Monthly Archives

May 2007

Internet TV – will the networks cope?

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

Last week in Internet TV – Unclear how it is going to work, I asked whether the P2P distribution model that Joost and Babelgum are based on will scale.  I was wondering whether their is sufficient network capacity to cope.

Now Sam is reporting on Vecosys that they won’t.  In Joost: three hours a month is all you get he quoted Read/Write web:

With an ever greater amount of video being consumed online, many
Internet users are in for a shock. There’s a dirty little secret in the
broadband industry: Internet Service Providers (ISPs) don’t have the
capacity to deliver the bandwidth that they claim to offer. One way
ISPs attempt to conceal this problem is to place a cap of say 1GB
per-month per user, something which is common in the UK for many of the
lower-cost broadband packages on the market. Considering that a mere
three hours viewing of Joost (the new online video service from the
founders of Skype — see our review) would all but use up this monthly
allowance, it’s clear that lots of Internet users aren’t invited to the
party.

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Last.FM acquisition and is DRM debate missing the point?

By | Business models, Content, Music | 2 Comments

Today EMI is launching DRM free music on iTunes Plus and Steve Jobs said he expected more than half of the music on iTunes will be available DRM free by the end of the year – that is 2.5m of the 5m tracks on the service.

I thought that was big news – it seems like we are moving to the end game in the long running saga over music DRM that I have written about before (here, here, and here are three of the most relevant).

Then I read in NMA that Sony has done a deal with Vodafone to sell music over the air at a fixed price, irrespective of data tarriff and I was thinking this is a big day for music news.

Then I read about CBS acquiring Last.FM for $280m and I started to wonder if the whole download story was somewhat beside the point.  Next I found myself reading Fred Wilson’s post on the subject.  If you don’t know Last.fm well and want to get a sense of what the excitement is about then read the whole post, Fred’s passion for the service is great to read, but for me one passage leapt out:

I think streaming audio is fast becoming the best way to listen to
music over the internet. A year ago, file based music (meaning iTunes)
was at least 2/3 of my listening activity. Today, it’s about 1/3 and
going down.

If everyone is streaming music, who cares about whether downloaded tracks are DRM free or not?

There is an awful long way to go in this debate, so I’m presenting thoughts here not conclusions, but in a world of ubiquitous network coverage streaming music has got to be a better way of approaching the world that download-store-play.  If the pricing is right this will be cheap and convenient enough to bring the mainstream out of piracy and into the comfort of being legal again.

Between here and that nirvana a couple of the more obvious things that need to be sorted are licensing arrangements for streaming and mobile bandwidth issues.  Neither of these are trivial to overcome but I’m starting to think the prize will be worth it.

The other thing to say is congratulations to everyone at Last.FM – this is great for them, great for their investors (Index and TAG), great for the London scene, and great for the web community at large.  There still haven’t been many consumer internet exits at this kind of scale.

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Globalisation: From £3 umbrellas to Indian middle management

By | Venture Capital | One Comment

On the way to the tube this morning I was chuckling to myself about my umbrella – purchased a month ago, full size, automatic opening, faux wood that looks pretty good – cost £3.

Then on the tube I find myself reading about westerners taking senior and middle management jobs in India because the pay rates for local talent are the same as expat rates.

Then (on the same theme) I read about Italian luxury suit maker Ermenegildo Zegna opening a store in India.

These three things would have been unthinkable even five years ago – such is the phenomenal pace of globalisation.

All of which reminded me of my first sociology lecture as an undergrad in which Anthony Giddens drew a graph that looked something like this (I hope he hasn’t copyrighted it ;)):

I love this, it is one of the reasons I’m a venture capitalist, and I see it at work every day.  This morning with the globalisation stories, and all the time with the rapid rise of the internet – it is why I believe it when someone explains to me that it took Skype two years to get to $2bn valuation, it took YouTube less than one, and therefore the next big hit will come in the blink of an eye.  Hell, at the end of the day this is one of the reasons I believe in progress.

Getting serious, it tells us why innovation is so important to modern society, and how it will only get more so.  Similarly for the VC industry – it goes a long way to explaining why entrepreneurship and the venture capital industry emerged in the Valley 40 years ago, why we will be successful here in London, and why VC is a growing asset class all over the world right now. 

In fact this macro view was one of the reasons I am still a VC.  I stuck with it through the bust mostly because its fun, but I comforted myself with the thought that things would inevitably swing back this way, and in some style.

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Another record month for private equity

By | Venture Capital | 2 Comments

In another sign that private equity is reaching the top of its cycle US groups have launched a record $82bn worth of bids already this month.  See the FT this morning.
This frenzy is being fuelled by buoyant credit markets in a combination that can’t go on forever.  Funds are increasingly going it alone as well, abandoing the traditional “club deals”.

When the cycle turns it will do so quietly.  We will simply see declining deal volumes and the shift won’t happen quickly – deal cycles are too long for that (witness the time it took the VC industry to adjust when our bubble burst in 2000).  And when companies run into trouble we won’t hear much about it – I predict there will be lots of restructurings behind the scenes and the full story will only emerge when funds report their results.

Facebook – a leading portal to the web but not the only one

By | Social networks, WAYN, Yahoo! | 10 Comments

Facebook logo

Everyone is talking about Facebook at the moment from Ben Holmes and I chatting over lunch last week about whether it might become a $10bn company to Fred Wilson’s Open Facebook post on Sunday – naturally that has got me thinking, and nine times out of ten when that happens my two cents worth end up on this blog. So here we go.

To set the scene: Facebook has been taking London by storm recently and I’ve gotten caught up in that wave. It has become the social network I have got the most out of and I haven’t really scratched the surface yet – although that says as much about me as about anything else. It is hard to put my finger on exactly what it is that has made the difference with Facebook, but a large part of it is that more of my friends and colleagues have congregated here than anywhere else.

So I like Facebook a lot, enough to think seriously about whether Mark Zuckerberg, founder of Facebook can realise his dream and make Facebook the “OS of the internet”.

The fact that for many people Facebook is the first place they go when they turn on their computer gives him half a chance. That is a bit like Windows after all. Time will tell, but I suspect it also has a stickiness that is a bit OS like. Status updates and the mini-feeds make it impossible to move unless you take your whole network with you, and given that Facebook has an older crowd the networks are likely to be diverse enough to make that difficult. The way they have opened themselves up to third party apps via an API is also a bit OS like – those apps have to be written to Facebook for people to be able to add them to their profiles. This contrasts with Myspace and most other social nets where users customise their profiles by adding HTML to their page – so in theory the same code should run on any social net.

All of this goes some way to explaining why everyone is so excited about Facebook and why they turned down rumoured $1bn+ offers for the company last year – but I don’t see the natural monopoly and lock out of other systems that being an OS implies.

For starters there are still a lot of things that you can’t do through Facebook – writing this blog and reading other people’s blogs are my two leading activities on the web and up to now you can’t do either of those through Facebook. That could change quite easily I suppose – I quite often use a Firefox plugin called Scribefire to write posts which they could incorporate and I’m sure they could do something similar for the more popular RSS readers (either via the Facebook API or by doing something similar themselves).

More problematic is search – it is difficult to see Facebook owning that – for sure they could do a deal with Google (like Myspace did), but it is hard to see them being anything other than the junior partner in that.

Similarly, there is the vast bulk of other things people do on the web. Almost by definition I don’t think Facebook can aspire to be an OS to the internet when the bulk of internet activity happens without even acknowledging it exists. Nothing happens on my PC without going through Windows – plenty will always happen for me on the web without going through Facebook.

Finally social networks are not natural monopolies in the way that operating systems are. All of us are on multiple social networks, choosing which we use depending on our purpose. The first generation of social networks are all horizontal plays, but I have been saying for some time now that the next generation are going to be focused around interest areas – for example our portfolio company WAYN is a social net for people interested in travel – so you can see how people will use WAYN or Facebook at different times depending on what they are trying to achieve. In the long run you can see the market consolidating and this situation changing, but I can’t see that happening too quickly.

So, as I say in the title to this post, Facebook can be a leading portal to the web, but it is hard to see them becoming the only one.

Mining personal data – the next big frontier

By | Google, Identity, Microsoft, Yahoo! | 3 Comments

GoogleGirl

This week Eric Schmidt of Google said he would help us answer questions like “What am I going to do tomorrow?”. I applaud the sentiment here, I really do, but I don’t think Eric is the right guy for the job, and he certainly isn’t going about it the right way.

A lot of people have a bad reaction when Google does things like this – Does Eric Schmidt want to sniff the armpits of my mind? is a very funny example, and indeed this post was in part inspired by some friends saying at dinner last night how much Shcmidt’s arrogance pissed them off.

Underlying all this are some very real privacy concerns which I will come back to, but first I want to focus on how useful these sorts of services could be.

Firstly, at a consumer level services that automatically personalise based on my personal data (click stream, search history, anything else I tell it) will simply be better for me. Services that do this in a small way like LastFM and our portfolio company Lovefilm are massively popular so imagine the power of a cross media recommendation engine.
Secondly (and this is why Google is interested), you can charge MUCH more for personalised ads.

In my somewhat utopian view of the world I hope we will end up in a virtuous circle where we offer more personal information, our favourite sites make more money, our favourite sites make themselves better, we give them more data… and so it goes on.

So, back to privacy, the problem is that in order to get good data about me I need to let you monitor everything I do. I need to trust you completely in order to do that, which probably means that the guy who collects and manages the data for me needs to work for me – ie I am his customer. If it is someone who makes money directly from having that personal information, like say Google then there is too much conflict of interest there. Plus they will only be able to exploit my data on their own properties, which is likely only a small fraction of my surfing activity.

Phorm (formerly known as 121 Media and now out of stealth mode) is making this play here in the UK via relationships with ISPs. This has always struck me as a smart route. Another thought is that maybe it ends up in big data companies that are a bit like today’s credit checking bureaus. The privacy issues mean that this space will be heavily regulated, and that seems to lend itself to this model.
The prize here is big, really big, but it is matched by the challenges. The most obvious ones are: persuading consumers to let you capture their data, then finding a good technical way of doing it, then finding a way to let websites take advantage of the data to personalise their sites and their ads, and then charging for it.

This is not a new idea. I have been talking about it since I started in VC back in 1999 and there have been numerous attempts to make it happen. Microsoft, Google and Yahoo! all have this as their strategy and the whole behavioural targeting movement, including Wunderloop is about getting value out of personal data. The reason we haven’t gotten very far down the track up to now is that the challenges I listed above are very hard to overcome.

Now I think times might be a’changin.

Internet TV – Unclear how it is going to work

By | IPTV, PCTV, TV, Venture Capital | 13 Comments

If you read this blog regularly you will know I am very excited about how the internet will change the TV industry (most of the posts are here) – well this week I have found myself at a bit of a low point. It seems to me there are three basic models and I can see is problems with all of them (from the perspective of how we might make some money out of them).

  1. The large scale IPTV plays – from the likes of BT Vision – I think these guys have an important infrastructure role in matching content to network conditions and devices and maybe in billing, but I just can’t see them getting the retail side of things right. I hear that BT have hired a team of media folk to run the operation, so maybe I’m wrong here, but I haven’t seen anything so far which to dissuade me of this view, and I have seen a few things that worry me.The opportunity for startups here is selling infrastructure to the likes of BT (or VirginMedia etc.) – which is only interesting if you believe they will be successful.
  2. Pure internet plays going after the mainstream – Joost and Babelgum – these companies have done a great job at building profile and in the case of Joost getting a LOT of people on their pilot. A lot of smart people think these businesses will be successful and I’m sure they will be – to me the obvious questions are how they will get enough content onto the platform to tempt audiences away from the comfort of what they know and love and whether the P2P model will scale (this is such an obvious question that I’m sure there must be a good answer to it).Now that Joost has taken its investment I’m not sure there is much in the way of further opportunity for startups and VCs.
  3. Pure internet plays initially targeting niche audiences – SecondsOut and VingoTV are good examples. Loads of opportunity here for entrepreneurs and VCs alike and this is the area I’m intuitively drawn to – I like the way they aggregate global audiences for an offer that mainstream TV can’t deliver. The question I’m struggling with is how to think about these types of business scaling beyond their initial niche.

Answers on a postcard….

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Dangers of being newbie

By | IPTV, PCTV, TV | No Comments

Just read this in a Total Content and Media (hard copy) article about IPTV

“Problems arise when a telco enters a mature market with an immature product”

Spot on – IMHO it will take a radically better or cheaper product to pull subscribers away from their current TV providers.  Getting to a mature offering against that backdrop will be tough.

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