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Making Cents of Fashion

The public launch of Sense of Fashion, an online community centered on fashion expression and commerce, has been ably covered by my good friend Kfir Pravda and by TechCrunch. The company is still in early days, but I believe it has the potential to turn into something big. I’ve been following the company for a while and have a few thoughts:

  1. First off, Sense of Fashion is another example of a slick, polished, consumer-facing web start-up based in Israel but targeting a global user base from day one. The founding team is 100% in tune with the global market they are addressing and has as good a chance to succeed as any start-up based in New York or Silicon Valley. Eventually, they may choose to set up an office in the US, but it’s nice to see yet another high-quality consumer-facing start-up unafraid of launching with its roots firmly planted in Israel and its sights set on users around the world. This is good news not just for Israeli entrepreneurs but for their counterparts in India, China, Ireland, and other centers of innovation large and small. There is no denying the tremendous value of the networking that goes on in Silicon Valley and Silicon Alley, but the web has democratized geography to some extent and for an early stage web start-up with a top-notch team, location is no barrier.
  2. Second, Sense of Fashion is about much more than indie fashion e-commerce – it’s about self-expression and authentic social marketing. If the company succeeds, I expect it will end up looking much more like TripAdvisor than like Etsy. Etsy, an e-commerce site focused on home-made crafts, is a logical comparable to SoF because both sites enable small/medium manufacturers to reach a global audience on a top-notch e-commerce platform. But in my view, TripAdvisor is a much more interesting comparison. TripAdvisor is where regular people go to express themselves about their travel experiences, and the result is the web’s best source for authentic social recommendations for all things travel-related. SoF is not just a place to buy from independent fashion designers (although they are rapidly racking up an impressive list of partners). Sense of Fashion is a place where any user (whether they buy their wardrobe from the hottest shop in SoHo or at the local mall) can express themselves in a fashion-oriented context. A user can upload his/her photos in various outfits and share them with other like-minded users. If Sense of Fashion rolls out the right features, this can emerge as a very powerful tool for self-expression among people who care about fashion – and that can generate lots of traffic, lots of virality, and – potentially – lots of outbound links to apparel manufacturers both small AND large. When the coolest kid in class puts up a photo of himself or herself in his latest get-up, and that photo includes a link to American Eagle’s online store – that is the type of authentic word-of-mouth marketing that professional marketers dream about at night. These are no small potatoes: this is a big market (US online apparel sales were $18.3 billion in 2006), and Sense of Fashion just might be able to carve out a nice slice of that fashion pie – if it can translate self-expression into a targeted database of fashionable intentions.


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Beware of the collapsing meta-problem: Ray Ozzie and Mad Max

Yesterday, I attended the Microsoft ThinkNext event in Tel Aviv, key-noted by Ray Ozzie, Microsoft’s Chief Technology Architect. Today, I am at a very well-organized micro-conference on mobile advertising, hosted by the Israel Mobile Association. Though they took place only a few kilometers apart, they could have been on two different planets, and that got me thinking.

In his keynote address, Ray Ozzie found the words to concisely express the biggest computing megatrend we are all witnessing in real time. Computing is evolving away from “computers and software” and towards “services that run on a cloud and are delivered to multiple screens as needed: the PC, the netbook, the mobile, or the TV.” Ozzie showed a promotional video “from the future” that, among other things, highlighted all sorts of productivity applications seamlessly delivered to several types of slick-looking touch-screen handhelds. It looks like something out of StarTrek, but it’s not such a fantasy. We are already opening Excels on our Blackberries and downloading iPhone applications over WiFi at the neighborhood cafe. The images in Ozzie’s video were a little too seamless for comfort, but they are closer to reality than many of us realize.

OzzieMIX07_print mad-max

This morning, I woke up back in reality and am spending a few hours in the world of mobile. It feels light years away from the vision Ray Ozzie expressed just one night before. The mobile space is, indeed, characterized by tremendous technological fragmentation that has for a long time stifled innovation. It is fragmented by devices that each sport a different screen size, operating system, and set of capabilities. It is fragmented by the artificial divisions between off-deck and on-deck services and by the variety of web-browsers, not all of which support all types of content. Moreover, It is fragmented by operators, each of which is pursuing its own strategy for content access and pricings. Over the past five years or so, this massive fragmentation has impeded the development of mobile applications and services. As a result, a large number of start-ups have sprung to life that address this fragmentation. Companies like Mominis, an Israeli start-up which recently closed a financing round, address the challenge of porting mobile applications from one OS/device to another. Companies like Infogin, an Israeli start-up which has achieved very impressive penetration within operators, are helping to automatically and on-the-fly port web content to the mobile browser. Companies like Infogin and Mominis are, truly, technologically outstanding and stand a very good chance for success.

Which world do we actually live in? The Ray Ozzie world of seamlessly integrated cloud services available on any device or the Mad Max world of deep technological fragmentation that requires all sorts of technological innovation just to get my web page and banner ad to display properly on your Nokia’s WAP browser? The truth, of course, lies somewhere in the middle. In mobile, we are very likely at the inflection point between the two.

So what does this mean for VCs and, more importantly, for start-ups? My take-away is that VCs and start-ups need to distinguish between fundamental opportunities and derivative problems.

  • Fundamental opportunities. Some start-ups offer technologies and solutions that address a fundamental opportunity for a new service or capability. Amobee, I think, falls into this category because it allows mobile operators the ability to leverage their data and optimize advertising delivery. This, I think, is what has enabled their success and fuelled the optimism of their VC backers.
  • Derivative problems. Other companies, however, are solving derivative problems – problems that derive from some deeper core technological issue – one that someone else may be very likely to solve. The more painful the core technological issue, the more likely the industry is to eventually solve it – and therefore, the more likely the derivative problems are to disappear. For example, the near impossibility of reading a standard web page on a small-screen WAP browser is a very real pain, but as phones and browsers improve, that pain just disappears. When I surf the web on an iPhone, I don’t want the mobile version of the webpage – I want the real one. This doesn’t mean that entrepreneurs and VCs can’t make big money by addressing derivative problems – it just seems to me to be a much riskier proposition.

In the mobile world, I think we are at the inflection point between an environment deeply fragmented by core technological problems and an emerging environment that is much more seamlessly integrated. The consolidation of mobile operative systems around 3-4 majors, the emergence of appstores, the increasingly pleasant mobile browsing experience, the move towards flat rate data plans, and the triumph of off-deck are all signs of this trend. As a result of this, we are moving from a world of many small derivative problems to a world of a few very large fundamental opportunities. In VC terms, this means we’re moving from a world of many mobile start-ups solving small problems with limited windows of opportunity to a world of a few mobile start-ups solving really big problems and with the potential to be really big – and this is good news.

Here’s the video Ozzie showed. Suspend your skepticism for a moment, and consider whether or not the problems you are working to solve might (or  might not) be swept away by the tidal wave of integration we are already beginning to experience.

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In search of the feedback loop: Google Audio

The Wall Street Journal offered extensive coverage today of Google’s decision back in February to exit the off-line radio advertising business. This isn’t the first time one of Google’s many growth initiatives has failed to achieve the hoped-for results, nor does this particular failure expose a fatal flaw in Google’s extraordinarily scalable business model. It does, however, offer some important lessons that have meaning for start-ups.


  1. Online media is about measurable interactivity. At the end of the day, this is what sets the Internet apart from other types of media. The Internet can be truly interactive, which means that advertisers and agencies can measure engagement, attention, and even effectiveness. If you want to wow people with a gorgeous large-format photograph of the new Porsche Boxster, the Internet may not be the ideal place. But for advertisers who know how to value, measure, and price engagement, the Internet is unparalleled. It’s a vast over-simplification to say that Google’s secret sauce is its ability to leverage data on user responsiveness to optimize its pricing model -  but it’s also not too far from the truth. On the radio, there is almost no ability to measure responsiveness – and sophisticated algorithms such as Google’s have a lot less value.
  2. The human side of advertising can not be ignored. As the article points out, the radio advertising market was dominated by close interpersonal relationships. Try as it might, Google was unable to displace these bonds of trust with an algorithm. This is true offline – but its also true online.
  3. Auctions are only worthwhile when they create real value for someone. Lots of start-ups build “bidding platforms” or “marketplaces” into their business plans, but this doesn’t always make sense. Bidding platforms and/or marketplaces require an investment of time and energy for customers to learn how to use, and they require a non-trivial leap of faith that the price generated by the system will be one the customer can live with. If lots of different players value a good or a service (or an advertising impression) differently from one another, a marketplace can make sense because it provides a meeting place where a “fair” price can be determined. Similarly, if each player has a really good sense of what a particular thing (or advertising impression) is worth to him, he might be willing to engage in an auction/bidding process. I think its fair to say that neither of these conditions are true for off-line radio. Because there is no feedback loop – the real value of an impression is (a) unknowable on a per-customer basis and (b) effectively a commodity. Pricing mechanisms that work brilliantly online didn’t add enough value offline.
  4. Ad agencies are here to stay. Google may have tried to displace ad agencies in the radio business and is probably still hoping to displace ad agencies in the long run in other businesses as well. This is unlikely to happen. Advertisers will always require sophisticated agents to help them navigate the complex world of advertising – both online and offline.
  5. Pricing and measurement are inherently connected. How well you can measure something is tightly related to how much you can charge for it. Because online advertising is inherently measurable, publishers have little choice but to submit to the brutal rationality of the online market places. This is part of the reason that ad exchanges are growing to rapidly and ad networks are struggling. Offline, where measurement is harder, publishers (or in this case, radio stations) still have reason to cling to their ability to sell inventory at whatever price their salesforce can achieve and have little incentive to submit to a pricing mechanism which may dramatically lower the price of their real estate.

So how do the online and offline worlds converge in a way that makes sense for advertisers? One example that has been quietly doing this with significant success has been Yahoo’s partnership with AC Nielsen, which was launched back in 2003. You can view the official Nielsen Homescan Online PDF here. This platform combines data from Yahoo’s online properties with offline consumer panel data with AC Nielsen’s famous Homescan panel. The combination lets Yahoo measure the impact of online campaigns on offline purchases in a statistically significant way.  Below is an AC Nielsen presentation from March 2009 that illustrates how the company is working to link offline and online data to drive real-world strategy for retailers.  Another example is recent research prepared by MySpace, Comscore, and Dunnhumby that found a 28% ROI in offline sales on a $1M online campaign on the social network. What’s important here is that the online results (traffic & impressions) were not impressive, but the resulting offline sales were. This experiment was covered here and here, but the research itself isn’t available online yet. Privacy concerns aside, there is no doubt that offline data and online data will increasing merge to generate actionable intelligence for advertisers – and that, in the long-run, is good news for online publishers.

Nielsen Homescan Online 


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Ten financing mistakes that kill great start-ups

One of the most painful aspects of working in the VC world is witnessing great start-ups with great teams struggle to raise capital. Sometimes, decisions made two or three years previously can come back to haunt a start-up as it tries to raise additional capital – and, all too often, those mistakes have to do with financing decisions. Financing decisions rarely have the potential to “make” a company, but they can often “break” a company.  While today’s tough times may call for desperate measures (i.e.“raise money when you can get it” because “cash is king”), a few words of caution are always in order before you sign that term sheet:

That said, here is my list of ten financing-related mistakes that can kill a great start-up:

  1. Taking money from hobbyists. One of the advantages of raising money from VCs is that VCs are professional investors. VCs are evaluated, compensated, and motivated around one goal: building big companies that can generate attractive returns. Many angel investors are equally professional in their approach. This professionalism means that most VCs (and the better angels) understand the rules of the game. They tend not to panic when things get rough. They don’t stop supporting portfolio companies when public markets collapse. They don’t call the entrepreneur every day to “check up” on progress. They don’t loose their cool when a company misses a milestone by a few weeks. Most importantly, they are in the business for the long run: they build their reputation by selecting and supporting companies and helping them achieve successful exits. Unfortunately, not every investor is a professional – for some it’s a hobby. I have met with several very talented teams of entrepreneurs who have been effectively abandoned by their investors. This is true for some angel-backed companies, but it’s also true for some companies backed by big corporations as well. Someone in the corporation made a decision to back a start-up, but the corporation itself never committed to the VC model and was never committed to the objective of building a big company. Things got rough, the market tanked, budgets contracted – and the start-up finds itself abandoned and with a much tougher fundraising challenge now that main investor is asleep at the switch. Avoid hobbyists, whether they are private individuals or corporations.
  2. The wrong strategic/corporate investor. There are several outstanding corporate VCs and, in certain cases, an investment from one of them can make a lot of sense. But corporate VCs can also bring risks that in certain circumstances can kill a start-up. Some senior US VCs have, in fact, told me that they simply will not co-invest with a corporate VC. First, strategic/corporate investors tend to invest because of their strategy, not necessarily yours. If interests diverge, the corporate VC can lose interest which can make subsequent financing a challenge. Second, the competitive dynamics of an industry can work against the start-up. If a start-up is identified as aligned with a certain large corporate, other large companies may be less inclined to work with the start-up because of fears that information will leak or that they will be giving their competitor leverage. Board members from corporate VCs may not be able to participate in some critical strategic decisions due to potential conflicts of interest. Third, be particularly careful with a corporate VC that represents a potential acquirer – particularly in a small eco-system. While the VC arm of the corporate may be interested in the “big exit,” headquarters wants that exit to be as small as possible – which creates an intrinsic conflict of interest with VCs and, in most cases, founders. Even if there are no “rights of first refusal” written into the investment agreement, the market may perceive the start-up as being a captive of the corporate investor which may limit the exit potential. VCs will be reluctant to invest, and the corporate can wait until the start-up gets desperate and buy it on the cheap.
  3. Over-emphasis of short-term value-add. I have seen several cases of start-ups who raised money from a particular investor (typically a corporate hobbyist) because that investor was able to help them with immediate business development objectives. No short-term objective is worth jeopardizing the long-term potential of a company. If your product/service/technology is truly valuable and your team talented, you will be able to build the partner relationships and sales pipeline on your own. It’s not worth bringing an uncooperative or inexperienced investor into a company just to secure a pilot. Entrepreneurs should carefully weigh the pros and cons of every investor with whom they choose to work, and too often the long-term negatives dramatically outweigh a short-term positive.
  4. Raising too little capital. Ideally, the fundraising process should revolve around milestones. A company should try to raise enough money to achieve a meaningful milestone that validates some aspect of the investment thesis, reduces real and perceived risk, raises valuation, and makes subsequent fundraising incrementally easier. When a company raises too little money, the company can find itself a few months short of a critical milestone and without the capital to get there. This means that just when the company should be sprinting ahead, it needs to cut back on spending. And just when the CEO and the rest of the team should be 100% focused on execution, they find themselves focused on convincing their existing investors to pony up more capital and simultaneously reaching out to new potential investors with a story that is far less compelling than it might be in a few months – a situation that can rapidly become a death spiral, even for a potentially great company. This is obviously easier to observe in hindsight, but it suggests that entrepreneurs should be very careful about (1) making sure they have adequately budgeted the costs of their operations and (2) building in the necessarily reserves. It also suggests that there may be a benefit to waiting for right investor with the right-sized investment rather than racing ahead with an inadequate war chest. When that war chest runs out, it may be too late.
  5. Shallow-pocketed investors. Closely related to #4. Nothing ever goes exactly according to plan, and it is the rare start-up that can execute on-target and on-budget. Whether things go worse than expected or better than expected, lots of great companies find themselves needing a bit of extra cash to hit a milestone – and it’s a lot easier to raise that capital from a committed existing investor who believes in your story than from a new investor who is meeting you for the first time. That said, even the most committed investor won’t be able to help you if he doesn’t have the cash. This can be true of angels who bit off more than they can chew, of VCs who have not adequately reserved, or of any investor who simply runs up against his or her own internal guidelines that prevent him or her from committed more capital to a particular investment at a particular time. Try to get a feel for whether or not a potential investor will be able to step up to bridge any funding gaps that might occur. If not, beware.
  6. Hypersensitivity to valuation.  Entrepreneurs who are hypersensitive to valuation sometimes manage to raise capital at great financial terms, but this can pose a huge problem down the line. For example, suppose a start-up raised $2M from a friendly angel at a $18M pre-money valuation in the first round (i.e. the angel holds 10% of the company – a great deal for the entrepreneur). Two years later, they go off to raise their first venture round. The VC, however, needs to take at least 20% of the company (according to his own investment guidelines) and thinks the company needs an investment of $3M. This puts the angel in a difficult position. If the VC puts in $3M at a $12M pre-money, the company will have a $15M post-money. The VC will hold 20%, but the angel has been diluted to 8% of the company which is worth $1.2M, well below the $2M he initially invested. Naturally, the angel might resist an investment at these terms and may no longer be the “friendly” angel he was in the beginning. Reality is, of course, much more complex – but the problem should be clear. When an early valuation is too high, it represents a mispricing of risk – and this can lead to all sorts of mathematical and psychological  complications down the line that can make fundraising difficult.
  7. Insensitivity to valuation. On the other end of the spectrum, I have encountered entrepreneurs that were far too generous in their terms with initial investors, which can also have strange and dangerous effects. When a start-up gives away 40% or even 50% of the company for a very small early investment, the result is a strange capital structure, a very powerful single investor who can single-handedly determine the fate of the company, and not enough equity to go around for subsequent investors and future (or current) employees. A new investor will want to take a reasonable percentage of the company and will need to make sure that enough equity is set aside for future employees. Without getting into the details, this can often be a mess.
  8. Too many investors. VCs prefer clean capital structures that are easy to manage and investors that are easy to deal with. This can be a challenge when a company has 20 different investors made up of friends, family, and angels. Fortunately, this problem is easily solvable with a little attention from a skilled lawyer. Group these small investors into a single entity with a single board representative who has the power to vote for all of their combined shares. A good VC can help you with this.
  9. Complex and non-standard terms. The devil is in the details. Too often, strange and unexpected terms from previous investment rounds pop up in late stages of due diligence. These can involve veto rights, control rights, aggressive liquidation preferences, etc. Be very careful about agreeing to any terms that are non-standard, and make sure you are working with a lawyer who has enough experience with VC rounds to block any such requests from your investors. VC term sheets look the way they do because they have evolved over time. If an investor asks you to agree to non-standard terms, there better be a very very good reason, and his or her desire for a “good deal” is not a good reason. When VCs see weird terms, they often lose interest.
  10. Reputation. This goes without saying. Check the reputation of your potential investors as carefully as possible. Some investors will make it easier or you to raise additional funds, others will make it nearly impossible.

In the end, all of these come down to one principal: avoid misalignment of interests wherever possible. If you are raising money from a VC, it’s because you believe that, with the right amount of capital, your company can grow to achieve a meaningful exit. Not every investor will share that vision, and not every investor will have the tools, the reputation, the capital, or the motivation to help you get there.


The VC 27

Image © 1997-2001, Robert von Goeben and Kathryn Siegler. All rights reserved.
Reproduced without permission. More of Robert and Kathryn’s wonderful cartoons on the VC world can be found here

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Can you hear me now? The operator-centric mobile model is over

Last week, T-Mobile Germany made some waves by banning Skype for the iPhone. Some might read this as a long overdue reassertion of operator power, but I disagree. A few months ago, I learned from a reliable source that a major operator was deliberately not shipping a very popular mobile phone model that they knew their customers wanted because the phone didn’t give them enough control over what the customer does. The phone was too open. This is exactly what Google was talking about back in 2007 when it insisted on openness as a condition to bidding in the FCC’s spectrum auction.

Ten years ago, when I covered mobile operators on Wall Street, they used to cite their vast capital expenditure on building on their cellular networks as their core differentiator. This was the reality behind Verizon’s amusing “can you hear me now?” campaign.


Today, operators have recognized that, for the most part, coverage is not a differentiator. It’s a “must have,” but it’s not really enough to keep a customer from switching providers if the new cool phone is being offered somewhere else. What do you call a business with massive capital expenditures, an entirely commoditized service, high customer support costs, even higher customer acquisition costs, and no customer loyalty? I don’t know, but that’s not a business I want to be in.

Neither do the operators, it seems – and for years they have been doing everything in their power to ensure that Wall Street doesn’t figure out that their business model has run out of juice. The operators have invested untold sums of money in acquiring content, services, and software in an effort to “leverage” their relationship with their customers. The examples are endless. Verizon’s VCast music service. Vodafone’s acquisition of ZYB’s social network. Orange France’s acquisition of Cityvox. The list goes on. There are literally hundreds of start-ups today that share the same essential vision: “I will sell the operators on my ability to help them avoid their fate as a dumb pipe.” I have no doubt that this vision is an appealing one for operators – and I am rarely skeptical or surprised when such start-ups demonstrate “significant interest” or even deployment deals from operators. In some cases, these “value added services” can make money and drive value – but they rarely do. I don’t want VodaFone’s social network, I want Facebook. I don’t want Verizon’s music service, I want Pandora. History is inexorably moving in this direction – towards increased openness and away from the operator-centric models.

T-Mobile’s decision to ban Skype is not a sign of power – it’s a sign of weakness. We are witnessing the last gasp (or one of the last gasps) of a dying model. Like it or not, mobile operators are going to increasingly find themselves relegated to “dumb pipe” status. They fought number portability. They’ve tightly controlled the type and capability of devices sold to their customers. They’ve blocked access to software that users clearly want. I can’t think of any examples of industries surviving by banning law-abiding customers from doing things that they clearly want to do and should be able to do.

The more interesting question is not whether or not this shift will take place – but how fast? A few days ago, a poorly-titled but outstanding talk by David Pogue at TED came across my iPod. David Pogue is a technology columnist at the New York Times with a background in musical theater, which sometimes causes him to break into song. Pogue’s talk was titled “cool new things you can do with your mobile phone,” but it could have been titled something much more interesting because in it, he lays the groundwork for the end of the age of the mobile operator.

Pogue demonstrates four things that should have the operators either running for cover or dusting off their promotional material for “unlimited data plans:”

  1. VOIP on a mobile phone. David demonstrates how easy it is to make a call with a Skype client on a mobile phone. Anyone under 30 knows what Skype is and has no appetite for expensive cell-phone bills just for a basic services such as “voice calling.” The under-30 crowd is the first “post dial tone generation.” They rarely pay an operator for landline dial-tone and have no real need to pay for cellular dial-tone either. What they want (and all they need) is Internet access and an open device. One of the most exciting Israeli start-ups, Fring, is playing exactly to this trend – and has signed up several million users already. The good news is that with mobile platform convergence around 3-4 major platforms, its getting easier and cheaper for software developers such as Skype and Fring to develop and deliver their software to users. The emergence of off-deck “appstores” is only going to accelerate this.
  2. “Mobile” calling over wifi. Wifi is the dark horse that seems to have already upset this race. We all have little tiny wireless base-stations in our homes. Many of them are open. Even my grandmother has one. They don’t belong to any operator’s network, but they provide us with effective wireless coverage in the places we spend most of our time: our homes, offices, and favorite cafes. Do I need the cellular network when I’m driving or walking around? Absolutely. And will I be willing to pay for that? You bet. But does my mobile operator see even a penny of revenue when I’m sitting at a cafe downloading songs onto my iPhone via WiFi? Nope. Recently, operators have been touting the idea of femtocells – small base-stations owned by them that users will install in their homes. It’s a great idea in theory and certainly makes sense in terms of the operators’ own network topology, but it’s hard to believe that expensive, dedicated, and tightly controlled hardware is going to be widely deployed to do something that an entirely homegrown, low-cost, and unmanaged wifi network seems to have already achieved. I’m already covered by free (wifi) wireless access at least 75% of the time. I’m already using it for data – and I think voice will happen sooner than the operators would like. Ironically, the service Pogue demonstrates is offered by T-Mobile.
  3. Wifi to cellular handoff. I don’t know how widespread or realistic this capability is, but Pogue clearly demonstrates it in all its glory. It is truly a game-changer because, once widespread, wifi will gain real credibility as an infrastructure for voice calling.
  4. Unstoppable off-deck services. Throughout his talk, Pogue demonstrates a series of off-deck mobile services that would be pretty difficult for operators to block (at least politically if not technically). These include services that bring voicemail into the Internet age, replace traditional 411 directory services, and place a world of information in the palm of your hand via voice or SMS. Beyond being incredibly useful, these services demonstrate two critical points. First, consumers will increasingly look beyond the operator to provide core voice-calling related services such as director services and voicemail. Secondly, consumers will become increasingly comfortable accessing traditional internet search directly from their mobile phone either by voice, sms, wap, dedicated search apps, or traditional browsing. Just like on the wired internet, search will be the key to breaking the grip of the operator portal. Once we learned how to search the web, we relied on AOL and Yahoo “portal” pages much less. And once we learn to search the Internet from our mobile, we won’t need or want the operators’ portals either.

There is no such thing as the mobile Internet. There is just the Internet. In his talk, Pogue refers to the “completed marriage of the Internet and the mobile.” That is, in fact, exactly what we are witnessing. The mobile device is rapidly evolving into just another window onto the web. Whether we are talking about the iPhone, the rumored CrunchPad, the Kindle, or a netbook, it’s all pretty much the same. What we want is a window to the web that we carry around in our pocket, our briefcase, or our backpack. Voice communication is one type of service that we’ll expect from all of these devices. Browsing is another. What we don’t want is anyone or anything standing between us and the Internet, between us and great third-party applications, or between us and reasonably-priced access fees. If operators don’t proactively unlock their phones, users will (and already are) – and I expect this will start happening faster than the operators would want us to believe.

David Pogue’s talk is below:


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Putting Twitter in context (in over 140 characters)

I woke up this morning to a post on TechCrunch about an impending Google acquisition of Twitter. Jeff Pulver, a Twitter investor, offered his perspective on his blog, and Ouriel Ohayon wrote it up as well.


It’s become very clear that Twitter is a runaway success. There are lots of reasons for this, but I want to concentrate on the two that I think are the most interesting:

  1. Twitter lowered the barriers to UGC effectively to zero. This, in my view, is the underlying reason for the massive adoption. Twitter is not really a medium for consumption. It’s a medium for expression – and its really really easy. What’s more, the fear factor is reduced to almost nothing because even if you say something stupid, it quickly dissolves into the endless stream of tweets and disappears. While its very possible to write brilliant tweets…most tweets are far from brilliant…but who cares? We’re participating. Ever since Geocities made it possible for “regular people” to start expressing themselves on the web, we’ve been witness to a trend towards ever easier platforms and formats for online expression. Twitter is quite possibly the ultimate expression of that trend. I’m all for the success of Twitter, but god help us if Twitter lives and the NY Times dies
  2. Twitter demonstrates the power of centralization. Talk as much as you want about openness and distribution, but Twitter is really about centralization. Yes it’s true – users create the content in a distributed fashion using any number of interfaces – but that content has value only because others know where to go to get it. If the Twitter phenomenon wasn’t highly centralized, it would have no brand value, no value as a real time search engine, and no value as a platform for brands or individuals trying to reach an audience.

So where do we go from here?  Three observations:

  • Almost certainly, someone will eventually acquire Twitter. Its too big and too popular not to have business value. Whether or not that acquirer will overpay is something that we might never know. After all, it took years for eBay to admit there were no real synergies with Skype. Does Twitter have synergies with GOOG/MSFT/YHOO? Yes, of course. But that doesn’t mean that the acquisition price is going to be right. Twitter should trade their well-earned but (largely) revenue-less hype for cold hard cash and/or stock in a profitable company as soon as they can.
  • Look at the other end of the spectrum – look for the opposite of Twitter. Since UGC can’t really get any easier to produce than tweeting on Twitter, my suspicion is that innovation will now have to take us in the other direction: lowering the technological barriers to creating high-quality and unique content online. Wix, an Israeli start-up run by a very talented team, is an interesting step in this direction. Wix allows “regular people” to create complex interactive flash objects for the web. Wix is an example of an emerging sophisticated authoring environment for web content. Animoto and Slide are other examples of this. You could argue that MS Live Writer (which I’m using right now) is another – for blog posts, it’s better than MS Word. I think we’ll see more innovation in this direction. Together, these tools may evolve into a sort of “MS Office” for the online, interactive world.
  • VCs should focus on the paradigm not the derivatives. As a venture investor, its very hard to get excited about derivative products and services that depend on Twitter (or Youtube or Facebook or LinkedIn or Outlook) for their market and their success. VCs should be looking for start-ups that define a new medium of expression or an entirely new consumer experience. Those internet exits that are not driven by revenue are usually driven by this. They succeeded in defining an entirely new experience AND they managed to establish market dominance. This, however, is a very high bar. First, lots of web services seem innovative at first glance but are not a paradigm shift. Anything short of a paradigm shift is, unfortunately, a feature evolution. Second, its not enough to be a paradigm shift, you must be able to establish dominance in the new paradigm. That’s not easy (just ask any of the 100 social networks no one ever talks about). Finally, getting a VC to be willing to take a risk on something entirely new is no easy task. But if you’ve got something that fits in that category, let’s talk.

If you still have doubts that Twitter is a phenomenon to be reckoned with, this Daily Show clip should help…

The Daily Show With Jon Stewart M – Th 11p / 10c
Twitter Frenzy
Daily Show Full Episodes Economic Crisis Political Humor
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TimeBridge rises again

A friend of mine sent me this blog post by Rafe Needleman about TimeBridge, an Israeli start-up backed by Mayfield and Norwest Venture Partners.

TB Logo

TimeBridge offers a solution for meeting scheduling that integrates nicely with Outlook and Google Calendar. It allows users to share calendar information with each other and easily schedule meetings. I’ve downloaded, installed, and uninstalled the service at least twice as I waited for them to iron out the kinks, improve the UI, and reduce the CPU burden. Prompted by Rafe’s post, I downloaded it again, and sent out an invite for meeting. So far, great UI and no performance issues. If TimeBridge can really help me with the nightmare of meeting scheduling, it will probably be a keeper.

But this post isn’t really about TimeBridge. It’s about the business model issues facing companies like TimeBridge.

At first glance, the TimeBridge business model might seem problematic for a few reasons:

  1. Their core offering is free and its nearly impossible to charge for it.
  2. They require users to download a client for Outlook integration – a high bar to pass
  3. There are very limited advertising opportunities here (no one wants banners in their Outlook…)
  4. TimeBridge is to some extent dependent on Outlook and Google and other large calendar players

In his post, however, Rafe explains that TimeBridge may have found a business model that circumvents these challenges. The company does, indeed, require a download for Outlook integration and its probably never going to be able to show lots of ads or charge for premium services. As such, even Fred Wilson’s now-famous Fremium business model may be out of reach. But TimeBridge, to the credit of CEO Yori Nelken, has figured out that if it can integrate itself into a key business activity (meeting scheduling) with enough users (knowledge workers like you and me), it can be in a position to helpfully offer some premium services provided by other players (in this case, meeting services such as conference calling, screen sharing, shared space, and more). As Rafe points out, these are not TimeBridge’s services, but services offered by others. In Internet terminology, TimeBridge has turned itself into a kind of affiliate marketing platform for meeting services. As long as their acquisition cost is low enough, its a model that makes lots of sense. Whether or not it’s a model that will be large enough to drive meaningful VC returns is another story…but time will tell.

The TimeBridge story cuts to the heart of Internet business models and reminds us of a key truism, that VCs and others too often forget. If you can keep your acquisition costs truly low (in this case through some nice viral effects), and if you can create a sticky user experience where they keep coming back (in this case to schedule meetings), it doesn’t really matter if you can charge for your service or not – as long as you can find a way to convert that persistent engagement into revenue by driving some small percentage of your users to do something that is valuable to someone else. TimeBridge might look like “enterprise 2.0” or productivity software, but that is just a clever disguise. TimeBridge is a media company.


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Ad:Tech and the allegory of CommissionVideos

Back in November, I attended Ad:Tech New York, one of the key online advertising conferences. Back then, I wasn’t blogging, and now it’s too late for a detailed review of the conference to be meaningful. But I do want to share one insight because I often think about it when I’m meeting companies. I call it the allegory of CommissionVideos.

As I walked the floor, I met a company called CommissionVideos, and I had a very interesting conversation with one of their executives. CommissionVideos provides a very straight-forward service. In their own words, they allow website owners or bloggers to “monetize your site with our high quality videos,” promising CPMs of up to $7. The companies logo and branding says it all. This is a service for maximizing revenue pure and simple. I don’t know if its profitable or not, but CommissionVideos is one of the potential money machines of the web. They are not in the business of providing great services or content to users. They are in the business of driving CPMs – connecting publishers with ad dollars.



But they didn’t start there. They started somewhere else entirely. As our conversation progressed, I learned that CommissionVideos actually began as Voxant NewsRoom, a business which still operates today. Both companies, in fact, are one and the same – although you’ll find almost no evidence of this on their respective websites. Voxant’s offering, the Voxant Newsroom, offers website publishers and blog owners the ability to enrich their sites with top-notch video content. Voxant boasts an impressive customer list including, Newsmax, the Huffington Post, and others. Voxant provides a high-quality video widget that allows its customers to display selected videos from a range of high-end content partners such as AP, Reuters, AFP, CBS, MTV News, the BBC, and many more. It’s a high-quality service aimed at the high end of the market. The marketing message: we’ll help you make your site more compelling, more engaging, and more sticky by bringing you high quality video content.


The difference in branding is striking – all the more so when you know that this is the same company.

So what’s the moral of the story? When I asked the company how they manage to offer such totally different services, they gave me a very simple answer. Voxant Newsroom is a great service they said, but the market is relatively small. There is a small handful of high-end web publishers, they said, that care deeply about the user experience and is interested in the advanced features and high-quality of the Voxant Newsroom. Voxant has to go and knock on the door of the Huffington Post and Breitbart and sign deals one by one.  It’s a small business, and it hardly pays the bills. Customers want special features, they care about look and feel, and their users don’t necessarily click a whole lot.

The vast majority of their customers, they said, were on the other end of the spectrum. Revenue-oriented websites that will do anything to maximize revenues (CPMs). They will deploy whatever advertising units they need to in order to maximize revenue. Yesterday, it might have been DoubleClick or Commission Junction. Today it might be CommissionVideos or Kontera, an Israeli company. Tomorrow it might be something else. These publishers are in the business of acquiring traffic and converting it to revenues – content and quality be damned. They are the lifeblood of the internet. Small sites you and I have never heard of – but lots of traffic in the aggregate.  I asked them if they have experimented with semantically targeting videos based on the context of a web page. Yes and no, they said. They tried it, but they realized it doesn’t matter. They know which videos get the highest CPMs, and in most cases – the context of the website doesn’t even matter.

Voxant started in the business of improving user experience – and they ended up in the business of maximizing advertising. This is the difference between the Internet of the Web 2.0 Expo and the Internet of Ad:Tech. The first Internet is the one I love. It’s the Internet of compelling user experiences and brilliant entrepreneurs focused on improving our digital lives through innovative applications. The second Internet is the one that that actually brings home the bacon. Its the Internet where eyeballs are converted into money. It’s the Internet of Google AdSense, Commission Junction, TradeDoubler, and countless others. Voxant didn’t plan on rebranding itself as CommissionVideos, but they did so as soon as they understood where their real market opportunity was. Israeli companies such as 5min and Qoof have totally understood this reality and are acting accordingly.

The moral of the story for VCs and entrepreneurs is this: Even if you start life as Voxant Newsroom, you might end up as CommissionVideos. Why? Because that’s where the money is.

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On Hulu vs. Boxee

Today, Hulu reminded us who’s the boss. The Wall Street Journal reported this morning that Hulu had pulled its content from and Boxee, which is a venture-backed Israeli company. Hulu CEO Jason Kilar explained the decision on the corporate blog arguing that content providers requested the move. He wrote, honestly I’m sure, that “the maddening part of writing this blog entry is that we realize that there is no immediate win here for users” and that Boxee users are “likely to tell us that we’re nuts.”

Boxee wrote an impassioned defense of its business model on their blog. Fred Wilson, one of Boxee’s investors, wrote about the issue on his blog as well. More significantly, ZDNet weighed in on the issue, calling the decision Hulu’s fantastic suicide. “The old guard media companies” wrote Jason O’Grady, “just don’t get it.” On Twitter, the buzz is overwhelmingly pro-Boxee, which is not surprising given the excellence of Boxee’s offering and the general tendency of users to prefer openness.

hulu_logo_2            TV Guide                  boxee_logo_122308

So let me make two points: First on Boxee and then on the Hulu decision.

  • Boxee. Boxee remains, to my mind, one of the more interesting companies to come out of Israel recently. The concept of a browser optimized for the ten-foot lean-back (TV) experience is a good one, a necessary one, and a profound one. Boxee delivers to it’s users something they can not get anywhere else – a great user experience on an open platform with a UI that can be managed from a remote. Boxee is the Firefox of the video web. Boxee democratizes and frees the internet-TV experience. It enables internet video content to be effectively consumed on lean-back devices, it allows PCs to be transformed into TVs, and it allows an ecosystem of applications and widgets to be built for the lean-back video experience. Boxee should be tremendously interesting to players like Microsoft and Apple (who’s “soft TV” efforts have not gained meaningful traction), for content players like YouTube and Hulu who want to reach beyond the PC, and for equipment makers like Panasonic, Hitachi, and Sharp who are busy making their TVs “internet enabled” but have not yet given the consumer a reason to care. I have tremendous confidence that Boxee’s team will be able to steer the company towards a business strategy that will enable them to capture some of the value that Boxee’s model unlocks. Hulu’s move is bad for Boxee. But more than anything, it shows that Boxee is on to something important.
  • Hulu. And now for Hulu’s decision: Hulu is not nuts. As much as we denizens of the web correctly proclaim the benefits and inevitability of openness on the web – we can not and must not ignore market reality. The studios (content owners) have invested tremendous amounts of money and intellectual capital into producing content that we very much want to watch. They own that content. There is no principal (economic, moral, or otherwise) that suggests that they should allow anyone to freely consume that content just because our TV screens and laptops are attached to an IP network. They have every right to demand that the viewer pay, and they have every right to seek to control the flow of advertising dollars that is attached to that content. More importantly, if Hulu believes that its ownership of desirable content can be translated into a direct (and valuable) relationship with users – it has every reason to try to control access on its own. Right now, Boxee needs Hulu more than Hulu needs Boxee. The tech-savvy among us can protest by going back to BitTorrent, but most likely we’ll just go back to for now. it’s easier, and the interface is better.

So what happened to openness? Openness is not an objective in and of itself. To be sustainable, openness needs to create value for users that can be captured and shared with the content owners. I believe that will ultimately be the case here. The key is specialization. NBC Universal is specialized in content creation. Boxee is specialized in user aggregation through a superior browser-based user experience. Hulu sits in the middle and needs to decide if its going to focus on content aggregation and advertising, or if it’s going to reach out and try to own the user relationship as well. In the end, players like Boxee and Apple are probably going to emerge as winners in the user game – and are going to be in a better position to cut deals with the Hulus of the world. But for now, Hulu is facing a huge opportunity to own the user, and quite rationally, it seems like they’ve decided to give it a shot.

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McKinsey’s carbon abatement map

The following graph is an old one and an often quoted one, but since it’s come up again yesterday at the Eilat Renewable Energy Conference, I think its worth posting.

The vertical axis shows the potential total cost of a given technology. Technologies below the line are ones that save money. Technologies above the line cost money. The horizontal axis shows the potential total amount of carbon (CO2) saved in gigatons. The result is a map of how the world can actually reduce CO2 emissions and how much it will really cost.

Say what you will about McKinsey, sometimes they really hit it out of the park. This is one of the most effective and impactful charts I’ve seen in a while.