Genuine VC

Has the tide turned for YouTube/Google? (ComScore says so but doesn’t scream it) The next phase of online video

Mon, 14 Jul 2008 15:32:10 -0500

Over the past year, I’ve kept my eye on ComScore’s monthly press releases of the Video Metrix service which outlines the market share of online videos. It’s been amazing to see Google (98% of its video traffic comprised of YouTube) steadily increase its market share for six months straight (see chart below where I aggregated the info from a few months of ComScore press releases). It seemed as though this juggernaut was defying a strong current internet trend – the deportalization of content. Whereas “traditional” traffic has been continually flying towards the ethers of the long-tail of sites, video content has been doing the opposite in consolidating around this one big player. And unlike the other recent emergent category of sites – social networks – the network effects of friending should be in theory weaker in this realm. It appears as though YouTube has been enjoying the a position reminisce of the early days of the internet in which consumers just first go to their choice portal destination looking for general entertainment/information, rather than a specific piece of content, and never leave. People think “online video” and head directly to YouTube. Period.

However, over the past two months, it appears as though the trend has shifted. According to ComScore, YouTube’s market share of total videos viewed has decreased notably. I am surprised that yesterday’s ComScore press release didn’t make mention of it. Maybe they’re treading more cautious after the debacle earlier this year about predicting slowed growth in Google’s paid clicks. Part of decrease in video market share explanation can be attributed to a stronger FIM/MySpace presence, but not entirely. Also Hulu.com, a joint venture of NBC and Fox featuring full-length broadcast TV programs, officially debuted in May with .7% share. But whatever the specifics explanation attributed this current month, I wonder if this will mark the beginning of the next phase of online video where the emergence of a broader spectrum of video sites begin to take meaningful share. Even if the data is only directionally correct, there’s a kernel of truth somewhere within.

I am not suggesting that the me-too UCG sites which YouTube has clearly already beaten will make a surprising comeback. It seems that battle is over… but will they win the war? Last week’s report by the Diffisuion Group, which suggested that while UCG accounts for 42% of streams but only 4% of revenue both now and for years to come, put a damper on how big a prize YouTube has triumphed in that space. Last Wednesday’s Wall Street Journal article about YouTube’s revenues further highlighted the challenges on the monetization side.

Meanwhile, I believe we’re entering a second phase of the online video space in which the discovery mechanisms for (semi-)professional content, coupled with the increase of professional content available online in a distributed fashion, will facilitate a willingness of users to venture beyond YouTube to consume video across the net. But it won’t happen overnight. Especially when I hear that the dirty little secret from many independent video producers which maintain their own destination sites is that an overwhelming number of their views come via YouTube and not on their own distribution. While Google’s universal search in theory should facilitate this transition, given that in this case Google owns the both content (YouTube) and the discovery mechanisms (Google search), their incentive to push the latter is in conflict with their other own interest. Herein lies the problem – how do you find good video without going to YouTube?

This open question has inhibited the shift in video consumption past its original portal through to the distributed net – where the rest of web content consumption occurs. Perhaps the results of the past two ComScore surveys have signaled a change in consumers habits in which they’re finding video content wherever they just happen to be surfing anyway. The best (or at least a better) discovery mechanism will come in time, perhaps via a startup which eclipses Google while it’s conflicted… but regardless, eventually measuring “video sites traffic” will be redundant given that video will proliferate to all corners of the web on a predominant number of pages. There’s a good chance we’ll look back at this summer then and point to it as when it all really began to happen. Last week’s announcement of VideoEgg's new set of experimental video formats reminds us that we are still in the early days of this space, despite the fact that so much has happened thus far.

The Swinging Pendulum Between Distribution and Monetization

Wed, 30 Apr 2008 16:31:12 -0500

After the crash at the end of the last decade, web startups clamped down to focus on their core value proposition and were forced out of necessity for survival to hone their revenue models. However, for the past couple years, the metrics of “success” with early-stage digital media startups (especially consumer-facing ones) have clearly focused on distribution, as opposed to monetization. The stories of tremendous growth in adoption with the promise of revenue later on has been enough to excite both entrepreneurs alike. Yet, with the current economic climate driven by the looming recession, it’s been interesting to see the pendulum swing the other way in the past couple months.

If the notion has reached the popular business press, then it’s indeed a pervasive story. A few weeks ago Businessweek’s article Widget’s Worth talked about “cracking the monetization code,” wondering how social widget applications are going to make money.

The old playbook six years ago was that the web distribution could be bought for a price with Google Adwords. Now the new plan for distribution is facilitation through low-cost viral strategies via Facebook and other social media. In fact, Facebook literally published a playbook just over a week ago on marketing virally through their platform. I am not arguing that distribution has been commoditized, but it does point to the fact that the bar has certainly been raised for what meaningful traffic/distribution means without a business model behind it. Not all traffic is created equal, and that is certainly more the case than it was five years ago before the mass proliferation of social media pages (and a new floor for pricing of remnant inventory).

But it goes beyond just widgets and social networks. Of course, with the numerous notable acquisitions in the advertising network space has resulted in a proliferation of companies looking to help publishers monetize their content through new technologies and packagings. And even beyond the media front, there’s a renewed sense of optimism that the Enterprise2.0 could be the next big thing, especially given that there’s real potential customers willing to pay real dollars in that domain.

Of course, with any trend, there are notable exceptions. And there should be – the true high flyers command tremendous network effects which create value well beyond an immediate revenue base. But for the typical web startup, thinking about a business from the mindset not of “how do we get big fast?” to “how do we get big fast and monetize it?” is a progression in thinking.

I found it notable that just in the past week, I’ve seen a handful startups of startups seeking Series A financing – all with significant traction on the adoption front - with pitch decks touting phrases like “projects profitability”, “roadmap to profitability… [with] high margins [to] enable positive cash flow”, and “path to profitability.” Those terms were largely out of place in most plans a year ago.

Theoretically-speaking, entrepreneurs raise capital (whether it venture or otherwise) to accelerate growth ahead of cash flows because of the opportunity-cost of time involved in self-financing organically. So in reality profitability isn’t the first order step in creating real enterprise value. As it was put by Keith Richman on a panel at the EconSM conference on Tuesday, “profitability… is a choice.” Or at least the goal is to work towards having that choice. Starting without a revenue model in mind, even if it will change a few times along the way, leaves that choice to chance. It’s always possible to get lucky, of course, but less likely so in an economic climate which is less forgiving. So it isn’t surprising to me to see startups realizing these facts and incorporate this thinking into their pitch, and more importantly, their plans. The pendulum has begun to swing back the other way...

It's Always Sunny on the Web

Mon, 03 Mar 2008 17:36:30 -0500

Ben Kunz wrote an interesting article in this week’s BusinessWeek, but it wasn’t the controversial and inaptly-named title (“Why Widgets Don’t Work”) which caught my attention. Rather, it was his framework for the “history of the web” which did. He outlined a transition among three distinct phases of consumers’ primary activity online from receiving, to hunting, and now doing. While the web started with people passively receiving content from AOL, it soon transitioned to people hunting for information with Google. He says “’do’ is where the web is headed in 2008,” citing social networks and other social services (e.g. editing spreadsheets on Google docs, watching bank account with credit card balances, twittering). While the shift towards doing has been already well-underway for some time, I think the construct of understanding people’s mindset as they’re using the web, and how it is changing, is useful in discerning where it’s going and where the pockets of innovation (and corresponding startup opportunity) will be.

There is certainly a natural progression of the web as a media outlet and how we use it – we first learned to receive information with this new medium, then we learned to look for it proactively. We are now so comfortable with the platform that we now are at ease spending time on it “doing”, acting, and performing endeavors in and of themselves. I would say doing is really comprised of two activities: true point-to-point person-to-person communication and performing other real stand-alone activities which are further enhanced with point-to-point communication. (Online casual gaming is a good example of the latter – we’re seeing a trend towards incorporating social functionality into gaming activity, but the services themselves are primarily about the games which are then supplemented with communication).

A notable insight here occurs if we layer the do’er construct on top two other key internet trends - the deportalization of the web and the rise of online video – from which we can gleen some interesting areas for disruptive opportunity. With traffic proliferating towards the far reaches of the net (way down the long tail, if you will), advertisers are having a more difficult time reaching these corners. Widgets are certainly one way to do this, but it isn’t necessarily always a personalized experience. The true challenge is how to identify what advertising messages a user will be receptive to (not using personally identifiable information) in the absence of the contextual relevance afforded by “receiving” and “hunting”-based content. That is essentially the prime challenge that social networks are facing; it’s hard to monetize their content because it's difficult to know what people want when they’re doing and not receiving/hunting. Behavioral ad networks are beginning to solve this problem, but only partially. And of course we’re seeing experimentation play out (with difficulty) with Facebook’s recent Beacon episode. It’s still going to take a few years and numerous innovations by startups (not just the large social networks and other social services) to figure out how ads should effectively reach the “doers” on every corner of the net.

The other intersection of this construct, with the online video adoption trend, indicates we’re still just in the early stages of being comfortable with the video format. Almost all of the video we watch online is in receiving mode. People fire up YouTube and watch the latest most popular clip forwarded to them, or you turn to Hulu to catch an episode of “It’s Always Sunny in Philadelphia” that was missed last week on FX. We are just beginning to hunt for video, but it’s really right around the corner as a mainstream use-case. Soon users and producers will be creating more informational-based content in addition to the entertainment-based video content which is the current norm. The web’s freeing from the binds of 500 cable channels will have the same effect on video that unshackling from physical printed materials had on text. The shift to universal search by Google (i.e. incorporating video segments in addition to text pages into search results) will really facilitate this change. Many VCs have anticipated this shift to hunting video with numerous fundings of how-to sites over the past few months, but there are many opportunities for informational-based video content for hunting consumers beyond the how-to. And in following this schema, the intersection of doing and video is one step further off, but it will come much sooner than it did with text+image content. YouTube just this past week hinted towards incorporating live video onto the site, which is potentially just one manifestation.

Kunz concludes his article essentially acknowledging widgets do actually work, just that some widgets are going to be more effective than others - it depends if and how it engages the right audience. At the end of the day, widgets are merely one arrow in an online advertisers’ quiver, not the only shotgun. They’re just one piece of the ever evolving puzzle of the web, which is “doing” more now than ever.

Our Second Rotation Investment

Tue, 29 Jan 2008 08:35:24 -0500

Do you have a drawer or closet full of old cell phones, iPods, and digital cameras?

You know that you’re not supposed to throw them away because it’s not good for the environment. Plus, they still work. You could sell them on eBay or Craigslist, but that’s such a pain. And who knows how much you could get for them?

I am happy to share that we at Venrock have made an investment in a startup which directly addresses this problem. Second Rotation is an online service which allows consumers to easily sell all of their electronic gadgets. You go to the site, enter or find the name of their product, and rate its condition. Then you’ll immediately find out how much the item is worth and receive a free shipping label to mail it into the company without charge. Once the company receives the item, it’s only a short amount of time before they send out a check or credit your Paypal account. It’s that simple - using Second Rotation an easy way to take both the uncertainty and hassle out of trading in old used electronic goods.

From an investment perspective, Second Rotation stands at the intersection of many trends. As I noted in my post last fall about “Seven Coming Digital Uber-trends which Are Ripe for Startup Opportunities,” consumers have an progressively heightened awareness around living green, and the web provides a natural vehicle for connecting people to resources and services which lessen impact of individuals on environment. e-Waste in particular is becoming an increasingly more important issue – for example, electronic waste is estimated to already constitute between 2% to 5% of US municipal solid waste and is rising three times faster than other streams. Currently the average citizen is responsible for 35lbs. of waste from appliances, IT equipment, and electronic goods per year. Meanwhile, the number of gadgets each consumer owns continues to grow and proliferate, while the upgrade cycle to new goods shortens as fuller-featured next-generation devices are released more frequently.

Since launching the site last July, the response to Second Rotation from consumers has been tremendous. Many are excited about the prospect of a simple way to generate cash for stuff they’re not using any longer; others are enthusiastic about the opportunity to facilitate ecologically-minded reuse of what would otherwise become e-waste. It’s been gratifying for me to visit the Second Rotation facilities and see the multitude of products en route to new owners. And others are starting to recognize the value of the service, like CNET, MSN, and Ars Technica.

With any new venture investment, the caliber of the team is paramount, and Second Rotation is no exception. The CEO Rousseau Aurelien is a serial entrepreneur and former eBay PowerSeller. Before joining as President & COO, Israel Ganot spent six years at eBay, where he was instrumental in the company’s international expansion. And the CTO James McElhiney is also a seasoned entrepreneur (cofounder of Boston Compliance Systems, which he later sold to Thomson Financial), bringing over 20 years of large-scale development expertise to the company. In conjunction with this funding event, the board is expanding to include myself and Mike Tyrrell from Venrock, Austin Ligon (co-founder and former CEO of CarMax), Henry Vogel (Chief Revenue Officer at Quigo and a former eBay executive), and Ashton Peery (former CEO of Top Ten Media), along with both Rousseau Aurelien and Israel Ganot.

Today’s announcement of a $4.4M Series A funding from Venrock and other prominent angel investors is a milestone for the company and a significant step towards the expansion of its service. In the future, Second Rotation will be accepting other categories of electronic goods, offering additional services that complement the core business, and announcing some unique partnerships. I am excited about organization we’re building together with this investment and hope that you will try out the service firsthand for yourself.

Getting the Gang Back Together

Tue, 27 Nov 2007 17:08:03 -0500

Venture investors often find comfort when a team of entrepreneurs beginning a startup have previously worked together. If the prior endeavor was a wild success, then the prevailing thinking is that it makes sense to back a team who should know the playbook for victory. But even when the last go-round was a mild success or even a tremendous failure, there is signal value in the fact that these individuals deliberately choose to work together another time.

Getting the gang back together, so to speak, should show above all else that each individual truly wants and needs all of the others to participate. All of them realize that a company isn’t built with one individual alone. It’s a strong indicator that every person brings a certain set of skills, experiences, and mindset to the company that are complementary to the others on the team – otherwise given a blank slate they would choose otherwise.

Moreover, when a team decides to launch a startup together for a second (or third or fourth…) time, it’s a clear demonstration that they have been able work with each other. Despite differences in opinion that might (read: should) arise when building a new company, they all respect each other enough to work together in a de novo situation. And so the risk for personality conflict amongst the team is lessened.

Yet there are still issues and questions that arise in this situation which are a result. Who is missing from the group from the last time? Why wasn’t s/he included? Who will fill their shoes? Should we fill their shoes? Also, the dynamic of having a team with a history together can bring baggage from a previous situation into it – there’s potential for leftover touchy-feely issues which weren’t resolved and could remerge or be exasperated this time around.

Having a prior history with a founding or management team can also negatively impact those newcomers to the company who weren’t part of the old team. The beauty of a startup is that it’s an organization starting fresh - unencumbered to move quickly and dynamically. But when there’s a common outside shared experience with a significant set of folks, then it can potentially create a divided culture of those who were there the last time around and those who are new, which hurts morale and likely performance. Additionally, it can make others reluctant to join because they’re missing the set of experiences or worry about integrating into the team. (People don’t join a startup to hear about “the good old days.”) And finally, a common set of experiences can lead people to the same conclusions and inhibit fresh ideas or novel approaches.

On the face, having people in a startup who have worked together in the past is positive sign. Brining the team back together again? Good. Now it’s important to remember to leave the old baggage behind and sincerely open the team to new members. Having the old crew gives you a leg up, but it’s only a start.

Those Key Early Employees

Fri, 12 Oct 2007 11:16:51 -0500

Much is often said about the founders of a company, including on this blog. And they seem to receive a preponderance of the recognition for the ultimate success of an endeavor. Of course, it's obvious that these individuals are vital to a startup. However, I think that the people often overlooked are those key first hires. Yes, the management team has a great affect on an organization, regardless of its size or stage. But the first individual- and team- contributors brought into an organization help set the tone for the culture in a profound way. One single strong and vibrant personality can energize the office. Someone's quirkyness can add real character to the group. Those first five to ten non-management hires in a startup help set the tone for how things get done and how people behave while they’re doing it. Being an early hire at a startup gives an individual the ability to make tremendous impact on an organization as it grows – and both the founders and those hires should know it.

The Annual Marker of the Web2.0 Summit

Fri, 12 Oct 2007 11:13:16 -0500

The first Web2.0 conference which I attended was in 2005, and that one had a very authentic feel to it. It's interesting to look back at notes from those sessions and the conclusions like "tagging is a short word, but requires a long explanation." By last year, the conference had grown up to become an extravaganza, for lack of a better descriptive term. And this year's elevation of the moniker to a "Summit" should continue with that trend. Regardless, conferences are for conversations. The important business is about connecting with people, as opposed to the content in the sessions themselves. Along those lines, if you've been meaning to reach out or just want to ensure that we reconnect while we’re both at the show, drop me an e-mail at [david at genuinevc dot com].

The Shift Towards Universal Search

Wed, 03 Oct 2007 16:12:25 -0500

There has been a lot of coverage this past week about the recent upgrading of search engines' user experiences to include other content-type results. Yahoo unveiled new enhancements on Tuesday, Microsoft launched refined Live Search last week, and Ask upgraded to its "3D" user interface back in June. Of course, Google announced its "Universal Search" all the way back in May, touted by Marissa Mayer on their blog "to blend content from Images, Maps, Books, Video, and News into our web results."

Almost all of the analysis which I've read has been in the context of the search engine wars, and how these recent efforts are a last-ditch effort for the non-Google search engines to play catch up. That's a fine story, but I think that there’s another fundamental trend at play here. It's a natural evolution of search to include other content types other than links, and I think that the real story is centered around the ramifications of what content (especially video) will now get featured as results given the introduction of universal search. It's one thing to find video when you’re looking for it; it's another thing to find video when you don’t know you’re looking for it in the first place. Increasingly we're seeing video as included results for terms which a consumer wouldn't necessarily think to search for on at a dedicated site or search engine, but she will find incredibly useful nonetheless.

I've seen a number of conversations about universal search in the SEO trade circles (e.g. universal & blended vertical search was a hot topic at the Search Engine Strategies conference in San Jose last month), but I have heard a lot less buzz about it in startup circles. To me, there is potential underserved opportunity here. When people begin to find video and other content "serendipitously," it begs the question how the content got there in the first place. Many great internet businesses were built upon leveraging natural search as a distribution mechanism, and I see the shift towards universal search as opening a door for new players to enter what was a marketplace that previously gave unfair advantage to incumbents on a specific keyword term. Much like the situation for natural text search in the late 90's, there is a new land grab for top search placement for these new media formats (like images, podcast, and video). This return of the wild west scenario puts startups and established players alike on equal footing, because these algorithms are being established anew and don’t favor an incumbent authoritative source.

In fairness, the transition, at least for Google, has been a measured and calculated process. When Google launched universal search this spring, some commentators accurately reflected this move as a lengthy process as opposed to an overnight switch. "I don't expect we're going to see wholesale changes in the near future… I'd assume that whatever Google does, they'll do deliberately and cautiously," said Matt Greitzer, a national practice lead for search marketing at Avenue A/Razorfish, back in May. (As a demonstration of the lack of anywhere close to a full transition, ironically, currently a video of an interview about the future of search and universal search with guru Mike Grehan doesn’t show up as a video result in Google when searching for "seo universal search," but rather as a text link.)

Perhaps the buzz this week with the other search engines will facilitate a quicker transition towards integrated results on all engines, and the opportunity about placement in those results will become more salient. Whether it's in categories of travel, shopping, and other transaction-oriented content, video and other media types will be useful and important search results in the coming years. Startups and other fast-movers have a unique opportunity to participate in that shift beyond just text links.

(Special thanks to Daphne Kwon who helped me think through some of the issues in this post.)

Four Branches of the Green Web

Fri, 10 Aug 2007 11:43:30 -0500

About two weeks ago, I posted about seven coming digital uber-trends which are ripe for startup opportunity. Of the all the feedback I received from people about this post, it surprised me how much of it was focused and resonated around the second one, the internet’s facilitation of a green lifestyle. Coincidentally, it’s one area where I’ve been spending quite a bit of time recently. Of course, going green is the “trendy tend” these days, and has certainly gone mainstream, as the cover of Newsweek magazine a few weeks ago surely testifies.

From my perspective, it’s worth exploring the role of digital media in this movement. How can the web further facilitate the lessening of the impact that individuals have on the environment? While the separate CleanTech energy sector has been in hot pursuit by VCs over the past couple years, I think it’s interesting to note what ways the internet alone is becoming an integral component in the overall green movement.

I see four categories where The Green Web is emerging, with numerous websites:

1. Providing an aggregated trusted source of useful information. Startup sites like TreeHugger (which also has a site called Hugg, a Digg for environmental news) offer news, culture, and instructive information. Big media companies are also jumping on board – MSNBC has an Environment channel online and Discovery acquired the aforementioned TreeHugger company just last week). Large non-media branding-based corporations, like Starbucks, in an attempt to enhance their eco-friendly image are also sharing information via the web.

2. Connecting people to other people and useful services. For example, there’s now a Facebook Carpool app which “makes sharing a ride safer and easier by using Facebook to find people going in the same direction.” Boston-based GoLoco is pursuing the same ends with a stand-alone web service. Both are perfect examples of leveraging the web to connect people towards a greater environmental good. In addition, the web can act as the perfect vehicle to connect people to specific services, like purchasing carbon offsets in an effort for individuals to live carbon-neutral (ZeroFootPrint, TerraPass, and NativeEnergy are just a few companies doing this).

3. Becoming an integral component of a service. In some cases, the web actually is a fundamental component in a green service. As illustrations, Greendimes allows consumers to reduce their unwanted junk mail and Earth Class Mail (fka Remote Control Mail) allows users to read their mail online, reducing paper handling costs and recycling in a central facility. Without the web, these services would hardly exist or would look dramatically different.

4. Replacing functions that are otherwise less eco-friendly. It’s interesting to consider virtual meetings in Second Life and other virtual worlds as replacement for flying people to meet in person. Though some question this approach given the amount of servers/electricity in creating these spaces, examples like Cisco using virtual worlds for a number of events and interactions are surely notable.

In all of these cases, different shades of the Green Web take a step in the direction towards better planet – and do so in a potentially profitable way, making it a win-win situation. What other innovative green technology-enabled services will the web help facilitate?

Seven Coming Digital Uber-trends which Are Ripe for Startup Opportunities

Mon, 23 Jul 2007 11:12:12 -0500

Being in the venture capital industry, I find that sometimes it is worthwhile to take a step back from the day-to-day to take a look at the large impending trends which are just beginning to affect us. With many frequent headline predictions desensitizing our understanding of their relative importance, those in the industry (including myself) sometimes forget to (or can’t) see the forest through the trees.

And so I thought it would be good post to highlight what are some very important uber-trends which starting to emerge in the digital media space. To most readers, they likely may seem obvious, but perhaps serve as a reminder what’s likely in store. And where there is change there is opportunity; the following seven identified trends are perfect opportunities for startups to leverage:

Seven Coming Digital Uber-trends which Are Ripe for Startup Opportunities

1. The digitalization of transportation experience. Our cars are transforming from motorized transportation into digital immersion experiences. With in-dash devices ranging from GPS, to satellite radio, to integrated telephone controllers, the place where many Americans spend much of their day is going digital. Also, other transportation experiences, namely public transportation, is being affected by a digitalization trend – everything from digital signage in subways to infomation touchscreens in taxis is modifying what we do when going from here to there.

2. Internet’s facilitation of green lifestyle. With concern over the environment becoming a progressively more relevant issue, the web provides a natural vehicle for connecting people to resources and services which lessen impact of individuals on environment. We are at the beginning of “The Green Web” which will provide individuals within our society a leveraged way to positively affect the planet.

3. Influence and word-of-mouth marketing facilitated by online social software. Marketers are increasingly concerned about truly engaging with consumers as the effectiveness of traditional advertising erodes. Social software (in its broadest sense) coupled with the principles of word-of-mouth marketing will provide for successfully reaching potential customers via the most trusted source – people they already know.

4. Fundamental shift demographics of internet usage. The demographics of internet utilization are rapidly changing. Baby-boomers are getting older. International traffic and other languages are will be soon dwarfing that of the U.S. and English. Domestically, we have a growing population of youth who have never known life without internet and mobile phone. Couple these and other demographic shifts together and the internet audience of today looks very different in the not-so-distant future.

5. Mobile consumption of information. A day where everyone carries a powerful hand-held device (which includes GPS and significant processing power and memory on a higher-bandwidth network) will allow information to proliferate in a way setting which is just becoming available to a small segment of power-users. Location-relevant information ubiquity is dauntingly exciting.

6. Wide proliferation of video. While in the age of YouTube it may seem trivial to mention, but I believe it can’t be overstated. We’re moving to a world where every web page, every device, every screen will be have some type of video content. The long-tail of video content will be wagging.

7. Digital information becoming increasingly personalized with greater user control and choice. While search as proactive information-seeking reigns today, the notion of passive personalized discovery which is already taking hold will become ever more important with an abundance of information. User control and choice in that process is becoming integral in the content consumption process.

In hindsight, it’s easy to look back at companies that emerged on the wave of past important trends. Successful endeavors have an easier time with the wind against their backs. Fifteen years from now, I would be surprised looking back if many of these above categories don’t have enduring successful companies which were borne out of capitalizing on them.

(Note: This post was inspired by and largely based on internal discussions that entire Venrock team about megatrends in our industry.)

Gazing at your Own Navel: On Social Networks, Blogging, and Brands

Fri, 13 Jul 2007 11:02:39 -0500

So earlier this week I signed up for a Facebook account.

The same day I read Giga Om’s post on his “long standing belief that social networks are going to become mere commodities.“ (He uses the example of Ning adding additional networks on its platform, decreasing the individual value of each individual network, as a proof point.)

On the whole, he is right. The value of a social network is not in the functionality and technology itself. Feature parity should be achieved rather quickly on any new set of innovative aspects that a MySpace, Facebook, or anyone will introduce. Rather, like all media properties (whether digital or otherwise), a social network has value based on:
1. The information contained within it. In this case, the information about the friends and connections in network.
2. The signal value communicated to society about who a user is as a person. In this case, what being on a social network represents to others.

Essentially, what really matters is brand.

What does it mean for someone to be on Facebook? What does it mean to be on MySpace? What does it mean to be on the dozens and dozens other general-interest social networks or vertical ones which are profiled daily on Mashable. In other words, what does it say about you, who you are as a person? The answer to this question is one reason why the essay about “viewing American class divisions through Facebook and MySpace” resonated throughout the blogosphere over the past two weeks.

In the end, each media property means something different to a different set of people. It’s the brand that’s important, not the functionality.

Take an analog analog here… a magazine. Readers of a magazine like Time could care less about the printing press used to make the publication, whether it was inked with the latest technology or an antiquated one. What they do care about is:
1. The information contained within it. In this case, a weekly synopsis of the news.
2. The signal value communicated to society about who they are as a person. In this case a person who has The Economist or Us Weekly on his coffee table is potentially saying something different about who he is as opposed to Time.

I signed up for a Facebook account because:
1. Many people I know and trust and respected are all of a sudden using it, and I assumed that because they find it useful, so would I.
2. It’s reached a tipping point where it potentially no longer is about high school and college students, but rather my peer set.

There’s an interesting meme going through the blogosphere in the past week asking “now that we have social networks are blogs obsolete?” Tony Hung argues that rise of social networking sites doesn’t mean the twilight of blogging is near, but rather that it is a different medium than the social networks, as blogging is “about creating and developing [and publishing] well thought out opinions.”

Along those lines, Nivi just posted a recommendation to everyone to start a vertical blog rather than a personal one. He says a vertical blog is “… for your readers, … focused, … branded [my bold], …[and] attracts a specific audience.” He concludes by writing, “Personal blogs are dead, long live vertical blogs.” And I think he’s right. To me it’s looking increasingly like social networks are platforms for communicating information about yourself and blogs are platforms for communication about a specific topic. The exception, however, is for those who consider their own name/identity a brand and a vertical subject in and of itself. (I don’t, so I personally maintain both vertical blogs of GenuineVC and that of the WebInnovatorsGroup. Now if I could only find the time to also launch a very niche vertical content blog at my domain BostonsBestBurgers.com…)

Again, what matters here again is the brand: what info it represents and what it conveys about the reader.

When I explore a potential VC investment in a consumer-facing online media startup opportunity, one of the questions I ask is: “what is the long-term potential to build a long-term brand?” With any media property, it either needs to have wide mass appeal with an adequate monetization rate or a niche appeal with a very high monetization rate. Whether or not it has a social element to it depends on the audience. But in reality, from here on out, I suspect almost all of new online media will be some type social media.

So, yes, I’ve signed up for Facebook. Now whether I actually continue to use it is another matter… it has to continually satisfy these above two requirements.

The Name Game

Wed, 20 Jun 2007 17:20:33 -0500

From appearances, one of the most difficult decisions that a set of founders make about their early stage company is what to call the company and/or first product (often one in the same). The name game appears to be so difficult because, at the end of the day, the rationale for each choice is largely subjective. For this reason, the process often becomes one that antagonizes the company for too long. But it shouldn’t be that way.

It is one thing to have a couple people involved generating and filtering options, and then it’s whole other when too many other constituents (investors, advisors, employees, marketing vendors) are sharing (read: strongly lobbying for) their disparate opinions as well. The last situation you want is a board meeting with bunch of VCs brainstorming name ideas. Ugh. (The only thing worse is asking that group for their thoughts on how the logo should look and what colors to use.) The situation is only exasperated by the limitations of .com domain names available these days or the willingness of everyone to pay up for one that’s parked.

In thinking about this post, I tried to come up with a solid list of go-to rules of thumb to guide in this exercise (e.g. "the name should describe/evoke what the company does," "it should have five letters or less for simplicity sake," "there should no mistake on how the name is pronounced”, etc., etc.). But then I realized not only are these rules broken occasionally, they’re broken often… and very successfully. I think the only rule that matters in a naming process is that founder(s) should listen to all advice but then absolutely trust their own gut as to what runs parallel to their vision. And then everyone should quickly move on. The hurt feelings will fade over time, and if the decision turns out to be the wrong one, it can always be changes later (with costs, of course).

Sharing Space... and More

Wed, 06 Jun 2007 22:42:34 -0500

I’ve posted in the past how I enjoy visiting entrepreneurs in their own offices, as you can learn a lot about a startup in the way it expresses itself through the space which it occupies and uses. Over the past few weeks, it feels like I’ve been talking to about an increasing number of very early-stage startups which are choosing shared space situations – everything from formal shared office space environments, to looser arrangements, to spending time within VC firm’s offices. I think that this decision really reflects how the founders feel about communication and collaboration.

In a great post, Nabeel Hyatt calls Cambridge "the new hub of Northeast startups" with which I agree (non-coincidentally, it’s home to both the Web Innovators Group and Venrock’s local office here). In this area, we of course have the structured Cambridge Innovation Center, but other less formal arrangements are popping up as well. For example, I visited the gang over at the 13 Magazine Street outside Central Sq. last week, and loved the layout and composition. There is an intangible quality about joint-occupied spaces with other early stage startups surrounding you, and you can see it there.

Of course, pooling shared fixed-cost resources diminishes expenses vs. individual office locations, which is essential for any bootstrapping startup. But beyond that, I am of the opinion that there is real value in the "hallway effect" of sharing ideas, experiences, and frustrations with others embarking on similar (but separate) endeavors. Virtual teams do work, and because of communication technology, are increasingly effective. But there is something to be said about sharing a space with others participating in a community of similar pursuits. Eventually a startup grows up and does needs more – more desks, more conference rooms, more resources. But very early on in company formation, a startup can truly benefit from more ideas, more feedback, and more community.

Unexpected Rewards

Tue, 29 May 2007 09:26:48 -0500

In the past week or two, the notion of unexpected rewards (think: unanticipated acknowledgment of positive behavior) has come up in two entirely different conversations. But in both instances, the value of rewarding people out-of-the-blue facilitates the same thing - a spirit of goodwill which fosters further positive behavior.

In one context, I was in a discussion around ways to incent an online community in a social website. Of course, there are numerous rewards & recognition systems in place at various communities, often with deliberate actions and points accumulated which trigger specific compensation for participating in those communities. And those structured incentives work very well if executed correctly. But what can also work in addition to formal schemes are random acts of apparent generosity. Selecting top contributors and making a small gesture (sending something like a small mug/t-shirt/stick promotional item, or even as inconsequential as a personal email from an employee) can really encourage those users further. It makes online community members feel like they’re part of something larger and that their contributions are truly being recognized. Based upon those feelings, users usually then contribute even more than would even given the structured incentive in place. It’s amazing to see how much this actually works.

Similarly, in addition to formal compensation of employees in a startup, unexpected recognition of hard work and positive contributions do wonders. Small gestures from managers of a company that are unexpected can really boost moral in a place that sometime appears to be going every which way some days. Like with all gifts, it’s the thought and gesture that counts, not the reward itself. This situation is little more delicate, however, as the gesture really needs to be perceived as a sincere one. But if done in an authentic manner, far from formal compensation structure and conversations, the effects are often very beneficial for all parties involved.

Real recognition – that knowing that others’ notice and appreciate a particular set of actions – is a valuable intrinsic quality that cuts across many situations. Those little rewards can mean a whole lot, especially when people aren’t looking for them.

Joining Venrock, Focused on Digital Media Investments

Thu, 17 May 2007 12:47:06 -0500

While I have already privately shared the news with a few, I am pleased to communicate on my blog that I recently joined the venture capital firm Venrock as a Vice President.

This is a very exciting event for me, as this new role brings a new set of opportunities, in addition to allowing me to leverage my current strengths and interests. I will be based in the Cambridge office with Mike Tyrrell, and am looking forward to working with him and the rest of the Venrock team across all of the offices (New York, Menlo Park, and Israel). My focus will continue to be on early-stage investments in the digital media sector (primarily focused on internet and mobile spaces), working with entrepreneurs to start and build successful companies. And as part of that practice, I will continue to blog here at GenuineVC and lead the Web Innovators Group based in Boston.

In exploring the possibility of joining Venrock with the partners here, I was particularly struck by one theme which ran through all of our conversations: the importance of relationships. It became clear that I would fit into a firm which lives up to its heritage - with everyone valuing with paramount respect the relationships which they have with entrepreneurs, with investors, with the community, and with others within the firm. It is that team of investment professionals which I wanted to become a part, as my belief is that the fundamental driver of success in the venture capital industry is these strong connections and bonds.

True to that note, during my past couple years at Masthead Venture Partners, I fostered a number of relationships, including both the principals of that firm and the entrepreneurs who we invested. And while there is no longer a formal affiliation, the foundation on which these were built remains solid and will continue to do so.

A few weeks ago, Venrock announced that it raised $600M for investment in early stage startups across a diverse set of sectors (biotechnology, energy and nanotech, healthcare IT, medical devices, and digital media). I am excited to become a team member at the firm investing this capital in the digital media space, building new relationships and strengthening existing ones.