Monthly Archives

March 2007

Identity – there is much to gain from getting it right

By | Blogging, Identity | 2 Comments

In response to the nightmare Kathy Sierra has been enduring, JP posted about how getting identity right would go a long way to preventing a recurrence of what she faced.  Couldn’t agree more.

I have been thinking about how this tragedy might have played out before the internet.  It would have been much simpler then – the attacks might have been on leaflets and the police would have had an easier time finding the perpetrators.  The web makes it too easy to hide, and that is a risk for all of us, and especially for our children.

Getting identity right, in the sense of being able to know for sure who people are would make the web a much safer place.  It would also make it a much richer place with improved trust all round and better targeting of products and services.

Loss of anonymity and increased fear of big brother watching everything we do on line seems a small price to pay for that.

Second Life – grubby underbelly

By | IBM, Second Life, Virtual Worlds | 7 Comments

Second Life log

I have been thinking for some time of writing a post in response to some of the chatter about the problems at Second Life. 

You can read here and here about the extent to which Second Life is really an economy – it’s not, the extent to which it is all sex and gambling – it is, and for the academically minded the future of the LindenDollar as a currency – not dissimilar to the US$ actually, with significant deflation on the cards.

Then on the other hand you have companies like IBM saying SL is the future of the internet.

For me the interesting question here is not so much whether SL will get so big that Linden Labs will rival Google as a successful VC investment, but whether what we see happening in SL and places like Habbo Hotel is the start of a massive change in the way we interact online.

I think that is the case, I blow hot and cold about how quickly it will all happen, but I’m convinced that something big is starting here.

For me the fact that a lot of people go to SL for (virtual) sex doesn’t disturb me too much – as we all know the porn industry is a perennial early adopter.  And to me the Linden dollar is an enabler rather than an end in itself.  The amounts of money people play with in SL in real world terms is tiny – I think the importance of the Linden dollar and the ability to convert to real dollars is that without it people wouldn’t enjoy their SL games.

I might take a very different view if I was a shareholder, of course, but as an industry observer (and hopefully one day investor….) the thing that excites me are the levels of activity and the passion of the people who play there.

I’m guessing that is what IBM see too.  I would like to see more business applications evolving – virtual meetings as an alternative to teleconferences + limited training isn’t that exciting, but my strong belief is that these things will come.

New data on the strength of online advertising, and some musings on the challenges ahead

By | Advertising, Business models, Consumer Internet, Social networks | 2 Comments

Online Advertising - turn up the heat

The UK online advertising market broke through £2bn in 2006 according to new data out from the Internet Advertising Bureau.  The growth rate was 41% and search dominated with 58% of the £2bn.

I’ve said it before and I’m saying it again because it is hard to overstate the joys of working in a market that combines this sort of scale AND growth.  Opportunities like this don’t come round very often.

The growth is set to continue – the share of advertising spend on the web is still far less than the share of media that is consumed on the web.  The UK is world leading with 12.4% of total ad budgets spend online in H206 and at least 30% of media consumption is online.  Over time ad spend will come to match media consumption, so there is still a lot of growth left.

But there will be some challenges ahead.

The biggest ad budgets are still in traditional television.  The traditional TV model is interruption based advertising to promote brands.  The advertiser has your total attention for thirty seconds – always assuming you don’t fast forward the ads or channel hop.  Also important is the fact he chooses you – so brands you don’t know can reach you with products you don’t know you want.

Advertising on the internet has been totally different to this.  Search is the most successful and largest part of the online mix – and in the search model ads find you when you want them on topics you are already thinking about.  This is great at driving transactions, but not brand.

Banner ads are more about brand, but even they are measured mostly in terms of click through and haven’t succeeded in attracting the big brand advertisers in any volume.  I think that is because it is unclear if they work – too many people are blind to banner ads.

So if we are to get the TV ad budgets on to the web something is going to have to change – at the moment there is no way to offer brand advertisers anything equivalent to the results they get from TV (or the results they think they get).

People are, of course, addressing this problem.  The ideas people are working on will be familiar to many of you and include:

  • Brands entering into dialogue with consumers on social networks
  • Coupons for money off washing powder and other fast moving consumer goods
  • Pre-roll video ads
  • Embedding video in banner ads
  • Sophisticated ad targeting

These are all good, but none of them has really been proven out yet.  For example, the most developed is probably brands building profiles on social networks and entering into dialogue with consumers – that has worked well for some, but it is unclear to me whether all brands will be able to do this successfully and how it will evolve over time.

Don’t get me wrong, I’m sure these ad dollars will come to the net – that is where the customers are, so there is no choice.  My point here is really that there is more innovation ahead of us than behind us.

Uncertainty at a peak for media companies

By | Consumer Internet, MySpace, Social software | 4 Comments

Question mark 

I had the following thoughts when I was preparing for the Red Herring panel “what are the big boys buying?” – I didn’t get a chance to say them though – so to the blog it is….

It seems to me that uncertainty must be just about at an all time high in old media board rooms around the world.  For sure we are in the midst of a period of rapid change, but for me it is the combination of growth rate of new sites/companies, changing consumer behaviour, and shifts in the buy v. build dynamic that set this time apart from others.

If I was a director at a company like Viacom, or ITV I might sum up my dilemma like this:

  1. Traditional markets are declining as media consumption moves to the web – so I need to play in the new areas
  2. New companies are reaching critical mass (and huge value) with unprecedented speed,
  3. But, the monetisation potential of these new properties remains unclear
  4. And, to make matters worse consumers are becoming more difficult and demanding new types of services that I’m not 100% sure I could build if I had all the time and money in the world
  5. So I have to play, but I really struggle with the valuations and I’m not confident I can build something on my own

The exit theses of most successful consumer internet properties reflects this uncertainty.  They have enough people talking with them that they feel confident they will get a good result, but under close scrutiny the logic for any individual acquirer is weak.  I guess what I’m saying is that the emotions of fear and greed are an unusually large component of acquisition rationales in this space – for now at least.

These problems are all compounded by uncertainty over copyright enforcement and monetisation potential of social network traffic.  On this last point I am hearing worrying rumours that less than half of MySpace profiles belong to true members (as opposed to corporates and spammers) and that MySpace is even encouraging corporates to set up fake profiles (usually of pretty girls) that make lots of friends and recommend their products.

Babelgum goes after the long tail

By | Content, IPTV, PCTV, TV, Video | No Comments

I am at the Red Herring conference today to do a panel session on “what are the big boys buying?”.  That was cool, and we learned that the big guys (and I suspect other companies too….) buy companies to fill gaps in their product sets.  It is my perception that they do this increasingly scientifically – combing VC portfolios and matching that with their own gap analysis.  The “big guys” on the panel were Anil Hansjee from Google, David Rowe from Microsoft and Stephane Delorenzi from Logitech.

For me, I learned more in the previous session.  Silvio Scaglia of FastWeb and Omnitel fame was interviewed about Babelgum, his broadband TV play.

I have written about them before – but I learned more today.  The big take away is that they are going to allow people to upload their own content and go after the long tail.  This is still professionally produced content and they will respect copyright – according to Silvio Babelgum will guarantee a $5 CPM in order to kick start the service (this will hopefully get them over the chicken and egg problem of needing advertisers to get content and content to get advertisers).

This takes them to the opposite end of the spectrum to Joost, which is more about premium content from the fat head.

As I wrote in my previous post if I was building a service in this space I would go after the long tail too.  Silvio is investing heavily though – and that is because as well as building a service level he is building a P2P delivery infrastructure.

In the long run I don’t see the logic for combining the service layer and delivery layer in the same company – the best delivery infrastructure will get the most value by being used for multiple services, and likewise a good service ultimately needs to be free to select the best (and/or cheapest) delivery infrastructure.

In the short term though I guess both Joost and Babelgum feel that unless they build their own delivery infratructure the quality won’t be there.

The other thought I’ve had, and this comes from a question that was asked of Silvio, is how far can P2P go?

We are talking about huge video files now and networks will get congested, so it seems to me that ISPs will want to charge heavy users for the bandwidth they consume.  The ISPs themselves will be paying to carry that traffic, after all.

 

News Corp. + NBC Universal YouTube competitor

By | Google, IPTV, PCTV, TV, Video | No Comments

MeTooTube 

You will doubtless have heard by now about the “YouTube competitor” News Corp. and NBC Universal are planning to launch.  You can find all the detail here – thanks to Fred for the link.

If it works then I think this will be a great thing.  Easy to access high quality content will accelerate the shift towards broadband TV – and that disruption will create opportunities for all of us.  I’m also guessing that the embedded player distribution strategy will work well with aggregators who can build businesses around this content and the long tail from the same site.  That could be great for the likes of TIOTI.

I put “YouTube competitor” in quotes in the opening paragraph, because they are only competing with one side of YouTube – and that is the side which Google denies is important – the professionally produced and copyrighted side.  So in many ways to be successful NewTube, or MeTooTube or whatever we call it doesn’t need to have all of the UGC features of YouTube, including the ability to embed players in blogs.  I see things a little differently to Fred here.

The million dollar question, of course, is whether they will build a decent service.  The initial reaction of many is “no way” – these old media guys just don’t get it in some fundamental way.  If history is any guide here that reaction is probably the right one.  The debacle that is Spiral Frog is still fresh in all our memories.

I find myself wanting to be hopeful though – largely because I believe if they are successful it will be great for VCs and entrepreneurs the world over, for the reasons I outlined above.

The building blocks are there for them to have a good chance of making it – they just need to smart enough and disciplined enough to find someone great to build the site and then just let them get on with it.  Politicking from founder partners trying to bend the site to their particular interest will likely have a disastrous effect.

Lots of things are sill unclear, but the two I am most curious about are how the ads will work and whether they will use P2P as the delivery protocol.

Consumer internet – the hype is over, now the work really starts

By | Angels, Consumer Internet, Search, Social networks, TV, Venture Capital, Video | 4 Comments

I have been saying for some time that building consumer internet businesses is going to get harder.  I wrote two posts on the subject in January – Consumer internet – the changing nature of the game Part I and (you guessed it) Part II.

My point was that marketing and development costs will rise as services get more complicated and competition increases – leading to increased cash requirements prior to launch.  This in turn will put a premium on getting the service right first time (you don’t want to waste those marketing dollars right?) which might change the existing “launch cheap and iterate” model of building a consumer internet service.

The posts didn’t get many comments (one between the two posts) and when I made these arguments in open conversation the general response was… well, no response.  Just a non-committal nodding of the head.

Being so alone had got me doubting my sanity so it was comforting to read some of the chatter in the blogosphere over the last couple of days that hits to the same point.

Peter Rip has been at the heart of it in Web2.0 – Over and Out:

Much of the “easy” innovation seems to have been wrung out of the Web 2.0 wave.  Web 2.0 was cheap – thanks to open source, simple – thanks to RSS/REST, and distinctive – thanks to AJAX and Flash.  It helped more than a little the Google has continued to entice us all with the abundant profits in Internet advertising.

Now the hard work begins, again.  The next wave of innovation isn’t going to be as easy.   The hard problems in the WWW are no longer usability or ease of everyday content  creation.  These problems are solved. Digital cameras, SixApart, WordPress, and digital video cameras showed us how ease it could be.  Now the hard part is moving from Web-as-Digital-Printing-Press to true Web-as-Platform.  To make the Web a platform there has to a level of of content and services interoperability that really doesn’t exist today.

This is not doom and gloom, though, far from it.  IMHO we are not even half way through this revolution yet.  TV to the web, next generation search and next generation social networks are all areas I see huge value being created.

Peter Rip has the same sentiment when he says:

The web today still resembles MS-DOS more than MS-Windows

The main point of Peter’s post and also of Alan’s (that started me off on this trail) and GigaOM’s is that  the term “Web2.0” is losing its usefullness as consumer internet goes mainstream.  Couldn’t agree more.  I have been avoiding the term for a couple of months now.

Looking at this issue slightly from the other side, this is Jeff Clavier’s reasoning for for choosing to focus his investments in the consumer internet space (check out the full post – it is a fascinating read of his journey over the last three years):

Why the consumer? Because I still could not figure out how to make angel-type investments provide any meaningful leverage/return in the enterprise software space, whereas interesting things were being built for the consumer on a capital efficient basis. So efficient that these companies sometimes managed to launch their service and even generate revenues on very limited outside investment – because hardware, bandwidth and (open source) software costs had decreased by one to three orders of magnitude. And since the burst of the first Internet bubble had drastically lowered salary expectations of early stage startup employees, overall startup costs decreased to a point that a friends and family, or angel, financing of a few hundreds of thousands dollars allowed a company to reach a number of key milestones.

This rationale wouldn’t apply in the same way today.  Hardware and bandwidth continue to head south, but software development costs are rising and salaries are on the way up (to the extent that my non-consumer internet portfolio companies are complaining that competition from this sector is driving their salary costs up).

As I have said before these changes will have a profound impact on how companies in this sector are financed.

Overdoing it on Google

By | Google, Microsoft | 2 Comments

Google v Microsoft 

Historically on this blog I  have been a little down on Google and bullish on Microsoft’s chances of making a dent in their online business.

As time passes, events happen, and I get a little wiser (hopefully…) I am thinking that I may have been too bearish on Google.  This post is about re-dressing that balance.

So this is what is new (to me at least):

  • Scoble blogged on Friday that “Microsoft’s Internet execution sucks (on whole).”  When someone like him says something like that you listen.  He is really down on their ability to beat Google
  • 18 months after launch Windows Live isn’t making the impact Microsoft executives hoped for – Mary Jo Foley analyses some of the shortcomings here
  • Microsoft’s Adcentre is struggling due to their low market share in search
  • Search has got further to go for Google than I thought.  This is mostly a story about international growth – search revenue per head is way lower in countries like France and Germany than it is in the UK (highest search revenue per head in the world) and America.  Then there is Eastern Europe and Asia.

Both companies have their challenges and I would still be surprised if Microsoft fails to make some kind of inroad into Google’s position, but I am now thinking that nothing will happen quickly.  Microsoft’s key advantage remains the ability to search natively from the operating system – if firing up the browser to start a search becomes an unecessary step then Google might be in trouble.

Also, I am starting to believe that to taking search to the next level will take a radical re-design of the search interface – this might throw the competitive game wide open again.  More on this later.

My earlier posts on Google and Microsoft include:

 

Markets don’t die quickly

By | Music, Venture Capital, Video | 2 Comments

The FT reported this morning that HMV is projecting physical sales of CDs will drop by only 26% by 2010.  Similarly DVD sales are projected to fall by 17%.

I would assume that HMV are not adopting bottom of the range forecasts for declines in their core products, but nonetheless these numbers show that in big markets change takes a long time.  In the venture industry we get caught up in the inevitability of massive market disruption and these numbers are a reminder that even in a market as obviously doomed as CD sales there is still years to run.

On the positive side small declines in large markets usually mean massive growth in the new markets that are replacing them – in this case digital music and video. 

That is the sort of thing that gets me out of bed in the morning.

Trampoline Systems

By | Enterprise2.0, Social software, Venture Capital | 3 Comments

Trampoline Systems logo 

I have been hearing rumours for a while now (and may even have had a little inside info) so it was great to see Trampoline Systems announce last week that they had raised £3m from Tudor Group.

Trampoline is an Enterprise2.0 software company – an area regular readers will know is often in my thoughts.  Their Sonar platform (Social Networks and Relevance) mines corporate networks and infers social relationships between employees.  The soft (and most important) benefits are allowing people to find information and experts they otherwise might have failed to find.  There are also harder benefits of increased efficiency in searching for data and processing email.

They have some cool mapping software which gives a graphical representation of the social nets they infer.

Trampoline’s go to market model is pretty much classic enterprise software sales.  I have blogged before about the merits of this versus edge in adoption: Social software for the enterprise and “edge in” adoption and Enterprise2.0 and senior management buy-in

This is the first Enterprise2.0 by a VC in Europe, so I wish them well and will watch their progress with interest.

I like them mostly because social software is a fascinating area and partly because founder Charles Armstrong is a sociologist – like me!

We backed a similar business called Tacit Knowledge when I was at Reuters Venture Capital.  I haven’t kept up to date with Tacit, but they relied purely on email to find experts (Trampoline uses multiple sources) and the benefits to clients were pretty compelling, once they started using it right.

There is a detailed profile on Trampoline here and another perspective on the funding from the guys at FASTforward.