Monthly Archives

September 2007

Some of my favourite quotes

By | Entrepreneurs, Venture Capital | 6 Comments

One of the small things I like about Facebook is that I have used it as a repository to store interesting quotes when I hear them. On the assumption that most of you haven’t read my FB profile I thought I’d share them here. Enjoy.

  • “it is easier to bury reality than it is to dispose of a dream” Dan DeLillo
  • “Raising a ton of money feels really good — you feel like you’ve done something, that you’ve accomplished something, that you’re successful when a lot of other people weren’t. And of course, none of those things are true.” Marc Andreessen 2007
  • “Banning Facebook is like banning coffee shops and watercoolers and loos” JP 2007
  • “[Mobile] Operators are busy errecting fences in the ruins of the walls in their gardens” Jo Rabin 2007
  • “My principal activity is to tease those who take themselves and the quality of their knowledge too seriously … scientists are seeing more and more evidence that we are designed by mother nature to fool ourselves” Nassim Taleb from “Fooled by Radomness”
  • “There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all who profit by the old order, and only lukewarm defenders in all who profit by the new order. This lukewarmness arises partly from fear of their adversaries, who have law in their favor, and partly from the incredulity of mankind, who do not believe in anything new until they have had an actual experience of it.” – Machiavelli

Monetising Facebook apps

By | Facebook, Social networks, Widgets | 8 Comments

I missed this Techcrunch post on monetising Facebook apps back in July. It describes three companies that are experimenting with differing monetisation models:

  • fbExchange which allows Facebook app owners to trade space with each other – basically a cross promotion scheme
  • Lookery founded by Scott Rafer of Mybloglog fame – he is building an ad network comprised solely of real estate on Facebook apps
  • Rockyou which is essentially a CPA network of Facebook apps dedicated to finding new users for other Facebook apps

If this is still state of the art thinking then I would say this issue is far from being cracked. As the comments on the Techcrunch post point out the first and third of these don’t get us anywhere – they are like pyramid schemes. Until someone has figured out a way to monetise this real estate other than from other Facebook app owners there is ultimately no value being created. Apparently Facebook app owners are paying up to 30 cents to acquire a new user – that is crazy when the monetisation is still in doubt – IMHO anyway. You could spend a lot of money that way and end up with nothing more than a lot of users to support. As I’ve said before, and I’m paraphrasing Ben Holmes of Index here, it only makes sense to start paying to acquire customers when you have got a clear view on their lifetime value. Otherwise you had better find a way to acquire them for next to nothing. This is the situation most social networks find themselves in and if you look at all the successful ones they have cracked the viral nut and users have come flocking for free. (It can make sense to bend the rules in the early days before you get to critical mass though.)

Which leaves Lookery – this makes sense as a model provided there is enough real estate to work with. The Facebook apps I use (mostly Blogfriends) don’t have the space to show ads – although they might be getting to the point where they could change that. The other obvious question here is whether Facebook apps are different enough to traditional display advertising that Doubclick et al won’t just scoop up this extra inventory.

The great news on this front that I hadn’t quite twigged before is that the Facebook apps have all your profile information, so it should be possible to target ads extremely effectively and drive CPMs to high levels. As Deep Jive Interests pointed out

Facebook applications seem like a fantastic opportunity for advertisers (and Facebook app owners) because many Facebook users have not altered their privacy settings, and therefore many applications have access to demographic drill-down type data that advertisers crave.

but

The problem is that many Facebook users, have, in fact, not yet noticed that they are being targeted in this fashion — and I suspect that many, when they will, will not like it.

The old privacy chestnut again. This debate is getting so boring now that I can’t wait for someone to start using personal data to highly target ads so we can finally gauge the reaction.

The last point to consider is (again from Deep Jive Interests)

Furthermore, many Facebook users, particularly users of applications — are also probably not fond of the whole idea of applications trying to sell ad space on *their profile*, essentially monetizing their activities (and in a circular way, their friends) absolutely gratis.

In a way if an app is showing ads in your profile it is your traffic they are monetising, but you could make the same argument about Facebook itself showing ads on your profile so I’m not sure this is a killer point. Some people are bound to get pretty fired up about it though.

As I read this post back I was hit by the realisation that this is a re-run of the widget monetisation discussion we had earlier this year. The lesson there (mostly from Photobucket) was that once the widget got sufficiently functional users were willing to put up with ads even though the real estate is very limited. I guess it will be the same here.

Great quote from Debatewise about Seedcamp

By | Entrepreneurs, Seedcamp, Venture Capital | No Comments

David Crane of Debatewise wrote a great post about what he got out of Seedcamp over on the Seedcamp blog.  It is full of juicy goodness and great to read that David (and others) got a lot out of Seedcamp week.  The whole post is worth a read but I wanted to pick out one passage:

The very act of applying [to Seedcamp] was useful because you can’t answer 32 probing questions in a concise and compelling way without thinking very carefully about your business and how you intend to carry through your plans.

The same is true when you write a business plan.  It can be a time consuming exercise but the very act of being explicit about your beliefs and assumptions will improve the quality of thought behind them and will help you iterate the areas where your plan can be improved.

In fact for these reasons Zeus, one of my portfolio companies, is going through the discipline of writing a business plan at the moment, even though we are not fundraising.

Google rumoured to be building a virtual world

By | Second Life, Virtual Worlds | 10 Comments

Techcrunch yesterday reported rumours that Google is building a Second Life competitor.

I have a couple of observations/thoughts about that :

  1. Is it me or are virtual worlds suddenly more fashionable than toga parties in freshers week? To my knowledge just about all the major tech companies have a play in this area now – and for many (Sony, Microsoft, and now Google) the play is to build their own world. Also I am seeing lots of virtual world business plans and am talking at two conferences on the subject before the end of the year.
  2. Distinct strategies seem to be emerging, or at least being talked about with a clarity I haven’t seen before. They include virtual world for kids (Club Penguin, Habbo), virtual world come game (World of Warcraft, Eve Online etc.), virtual world as anything you want it to be (Second Life), virtual world as social network extension (which is where Google seems to be heading) and virtual world with a content angle, which is a mix of the last two or three categories (Doppelganger, Playdo).

All of which leaves me increasingly excited about this segment. As I’ve said before I think Second Life will come through the current bout of negative sentiment and we will see some big businesses built in this space.

VC 101 – get in at the beginning of a new market

By | Business models, Entrepreneurs, Venture Capital | 2 Comments

I love investments that are all about getting in at the beginning of a new market.  If you are the first player then you have got a great shot at being market leader, and provided the market is big enough if you are market leader you are going to be worth a lot of money.

Just look at YouTube, or Skype, or Salesforce.com, or LastFM, etc. etc.

An aspiration to get in at the beginning of a new market leads you to the question how will I know one when I see it?

There are a number of aspects to the answer for this question, and I am planning to come back to this in a series of posts.  The first and most important is know where the dollars are coming from.

Consider the following examples from the successes listed above:

  • YouTube – TV advertising
  • Skype – traditional telephony
  • Salesforce.com – Siebel and other CRM vendors
  • LastFM – bit trickier this one, but some combination of radio advertising, music sales and magazines I guess.  (I’d be interested in hearing from anyone who has a view on this – despite LastFM having been acquired by CBS for a lot of money they were rumoured to have been struggling a little with monetisation, which maybe illustrates my point)

New markets of size are not created out of nothing.  They take dollars from somewhere else (and markets are only ever measured in money).  Knowing where your market dollars are coming from gives confidence that the market will come and gives an idea of its size.

When everyone at your company is busy, but things aren’t moving forward

By | Entrepreneurs, Venture Capital | 2 Comments

Not infrequently I come across companies where everyone is really busy and works hard, but somehow things just aren’t moving forward as quickly as they should.  Usually these companies have a burn rate that is too high and/or unsustainable.

This can feel like an intractable problem – everyone is working so hard after all, and it isn’t just a case of cutting some unwarranted activity e.g. too much marketing spend.

Sometimes I’m sure it is intractable.  But often it isn’t.  If these symptoms are present the issue is cultural/managerial and very fixable (not necessarily easy though).

  • Too many internal meetings
  • Too many people attending meetings (particularly external)
  • Delegation not happening properly
  • Limited sharing of information between departments
  • Lack of trust between members of the executive team
  • Unclear or disputed control of process
  • Too much re-work (e.g. re-writing of roadmaps and RFPs)

I hope this is useful.  Certainly it would have helped me catch a few problems a bit sooner.

More on randomness – and the case for plain English

By | Entrepreneurs, Venture Capital | 4 Comments

These are more thoughts from Taleb on how to avoid being fooled by randomness – this time in the use of language. Consider these two passages:

The main theme of the works of Rushdie is not theory, as the dialectic paradigm of reality suggests, but pretheory. The premise of the neosemanticist paradigm of discourse implies that sexual identity, ironically, has significance.

and:

Sound is the change in the specific condition of segregation of the material parts, and in the negation of this condition; merely an abstract or an ideal ideality, as it were, of that specification. But this change, accordingly, is itself immediately the negation of the material specific subsistence; which is, therefore, real ideality of specific gravity and cohesion, i.e. – heat.

One of these is a random product of a Monte Carlo generator and other is a passage from the famous 19th Century philosopher Hegel. You may have already figured out that the second passage must be Hegel’s because there is no way he could have read the works of Rushdie back in the 19th Century – but working it out from the content would be harder.

As Taleb points out you could construct a similar passage of random pseudo business speak by feeding the Monte Carlo generator with phrases such as “our assets are our people”, “creation of shareholder value”, “our work ethics” etc. etc.

The same is also true of many currently popular business plan concepts including “platform”, “social media”, “viral marketing”, “market place”, “synergy”, “value-added partner” and many, many others.

So if you find yourself writing a business plan or pitching your company in a way that sounds like it could come out of a random word generator beware!!

The way to avoid this, of course, is to use plain English.

Listing on AIM (London’s Alternative Investment Market) can be dangerous

By | Entrepreneurs, Venture Capital | 8 Comments

Let me say before I start that I very much welcome the arrival of AIM on the London scene over the last few years.  It offers liquidity and fundraising options to companies that simply weren’t available in this country (and to an extent Europe) before.  That became even more important when NASDAQ was clobbered by Sarbanes Oxley.

BUT

I have long felt that it has been over-hyped as a home for small companies.

So I thought I’d share a statistic from the FT this morning:

In a typical month this year about 40 per cent of the market’s 1,789 stocks saw turnover equal to just 1 per cent or less of their market capitalisation.

40% with less than 1% turnover – that is huge, and I would expect this 40% of companies with low liquidity are overwhelmingly concentrated at the  bottom end of the market in terms of market cap.

Without liquidity on a stock market you don’t have much, IMHO.  Certainly you won’t have much share price movement.  You may get some publicity simply from being public, but that is about it.

You will have extra costs though, and restricted flexibility in your future actions when compared with remaining private.

I obviously have a vested interest here, in that AIM can be a source of competition for us at DFJ Esprit, but at the small end – say below £50m market cap – my advice would be to think very carefully about the pros and cons of AIM as a financing strategy for your business.  High valuations don’t mean much if there is no liquidity.

There have been a number of companies that have listed with low valuations and successfully traded up.  I am generalising here and AIM can certainly work for some small companies, but for me there is a much larger number that are better off staying private.

More on social network monetisation – Myspace targets ads to good effect

By | MySpace, Social networks | No Comments

From Mashable:

At a Merrill Lynch conference in Los Angeles on Tuesday, MySpace will unveil the full scope of its plans to target ads to every MySpace user. In testing for 6 months, and the result of their Strategic Data Corp acquisition, it’s a plan that could finally turn their 110 million active users into cash.

The results have been remarkable: during tests, the targeting increased the likelihood that a user would click an ad by 80%. Richard Greenfield of Pali Research predicts revenue increasing from $40 million to $70 million per month by 2008.

At $70m per month that is knocking on a $1bn per year run rate – which would be great to see.

Particularly if they achieve it by effective targeting.  That has been much talked about but not really seen working in practice at scale.  I am seeing more and more examples of effective targeting working at a small scale though so I’m sure this is just a matter of time.