in the continued strong growth of the online ad sector.  Since I wrote that post I have heard:

  • chat in the market that suggests Yahoo! has internal problems that may explain as much of the miss as a softening of market conditions (plus they were priced for perfection and only just missed the bottom of the range of expectations)
  • iTV in the UK repoted ad revenues down 8% in H1 on its main channel – that money has got to be going somewhere, the overall ad market will hold up as long as the overall economy does.  Thank you to the Times for making that article available online for us all to see, link to, and help them grow their business.

UPDATE – check out EarlyStageVC for a more downbeat view.  It is a good and considered post, and I hope I’m right in thinking he is overly pessimistic.

You gotta go with traffic

By | MySpace, Social networks | 2 Comments

Regular readers will know I have been skeptical about how much social networks are worth – keen readers will have noted I have been getting less skeptical over time.  The $900m Google-Myspace deal was a pointer I couldn’t ignore.

Now I’m going to concede on this entirely.  You gotta go with traffic.  Once you have (a LOT) that you can make the rest happen. 

Just look at the multitude of business models that Myspace is running now – straight forward advertising, sponsorship, music downloads and I’m sure films etc to follow.  See this for a GigaOM view of how users could drive advertising to other users.  Some evidence of this also comes from the fact that MySpace is now referring more users to ecommerce sites than any MSN.

There are still many issues unresolved but you’ve gotta have faith…. George Michael

This may sound too much like coincidence, but I was thinking this at mashup* last night.  Then I got in this morning to find Yahoo! considering buying Facebook for $1bn and Youtube thinks it is worth $1.5bn.

Next time I will get it right a little earlier in the cycle!  Still I think this one still has some way to go.

 

Just do good work

By | Entrepreneurs, Venture Capital | One Comment

I always remember a piece of advice given to me at an introductory presentation to my first job as a management consultant at Gemini Consulting.  The partner was asked how new recruits should play the politics of the firm and after a little preamble he said “just do good work and the rest will take care of itself”.

I believe that is true in many walks of life and I was reminded of it twice in the last week at different events – Beers and Innovation on RSS and Mashup* on digital lifestyle aggregators or DLAs (both great events that really benefit the London scene).  On both occasions the debate shifted to “when will this stuff hit mass adoption?” which is a good and fair question, but then shortly after that “what should we call it?” and “when will my mum start using it?”

This frustrates me a little.  I’m worried we are getting a little sidetracked from the main issues.

Everyone knows that good/useful services must be easy to use and improving usability will increase adoption.  Just look at the beautiful simplicity of del.icio.us (which has a Google page rank of 8).

So worrying about names or specific points on the adoption cycle is a bit beside the point – just do good work and the rest will follow.

That way we can free up some panel time to focus on other issues – I could have listened to yesterday’s panel at Mashup* all night.

Congrats to Simon Grice on another great event and always good to hear what Sam Sethi has to say.  I will leave it to others to report on the event in detail but the big take away (and surprise) for me is that BT really get it – or at least a part of the organisation does.  They are launching a personalised home page product which is properly open incorporates Skype and is aggressively seeking to canibalise their traditional POTS business.

Contextual advertising – reading the pages

By | Advertising | 2 Comments

feedburner-logo.gif 

Using software to analyse the content of pages and then serve ads based on the results does two things for you:

  • Allows targeting of ads based on the content of the page – e.g. read that a blog is about cars and serve a car ad, or getting more sophisticated read that it is about football and serve a beer ad
  • Allows owners of user generated content sites to not serve ads for brands next to types of content that they don’t want to be associated with – e.g. topless teenagers on Myspace.

This is a big deal as at a stroke site owners can increase CPMs and serve ads on inventory that they previously couldn’t use.  This could be great for blogging aggregation plays like Feedburner (which I love) and Federated Media and more importantly for social networks.  As a byproduct social networks could use the same software to uncover unsuitable behaviour and identify paedophiles.

There is of course some devil in the detail.  The analysis of the page will not be perfect so advertisers will need to educated to expect some mistakes (that is also the situation today – for example on football sites problems with ads being served for brands that compete with the clubs sponsor are commonplace).  Also the analysis will have to extend to photos and videos to do this properly – whilst I have seen plenty of text analysis I haven’t seen too much on the picture side.

I’m thinking the technology need only be a fairly simple re-working of classic search/categorisation technology – distilling the contents of a page down to a few key words and phrases.  All of which makes it surprising to me that we haven’t seen more progress in this area.  I feel a bit out on a limb here though and would be interested in other people’s experience.

One move in this space was ad pepper’s Q106 acquisition of Crystal Semantics for $3.5m.  Judging by the price tag though this move won’t change the world too quickly.

Crystal Semantics logo

Online advertising slowing as inventory increases?

By | News | No Comments

buyat_logo.gifyahoo-logo.gif 

It is a bit early to reach this conclusion, but Yahoo! issued a profits warning yesterday blaming a slowdown in online advertising.  Their shares lost 11% and Google and Ebay also suffered.  Details here.

This sends out a warning signal to me.

A lot of what I read about these days and have posted about on this blog is the huge amount of traffic to web2.0 sites that is yet to be monetised.  Like any other, advertising is a two sided industry – you have the supply of inventory (or traffic) and the demand from advertisers to fill it.  I hope we are not witnessing a contraction in demand just as supply is increasing.

That said, the long term trends are undoubtedly excellent, and I continue to look for investments in the sector.  Media consumption is moving online, mostly at the expense of television and the advertising dollars will follow.  Moreover there is a lag which means that even if online stopped growing there would be several years of good growth in this market.  These figures are six months or so out of date and come from when we invested in affiliate network Buy.At but c30% of media consumption is online and so far only c5% of advertising spend has followed it.  Online advertising is also more effective than TV because you can measure it properly.  The old truism “half my advertising is good, I just don’t know which half” simply doesn’t apply.  I could wax lyrical on this subject for hours :).

So I don’t think this is the beginning of the end of the good times in this sector, but we may be in for a short term blip.