Monthly Archives

April 2007

New data – awesome growth in online sales set to continue

By | Advertising, Consumer Internet, Online retail, Venture Capital | 2 Comments

Presents

Yesterday the Sunday Times reported that online sales will hit £78bn a year by 2010 – doubling the webs share of retail sales to 20%.

I love reading news like that!

It is fantastic for everyone active round the start-up scene in this sector.

On a personal level it is particularly good news for our investment in affiliate network buy.at where success is directly linked to online sales.

More generally e-tailers and everyone who provides services or technology to them will benefit directly. Three of the most obvious winners from our portfolio are:

  • LoveFilm a DVD rental e-tailer
  • Zeus whose software keeps e-commerce sites performing, and
  • PacketExchange whose network improves page load times

In addition, everyone with an online presence will benefit indirectly, from the advertising dollars this will bring onto the web. I guess this is part of why the online advertising market remains so hot.

The data junkies amongst you should check out the Sunday Times article, but for the rest of you these are the key data points (all UK figures):

  • Retail sales grew 3,553% from April 2000 to December 2006 – rising from £87m pounds per month to £3.6bn
  • Online sales in 2006 were £30.2bn, up from £19.2bn in 2005
  • Online sales are forecast to reach £78bn in 2010
  • Britain’s 26m internet customers will receive an average of 33 parcels this year spending £1,600

All this and the first ever online transaction was only in 1994 – a CD sale in America

Social content – small is beautiful

By | Consumer Internet, Content, Venture Capital | No Comments

Yesterday I read the following on OnStartUps in The One Thing Wrong With Social Content Sites Like Digg:

I really only have one
major issue with the social content sites out there right now. The content
sucks. Though this may seem like a relatively strong statement to make, I’m
confident that if you visited any of these sites right now and looked
at the top 5-10 stories/links, you’d find that the noise to signal ratio is
really, really high. There’s a reason for this. Most of these sites are not
really designed for you. If you’re like me (and chances are you’re more like me
than you are the average digg user), and you took a critical look at the content
on digg.com at any given time, you’d find the relevancy pretty
low.

This rings true for me. I have never found sites like Digg and Reddit that useful – the content is too general and stuff passes through too quickly for me. As I’m writing, the home page of Digg is showing stories on politics, gadgets, sociology and technology. Too much variety and not enough guarantee of quality.

The answer is to set up smaller more focused sites, and the OnStartUps guys have done just that with DailyHub
which features “Social Content for Business Geeks”, which has lots of interesting articles, including the one about traffic to the top 25 consumer internet sites which formed the basis of yesterday’s post.

In another post on the subject Let A Million Diggs and Reddits Bloom the creators of DailyHub liken this to the offline world of specialist trade mags.

The argument is a good one, but that means that these small sites won’t be big businesses. If the generalist play (like Digg) is not the right way to go (and if this is right it isn’t) then the only way to get to enough scale to make a VC play is to have a series of focused sites in a network. That means finding people with enough insight into each focused niche to make it work.

Alternatively you could build a good focused social content site and steer clear of VC altogether.

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Consumer Internet – winner takes all

By | Advertising, Consumer Internet | 2 Comments

The graph below shows unique users to the top 25 consumer internet sites in April 2007. The data is US only and comes from Compete and Quantcast. I found the data on eBizMBA.

As well as it being fun to see how the different sites are getting on, I was struck by the massive difference between positions one and twenty-five. It isn’t news that category winners take a much larger share of the spoils in consumer internet than in other sectors – this graphs gives a visual explanation as to why.

The other thing to note is that there is often a significant disparity between the Compete and Quantcast data. I’ve written before about Ad mesurement problems on the web and how to get an accurate picture of traffic to a site it is important to triangulate data from multiple sources – I guess this just emphasises that point.

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Identity – should be more about greed than fear

By | Entrepreneurs, Identity, Venture Capital | 8 Comments

I was at the Indentity2.0 Mashup* last night.  The speakers and panel session were very interesting.  That said, the balance of the discussion was on identity theft and consumer fear, and IMHO we could have done with some more time on subjects like profiling and clickstream mining.  The product and business models are much clearer in these areas and that is where I see the near term opportunity.

Going back to last night though – there was a lot of talk about how we use the same password for multiple services, OpenID, fear and confusion amongst consumers over what might happen to their identity on the web, and (repeatedly) attempts to define identity.  I took two things away from the discussion:

  • There is a general level of concern amongst consumers about what might go wrong with digital identity, but that concern is vague and unfocused – that is a difficult environment to sell product into
  • OpenID looks cool, but to get exciting from a VC/entrepreneur point of view it needs someone to use it as a foundation layer for a richer/deeper offering

As an aside there was a lot of talk about surveys and what consumers think.  In early markets I am always nervous that the answers people give to survey questions are not very indicative of what they might do or buy in the future.  Some people would go even further than that – last Friday I shared a few beers with a friend of mine who works at Saatchi here in London and his view is that the data you get from surveys is “complete tosh” – in his opinion, the only way to get good data is to run creative workshops in which you get people to design a product or service they might buy.  That makes sense to me.

The other side of identity – mining profile data to improve ad revenues – is much more exciting to me.  Most people have a negative initial reaction to this idea on privacy grounds.  It will take time to overcome this objection, but I believe that ultimately people will accept that sharing some of their data in return for better free services (or maybe even some money) is a good deal.

This is an area in which Sam Sethi has done some work and in which 121Media is operating.

Greed is always easier to tap into than fear as a driving emotion, and that is why I would head towards profiling rather than identity management as a near term opportunity.

If you would like more detail about last night Sam blogged live from the event on Vecosys where you will find a number of posts about the speakers and what they were saying.

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NMK Forum 07 – great conference last year and better this…

By | Consumer Internet | 2 Comments
NMK Forum 07

I will be speaking on web business models at the NMK Forum on June 13th.

I really enjoyed last year’s version, which was called Content2.0 and hopefully Mike Butcher and the other organisers will go one better this year. Mike certainly has high hopes, as he explains over on mbites.

Jason Calcanis will be doing the keynote.

Come along. It would be great to see you there.

You can book here.

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Separation of revenue and value

By | Content, Google, News, Venture Capital | One Comment

I have written before about how DRM might be more important in TV and film than it is in music (and maybe books). My argument was that musicians have multiple revenue sources, whereas TV and film producers only really have one. Musicians can be relaxed about piracy of their music in the belief that their tunes will then be more widely distributed, which will drive extra concert ticket and merchandise sales, but that option isn’t really open to the TV and film industry.

I had breakfast last week with a friend from GuardianUnlimited, and that got me thinking that these same issues apply to the newspaper industry.

For years newspapers have combined revenues from advertising and newspaper sales to fund their expenses of producing good content and printing papers. As consumers we have accepted that you have to pay more for good content and/or less advertising. There are lower quality free papers and higher quality titles that we happily pay a premium for, as well as a range in between.

But on the web things are different. Not many of us pay for online content, we expect it to be free and to be good quality, and the good news for us as consumers is that we are not disappointed. The bad news is for the content producers who struggle to make decent (or any) profits.

The underlying issue here is that value has become separated from revenue. The value is being created by the content owners, but too much of the revenue is ending up in the hands of other companies – and Google looms large as a major beneficiary. In fact you could argue that Google wouldn’t enjoy such fantastic margins if it wasn’t benefiting from the value created by other people.

Ultimately revenue needs to flow to where the value is created – otherwise people will simply stop creating it. Going back to the music industry – the value creators there can get revenues from merchandise and content, but in other industries the big guys are starting to go after Google to see if they can get what they see as the just rewards for the work they have done. Witness Viacom suing Google for taking unfair profits from it’s video content and French and Belgian newspaper groups making similar allegations.

These things take a while to play out though. The two main reasons I see for that are:

  1. Legal processes take time
  2. In some (probably most) quarters traffic growth is still a higher priority than revenues and until that flips around companies won’t get aggressive with companies like Google that drive people to their sites

There will be an adjustment though, and when it comes it will be painful. And we won’t simply go back to old models – IMHO content bundles like newspaper and TV channels will continue to disappear, and that ultimately means for most stuff we will have to get used to paying for each unit of content as we consume it – via advertising for content that is cheap to produce, or micropayments for the premium pieces.

The beauty of the web, of course, is that distribution is virtually free. That makes it feasible for anyone with an alternative revenue stream to give their content away for free as a kind of loss leader strategy. This is what is emerging in some parts of the music industry, and in a way is why I can write this blog. This is a significant qualification to the micropayments argument I made in the last paragraph and is why I am saying it will only apply to “most stuff”.

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Search – time for a new interface?

By | Search | 2 Comments

Search is increasingly broken, right? That is certainly my experience and that of everyone I speak to, although I haven’t actually seen any evidence. As the web gets larger and people get more sophisticated at SEO (i.e. gaming search engines) then it is getting harder and harder to find what you want.

There are two ways of attacking this problem:

  1. do better with the query information you’ve got
  2. get more information into the query

The big success stories so far have all been in the first category, with Google being the latest and most successful example, and there is more to come here, for example by mining clickstream data or taking advantage of user generated metadata from sites like del.icio.us.

Recently however the attention has been turning to the second category. Vertical search (about which I have blogged before) is a great example of this – because a site is focused on say real estate or travel the query is implicitly enhanced to say “and ignore all of the web outside this vertical”. Further, the query usually asks for information which is only relevant for that domain – e.g. postcode of the area you want to look for a property or the dates on which you want to fly.

That is great for vertical niches (some of which are huge) but for general search query disambiguation is much harder.

Google has put a fairly vanilla approach to this problem live at Simply Google. There they offer you 37 different search boxes to choose from – one for each of their 37 vertical search applications.

A more creative solution is to play with the search interface itself. This runs counter to what seems to be the received wisdom at the moment that consumers won’t be bothered to learn anything new or different from typing their average of 2.1 words into Google, but my gut says that this is the way to go.

In fact my first ever VC investment into Wordmap back at the beginning of 2000 was an attempt to do this, we were ahead of our time there and the company morphed into a taxonomy management solution, but the idea remains a good one. (As an aside, being too early is a nightmare for VCs and entrepreneurs alike. Market timing is everything, but getting it right requires a balance of intuition, analysis and good old fashioned luck.)

Quintura (backed by Mangrove) is approaching this problem by adding a tag-cloud style visual interface which automatically adds to the query every time the user clicks on an item in the tag cloud. I like the way the tag cloud updates itself to help you get more precise with your search and I really like the way the results on the right hand side of the page update in real time.

Hopefully these screen shots will give you a sense of how it feels, but I would encourage you to have a go.  I have split the screen shot into two so it isn’t too wide for my blog software, so picture the two shots side by side, with the first on the left (and sorry for those of you who saw it earlier on when it was too wide for my central column).

Quintura left

Quintura right

Other sites, like Kartoo are having a go at doing something like this as well, but I like the way the Quintura service hangs together.

According to ReadWriteWeb 99.99% of web searches are on Google, Yahoo!, MSN and Ask.com – which tells me that this market is a tough one for start-ups – but the prize is huge – that much is clear for all to see.

As ever, I would be keen to hear your views.

Finally, a bit of fun I came across during the research for this post. If you want a bit of a lauch go and see Ms Dewey and search on “visual search engine”.

WebTV – will it be won by the big money plays?

By | Consumer Internet, IPTV, PCTV, TV, Venture Capital | 4 Comments

WebTV 

I haven’t posted anything on web TV for a while, but reading about Jalipo on Vecosys and the rumours for a forthcoming VC round at Joost have got me thinking.

For those that don’t know Jalipo is a site where you can go and watch TV on a pay per view basis.  You buy credits on the site and they can be used across all the content.  I like this way of handling multiple payments without becoming a hassle, a bit like Oyster cards for the tube in London.  Jalipo is in it’s infancy as a service – Alexa ranking of 542,000 and not much content there yet, but the model is interesting.  As I’ve said before, I think TV channels are going the way of the dodo, and if this was my site I might change it around a little to get the channels off the front page and have an interface based on search and recommendations.

I would guess that like most consumer internet sites Jalipo has been launched with a limited budget.  That contrasts sharply with Joost and Babelgum which are more build-it-and-they-will-come type plays.  You need to have balls of steel, a steady nerve and an unswerving conviction to take the latter attitude in a market as uncertain as this one.  Fair play to Silvio, Niklas, and Janus if they get it right.

It seems to me that things are starting to move quite quickly in this space now, although when I just tried to get to a back episode of Lost via the Sky Anytime service it proved a little hard.

More good stuff from OnStartUps

By | Entrepreneurs | No Comments

These insights for entrepreneurs are a good read.  They were apparently originally from OnStartUps – I found them via the entrepreneurs group on Facebook (thanks Paul for taking me there) but when I went looking I couldn’t find them on OnStartUps. 

Pithy Insights For Startup Founders
1. Seek transparency and understanding with your partners early. Issues get harder as time passes
2. Startup founders work long hours for a reason. There’s more work than there are people. If you’re seeking balance, seek it elsewhere.
3. Bad customers will drain you of passion. Really bad customers will drain you of both passion and profits. Unfortunately, most bad customers will degenerate into really bad customers if you don’t do something about it.
4. If you’re changing direction often, worry a little. If you’re changing people often, worry a lot.
5. It’s lonely at the top, but even lonelier at the bottom. In the early days of a startup, hardly anyone wants to talk to you (except some desperate vendors).
6. Eventually, your product will need to work and do something useful. No amount of marketing or strategy will get you around this.
7. At the end of each day, ask yourself: “Did the product get better for customers today?”. If you don’t have a good answer, stay up until you do.
8. Until you are profitable, time is working against you. Once you are profitable, time is on your side.
9. Learn to take calculated risks. The market rarely rewards safe bets.
10. To improve the quality of your output, improve the quality if your inputs. Read, converse and connect with the right people.
11. Force yourself to write, as it will force you to think.
12. At least once every year or so, your startup will almost die.
13. The problem you solve should be ugly. The solution you build should be beautiful.
14. Even the most successful startup ideas had 100 reasons not to pursue them. There is no perfect idea.
15. If the pain doesn’t kill you, it just hurts a lot.
16. You choose your destiny, because you choose your team.
17. Be who you are. Do what you love. Join people you like.

I like these a lot.  I would add only one more: 18. Come and see me when you need some money

Ad measurement problems on the web

By | Advertising | One Comment

I have often written about the importance of measurability and trackability to the growth of online advertising.  Recently I also blogged about how backward the TV advertising world is in this respect.

Well it turns out that we have a few problems of our own – according to a survey from Comscore cookie based systems for counting unique visitors on average overcount an audience by 2.5x. 

That is huge.

The problem is caused by cookie deletion.  You can read more about it from Fred Wilson and directly from Comscore.

Measuring traffic is primarily of importance to advertisers.  They need to know the size of audience they are paying for.

I can see two types of answer to this problem:

  1. Complement cookie based tracking with panel based systems – like Comscore (this is Fred’s view, and oh, Comscore is one of his investments)
  2. Move to CPA based advertising – this way advertisers pay for exactly what they get (and Buy.At is a CPA play in my portfolio)

You can, or course, do both of these at the same time.