the vc in me....

The Not-for-Profits Strike Back

I believe Not for profits (non-profits) are disrupting for-profits on the internet.  These organizations - often started by a community-oriented founder - create a simple application or database, grow their user base thru word of mouth and community  and eventually use the community to crush all the for-profits trying to provide a similar product.   Large companies try to compete but the power of the community is too powerful vs a monolithic "borg-like" competitor with a top down, control-driven approach to content/software creation.  

Examples of success include:

Craigslist - classifieds

Wikipedia - encyclopedia/biographies

Firefox - internet browsers

Openstreetmap - world maps

Linux

Various Distributed Computing projects

What's most interesting is how the not for profit structure innocently makes it VERY hard to compete with them.  They usually start out with very low overhead as its a labor of love from a founder that is cash strapped.   

They have such a low cost infrastructure (most of these orgs have less than 40 employees at scale and many volunteers) and the marginal cost of delivery of their service is so low, that they can offer much of it for free or very low cost without worry of profit maximization.  This brings in more users, which strengthens the content or application, which then provides even more value - a virtuous cycle hard to break (the "network effect") - even when the resources of large companies are turned on these areas.  

Its also interesting that most of these organizations eventually turn into for-profits or start a for-profit arm.  This hasn't changed the dynamic for the companies as most (like Mozilla) reinvest the profits back into the product/community (e.g. Mozilla likely earned $150M in 2008 revenue and $100M in pre tax profits that they put back into the foundation).   Craigslist is expected to achieve $100M in revenue in 2009 and although its for profit, remains very lean and mean.

I expect this community-driven, not-for-profit approach to start overtaking other verticals on the internet - it will be a fascinating trend to watch.

 

Professional Marketplaces - Web Based Platforms to Help You Make Money

The current economic crisis and looming recession is going to unfortunately result in a lot of unemployment.  It's estimated that the US already shed 1.2M jobs so far this year -- and the worse may yet come in 2009....

The silver lining in all this for the smart, skilled yet unemployed folks are that it allows a new beginning in their life.  Perhaps they want to change jobs from the mundane corporate life to the teaching profession.  Or maybe they simply want to take their skill/craft and work for themselves - the only boss they know that can't lay them off ; )

Now more than ever, the web facilitates the lone entrepreneur or professional to make money on their own.  The tools exist to market themselves online, take orders, and even deliver services alone or collaboratively like education, coding, design, etc - all online thru platforms.  This brings efficiency (e.g. lower costs), disintermediation of brands (e.g. individual tutors build their brands vs brands like Sylvan or Kaplan), and leverage/scalability to all participants.  

The earliest web based platform to help you make money may have been ebay - helping the masses sell their beanie babies for profit.  Now there are platforms for the service economy in education, software development, translation services, broadcasting, writing, etc.  In this new world, web companies do all the "grunt" work for the professional and allow them to focus on what they are good at.  They go beyond online marketing and order taking into business process outsourcing and sharing best practices among the community.  Some call them "professional marketplaces"...

Examples include:

- Mechanical Turk - this cool marketplace from our friends at Amazon enable anyone to do human tasks and make some cash.  Several of my startups are using this for simple yet fundamentally human tasks such as image classification, reviewing content, etc.

- Etsy - online bazaar for individuals that create handcrafted goods.  This is as much about community as it is about shopping for hard to find goods.  The community shares tips with each other on how to market themselves best online.  Etsy organizes it all in one place and provides all the tools.

- Fixya (note: I'm an investor) - the Q&A marketplace for tech support for any consumer product.  If you can't wait, you can get live support for a fee which we share with the experts. About half of our experts do it for the money vs just the glory.

- Edufire. Wiziq - marketplaces out of the US and India connecting tutors anywhere in the world to students - focused initially on test prep and language instruction.  Not only do they help you connect with students but they also provide the tools for delivering online lessons - a full interactive chat with blackboard and even video.

- Cafepress, Minted, Threadless - online storefronts and communities for designers to sell their wares - in t-shirt, printed form, or any object you can put a design or photo on (reminds me of my snapfish days!)

- elance, odesk - connecting programmers, designers, and other professionals with jobs online.  I've heard many stories of entrepreneurs finding great worker bees on these services.

- ustream, mogulus, qik - It doesn't all have to be about learning and coding.  These platforms enable consumers to have fun and become video hosts or programmers to broadcast live video and generate a following (and hopefully advertising revenue!)

- reverbnation - sites like this help you manage the un-business of playing music in a band.  

- about.com, mahalo - these seem like great reference sites on the outside but they are really a super-powered community of writers that are doing it for a living - and thriving!

I think this an increasingly important area as more people out of necessity fall into the land of "SMB" and are looking for a quick way to get started.  The web is not just about marketing or entertainment - its now about earning a living...

Let me know if you came across any great startups in this sector.

Lights, Camera Action - its the LIVE Web!

I've noticed an explosion of services around what is called the "live web".  This is about synchronous communication (e.g. chat vs email which is asynchronous) and live events.    This is happening more now because the web is more social, input devices are more common (webcams, microphones), communicating via IP is cheaper than using old telecom networks, broadband enables a better user experience with less latency, and the growing demand for the long tail of content.  Aside from these drivers, I think a key desire being fulfilled is the social nature of viewing a live event together.  This is why chat is integrated into many of these apps (MMOs, live video broadcasts) and has high usage.  It's not just the viewing of the event but the excitement of seeing it unfold live with other people - that can't be replaced by a PVR or on demand web video. 

This has been tried in the past but web-focused solutions seem to have caused a swell in usage - with low friction and an easy UI (e.g. meebo, tokbox).  Several companies are breaking new ground in this area:

- Meebo, Userplane, FB Chat - enabling live text communication (e.g. chat) embedded in websites

- Skype, Jaxtr, Rebtel, Jajah - enabling live voice communications on the web or via phone - cost is a big driver here.

-Ustream, Mogulus, Justin.tv - enabling live video broadcasting - whether you are a guy in a closet or a big broadcaster trying to reach a new internet audience.  This is enabling everyone to have their own broadcast channel - allowing the long tail to broadcast as spectrum is no longer a constraint.

- Tokbox, Woome - live video communications ranging from plain old video conferencing to video introductions (Woome's video speed dating)

- MMOGslike World of Warcraft, 2Moons (acclaim), etc - live massively multiplayer gameplay

Each of these areas has its own challenges. For example, while phone calls and chatting are relatively ubiquitous (which is why those services can have broad reach), how broad based will video broadcasting and video communication become?  Not everyone wants to be seen or see the other person when communicating...another challenge is monetization vs the cost of delivery - without fancy technologies like multicasting (which never took off), live requires lots of bandwidth and is harder to use cost saving measures like p2p distribution.

That said, this is a fertile area for investment - send me your ideas!

It's All About the Database...

The web is evolving fast from a simple web page/website destination model to one of distributed data (which is synonymous with content) and applications that appear wherever the user needs them the most - whether its on a social networking profile page or a merchant page where you are about to transact.

This may seem like a simple shift but the effects on the ecosystem are profound and new winners will be created.  A web publisher can no longer think in the paradigm of a website only and driving traffic to a destination.  Sure, you have to have a destination - but in many cases its becoming a showcase site vs where the real action is.  The extreme examples are widget businesses - and Mayfield has made several bets here from Gigya (providing widget distribution infrastructure to anyone with content or apps) to Slide (vertically integrated network of widgets - now the largest in the world).  Both have significant momentum (billions of impressions per month) which would not have been achieved in the old paradigm. 

Why is this happening?  Very simply, because the user is pulling the web in this direction.  More deeply, because publishers want to take advantage of traffic and context on other sites and present relevant info when the user needs or wants it most - and both sides of the equation - publisher and data/app provider - are playing nicely.    A website is really nothing more than data and applications on a page so it makes sense that a publisher puts some structure around these items, makes them discrete, and "atomizes"/redistributes it everywhere.   Web services, APIs, and to some extent the standards set forth as part of the "semantic web" effort are making this possible - along wth an important general shift to openness in all businesses.  The destination owners (like facebook) are realizing they can't satisfy all their users needs but have great context (in their case a powerful social graph of people you care about) for others to use.   

What does this mean for investing?   Well, there are a lot of new infrastructure needs (like Gigya) but there are also new opportunities for disruptive content providers.   A content provider needs to think of themselves as a database provider now more than a text or media publisher.  I think there will be big companies created that own the most important databases in verticals - the new wave of publishers embracing concepts like crowdsourcing and UGC.  One example is an investment I made called Fixya - where users provide tech support and tips for consumer products to other users.  It's now the largest user generated tech support site in the world - with over 7M unique visitors and growing like a weed(thanks to Google SEO'ing all the solutions - kinda like wikipedia). 

What makes the Fixya database so valuable?  It can scale infinitely as more products are launched, old ones remain on our shelves, and users generate the content.  The data is categorized (by product SKU and category) and can be cut up in many different ways providing deep knowledge where the consumer needs it.  It is self policing (like wikipedia) as the expert community is rated and the best content rises to the top (like youtube).   Since it's treated like a database, this info can be presented to users where its most relevant - at a manufacturer site, in a shopping search engine, discussion forums or a merchant page.

I think every publisher of content or applications needs to change their mindset and think like a database provider  - it's no longer optional.  I'm looking for other "fixya"'s out there in large consumer and b2b categories - let me know if you have one!

Generational Disruption in Media

Venture capitalists and entrepreneurs believe the greatest opportunities are those disruptive to the current state of the art/market. This disruption typically happens with a major technological change (e.g. the PC, the internet, the mobile phone, broadband) and sometimes by the rise of a new geographical market (e.g. new startups in China that take advantage of innovation started in other countries). 

There is another type of disruption i've noticed that happens in the consumer space and its "generational".  The services that appealed to one generation (e.g. those of us in our 30s like Yahoo, hotmail, etc) tend not to appeal to a new generation (e.g. those in the 20s or teens like MySpace, AIM, etc). A generation shift used to be separated 30-40 years but now it occurs much faster.  The rate of change from one age group to the next is so fierce that even a difference of 5 years could mean a whol new pattern of consumption.

This "generational disruption" creates new opportunities at a faster pace than waiting for the next big technological wave - especially in internet media.  An example of a disruptive shift that has occured is in my old hunting grounds - online photos.

Consumers in their 30s were early adopters of online photo services because provided a secure and private area to share photos with friends and family which appealed to this generation and their lifestyle (family oriented, concerned about privacy, etc).  They didn't really care about "user generated content" and were limited in their "self expression".  They valued prints and gifts and businesses like Snapfish and Shutterfly were built to satisfy their needs.  Our assumption was that this would be our core demographic of users but we would also appeal to younger users as well since they were adopting digital photography and had the same basic need to share photos.  We would provide features that appeal to both of these groups of users.

Over time, we found it's really hard to build your service to appeal to two different age groups - especially when there is a generational shift in usage.  Younger users wanted open and public areas to host their photos and they wanted the world to see them and comment on them.  They care little about prints and more about showing the world what they are up to and how important they are.  One is a commerce model and the other a media model.  We frankly couldn't create a service to cater to both groups.

Thus, the rise of Photobucket and social networking photo sites such as Facebook, Tagged, and Myspace Photos.  These sites are media models which thrive on reach and page views.  Snapfish and others are commerce models where page views aren't a core metric.  These sites have all done well against their metrics and although its not clear if a billion dollar media business will come out of online photos, there is definitely demand - manifested quite differently depending on the generation.

Other examples of generational disruption include:

Classmates --> Facebook

Yahoo --> Myspace

Hotmail --> AIM --> Twitter (?)

World of Warcraft --> Club Pengun 

There's bound to be more interesting, "generationally disruptive" opportunities in the future happening faster than ever before - and i'll keep my eyes open - this time as a VC vs entrepreneur ; )

How Will Brand Ads Reach the "Long Tail"?

Online advertising is  continuing to take off with over $25B in global revenue this year and no signs of slowing down.  This has been dominated by performance based ads but brand advertisers have taken notice and are migrating to the web - especially given the increasing shift of audiences from traditional media to the net.   

The challenge for brand advertisers is to find audiences they want to reach (at scale) done in the most effective and emotional way (e.g. rich media) and in the right context (e.g. not next to content they would find offensive or unknown - like most user-generated content or certain news stories).   Until now, they've flocked to premium inventory at the major networks (Yahoo, MSN, AOL) and vertical sites with scale (e.g. ESPN, iVillage) but these networks and sites are selling out the quality rich media inventory in the right context (they have plenty of tonnage in areas that brand advertisers don't care about).    There's a supply-demand mismatch and I think there's an opportunity for the long tail to take advantage of it.

The issue for the long tail is that each site alone is too small and is not "validated" by the advertiser or someone they trust.  The solution actually lies in the "head"...  These sites or media publishers (large branded anchor sites or traditional publishers) can create a large branded network by affiliating with many sites in the long tail.  The anchor typically has a strong brand (e.g. Washington Post or an upstart like Glam) and handpicks long tail sites that meet their quality standard to include in the network.  They then use their trust and relationships with brand advertisers to sell ads across the network - perhaps at a discount to their anchor site.  This is a perfect setup for publishers who have deep brand advertiser relationships but not enough quality inventory (such as traditional magazines who don't have a ton of users on the web).  The long tail may have great content (e.g. high quality blogs or hobby sites) but doesn't have the scale or expertise or relationships to get the ad dollars and can get more revenue per pixel vs performance ad networks.  It's a win win all around.

i'm interested in investment opportunities in this new ecosystem - whether its a new upstart network by a publisher/entrepreneur or a platform to make all this happen (like Adify).  It's inevitable that more dollars will move online (6% of ad spend is online but time spent online by consumers ranges from 15%-35% depending on the demographic) and this seems like the right way for brand dollars to find their audiences.

Simple Solution for What To Buy

Consumers are spending an enormous amount of time researching and buying products on the internet.  According to Pew internet, it's the 5th most popular activity with 550M people participating each month.  The innovation thus far has been focused on "where to buy" products - spawning financially successful price comparison shopping engines like shopping.com.  However, I haven't found a good solution to help the mass market choose "what to buy".  New shopping search engines like become.com or retrevo provide lists of reviews for products but that's still too much work for the mass market.  User generated reviews and comments on products are taking off but the information is very fragmented and often times hard to trust.   

I believe the mass market consumer is looking for a very simple solution - just tell me the best product to buy in a category or subcategory (e.g. SLR digital camera) by distilling all the "collective wisdom" on the web into a simple rank.  The economic implications of this solution are enormous as it would be the first stop for consumers researching any product - whether they buy online or offline.

After much searching, I found the best solution so far at www.wize.com.  They have  a slick, simple service providing users with the singular answer on the best product to buy - no need to wade thru technical specs, features, or dozens of review sites.   They have created a compelling concept of Product Rank which I think will be akin to the power of Page Rank (ranking products instead of web pages using the collective wisdom of the web).   Capturing and distilling the vast expert and user-generated opinions and buzz on products is the next big innovation - I look forward to watching Wize capitalize on this opportunity.

Super-Targeted User Profiles

Thanks to the internet, a wealth of data on individuals that used to be under lock and key in various paper and proprietary databases is swarming around the ether (protected and unprotected).  Consider the following consumer information that is lurking on the net:
- deep user profile information on social networks (ranging from accurate info on linkedin to more questionable data on myspace) along with the strength of our social networks (e.g. size and quality of people links in our network)
- detailed household transaction/purchase data stored in online billpay (I've heard over 65% of online users engage in billpay now)
- credit and health scores for individuals
- behavioral data on what sites and content we view from companies like Revenue Science 
- data on our intent from search engine logs
- all sorts of demographic data from site registrations
- up to date contact information from sources such as jigsaw and plaxo
- location data based on our appointments stored on web calendars
- and of course all the purchase data from e-commerce sites

There's probably a lot more sources of data but you get the point.   This is good and bad depending on who will use the data for what.  Although some companies that facilitate the above data would like to think they own it, the consumer is really in control (and maybe the companies have some rights to it).  Rather than focus on new businesses to suppress others from obtaining such info, I'm more excited about opportunities to empower the consumer to get more out of life with this information - in an effortless and secure manner. 

There's an  opportunity to ask permission of the user to aggregage this information and deliver a super-targeted profile to those willing to reach me - without revealing who I am (via a trusted third party).  These thoughts aren't new as you can see related thinking at attentiontrust.org but I think we are just at the tip of the iceberg.

Mayfield EIR Tom Patterson and I are exploring this space and welcome your ideas.

Personalized Storytelling: Monetizing User-Generated Content

As I expressed in a previous post, users are generating content more than ever - even teens are blogging (I believe the latest stat shows over 30% maintain blogs) - and of course all ages are posting photos and increasingly video and audio (e.g. podcasts).

There's no shortage of creation, hosting, management, and discovery tools/services for user-generated content but what's missing is the ability to monetize all this content and provide a meaningful end product for consumers that doesn't just sit in the digital ether.  It will be tough for advertising to work on a large scale for user-generated content as the advertiser doesn't know what content they are associated with - it will take time for advertisers or publishers to solve/get more comfortable with this content type.  This leaves a transaction model wide open - which I know well from my Snapfish days...

I noticed at Snapfish that our digital photo album books were a very hot seller as consumers  created an end product they know well - photo albums - but done in a  professional book-like manner and in minutes vs hours or days.

I'm thinking there is a twist on this model combining user-generated assets along with professional ("stock") content into tangible physical products (such as books and DVDs) that are personal yet very professional - and would command high margins given their high emotional value.  The disruptive changes in digital offset printing (you can now create a personalized professionally bound book for dollars vs a set up cost of $10k for each run) and cheap DVD burning make this very doable. 

The idea is to create personalized storybooks from user generated content (blog entries, photos, video, podcasts) that combine licensed content (I dare use the word "mash up") and sell the physical products to friends and family who care deeply about it.   The digital version of these "stories" would be offered free and help market the service virally.  The subjects of such books and DVDs should be important life events (reunions, tributes, births, weddings, eulogies, childrens books, etc) that some group of people would be willing to pay to memorialize in DVD or book form.  The digital story should be very easy to create with templates that blend professional content - the design rule should be "create a story in 5 minutes or less" - appealing to the masses.   I know there are several companies that have tried variations of this idea in the past and several in the space now - so far I haven't seen anything I've fallen for - but i'm still looking.

If you've got a similar idea or want to jump on this one with a great team, drop me a line...

Cool Vlogging Tool

Digital Video capture devices are certainly proliferating worldwide - mostly via digicams and mobile devices (such as my handy Treo 650).  Although the quality of most videos (and the skills of the videographer) are not up to par yet, I can see this wave begin to form on the horizon.

Some early startups made a go at video tools and hosting - but many didn't survive as the hosting model is hard to monetize by the "average joe" and there was a lack of devices, awareness, and broadband connectivity to consume the content. 

The world has changed and there are a bunch of websites to allow easy transfer up to the web - whether its for citizen journalism or sheer vanity (like in my case).   How about incorporating this into blogging?

Here's a cool little tool by a startup called Videoegg that integrates with typepad to allow "vlogging" (video blogging). 

I don't think we will see the same proliferation of user-generated videos as much as photos or text because it's a bit harder to create video (not just technically but also hard to create compelling content - I felt awkward taking a video of myself vs a photo as I had to figure out what to do in the video to kill time!) and also get it up on the web.  Nevertheless, VideoEgg is the best tool i've seen to make it really easy for the consumer - regardless of device or video format. 

We have a long way to go before everyone is a pro videographer (as you can see by the example below) - but keep your eye on this exciting user-generated content trend...