I’ll be in San Francisco the next few days for the Web 2.0 Expo. My pal Dave McClure was one of the planning advisors and as such I am sure it will be a great show. I’ve discussed a lot of the themes that interest me and I expect more to cross my list but here’s a few I’ll be paying attention to:
Hmmm advertisers are growing wary of Google’s market position with the purchase of DoubleClick according to AdAge. Market concentration is a serious problem for competitors and customers and will be an important issue for the online ecosystem for at least the next 10 years. Whether Google plays nice or not will be seen.
The title of the post sounds like a catchy title for the google story someday after they get sued for their monopoly in the online advertising market – vertical, tied integration, unfair competition due to bundled services that undercut competitors (ie. google analytics), and marginal pricing… I can practically read the complaint now 
Seriously who knows whether it will come to pass, but as I wrote about earlier – all the previous tech titans have gotten sued for antitrust violations (ibm, intel, and microsoft) so it is not that far-fetched.
UPDATE: As if on cue in response to my post here (trust me I know it wasn’t really) – Rafat over at Paidcontent.org posts a good summary of other coverage where Microsoft, AT&T and Time Warner all raise the anti-trust/anti-competitive flag. I guess I wasn’t too crazy for bringing up the idea a few months ago.
UPDATE2: I just created a bet over at Blubet (a new social betting for fun startup – thanks Sr. McClure for introducing) so people can put their Blubet points where there mouths are.
The amount of ad-supported content is growing and growing. Advertising is both a practical solution to the challenge of micro-payments as well as a subsidy to expand the coffers of content creators so they can invest in more content. And increasingly the online landscape is breaking down into two buckets:
Think of all the wonderful things that are free through advertising Google, Myspace even desktop applications like Zoho as I mentioned before no longer require a $200 to $500 check to Microsoft. And the list of ad-supported offerings isn’t decreasing – its growing. Every day something new is offered. And thankfully I am working with a number of comanies looking to offer ad-supported offerings to consumers.
What is interesting is that there are two hugely popular categories of content that have yet to really figure out there ad-models online: music and casual games. Casual games are games are represented by games like Bejeweled, Zuma, Diner Dash and Sudoku and firms like Real Networks, Popcap, Oberon Media, and Playfirst. The business is a billion dollars worldwide annually (yep that’s a billion) but what’s interesting is the business model that dominates the market. They use what’s commonly referred to as the Try and Buy model – that is you can download typically either a time or level limited version of the game for free and if you want to finish the game you typically pay $19.95. What’s amazing is that 98-99% of all downloads don’t result in a sale. Yep 98-99% of games played are played on a free ride. Now we can put away the world’s smallest violin – that’s not a bad thing necessarily. Sampling is a great way to get sales and in most online transaction scenarios my own experience tells me a 1-2% conversion rate is actually pretty good. No point is not to rail on the 2%, it’s to show how the business can increase its revenue by using advertising to monetize the other 98%.
If advertising were included in the free download – much like advertising is included in other forms of free content – television, radio, etc. – the gaming business could grow dramatically. Let’s take a look at the math – at a $20 price point with a 1 to 2% conversion rate – the revenue per download is $0.20 to $0.40. With a $10 CPM or $.01 per ad shown, it’s easy to see how in a 30 minute to 60 minute trial game session how a user could be shown 10 to 20 ads. That’s an easy $.10 to $.20 of pure profit. Across the hundreds of millions of downloads and suddenly it’s easy to see how the Casual Games business could grow from $1 billion per year to $2 billion per year. And as such you can why companies like Real Networks and Try Media are working on how to monetize games with advertising.
Music is an intersted space as well. Traditionally the free offering has been ad-supported radio and now with the online business there are so many new ways to try ad-supported music. Two of the most interesting to me are Ruckus and Spiral Frog which are working to offer ad-supported downloadable music - giving people the two things digital music listeners seem to want – control and portability. There is alot more innovation coming in this space as well.
I am of course biased by my experience – which has been at the intersection of consumer oriented services around data, ad-supported content and digital media. One of the areas that is interesting to see emerge is the Computer in the Sky or as some refer to it as the Computing Cloud. This has long been an area of interest to me going back to my early days at Loudeye. One of the visions we had there was to build a digital music jukebox in the sky. We started tinkering with the idea in the winter of 1998 (I still have a copy of the original pitch presentation I put together for Martin and the board). The idea was to build something along the lines of Amazon.com’s Web Services but for music – allow any business to plug into the Loudeye Media Platform and create their online music service. Unfortunately the inability to get blanket distribution rights from the labels combined with infrastructure costs it just didn’t pan out. For instance back in the day a 1TB online storage solution would have cost a couple of million dollars. And what’s amazing is that today you can buy a 1TB 3.5 disk drive for $500. Now today, with the rise of Amazon’s very cool S3 and Ec2 offerings you are finally beginning to see a true Computer in the Sky. It’s easy now to imagine a jukebox in the sky or a library in the sky, you think of it you name it.
Now the infrastructure side of the cloud is out there, others are rushing in to add services and utility. The whole webware movement is a natural extension of the movement – add value to the utility infrastructure. We are in the early stages with online versions of office apps from Google and Zoho for instance to vertical apps like CRM from Salesforce.com or accounting from Intuit with online versions of Quicken, TurboTax and Quickbooks easily available.
From a consumer perspective, the next movement will be free-ad suppoted computing in the sky. There’s still work to be done as I have learned from experience monetizing content can be tricky. Personal content often doesn’t work well with targeting engines like contextual engines (Google AdSense for instance). And at the same time, users tolerance for ads in an application environment can be tricky. Fortunately there are startups looking to solve this project. And the day they do and a computing cloud service offers compelling utility with that ad-model built in is a day when I think this market truly explodes. Imagine the ability for users to create personalized versions of services. Point and click your way through a function and feature list to offer a service for you and your friends to enjoy. OK I am getting a little dreamy but I think you get the point.
As of this afternoon, I officially signed up to work with Loomia. Their approach to the recommendation and personalization space is likely the best in their space and I look forward to helping them with their marketing. They are up against some well funded competitors, and to them I say may the best team win.
Loomia is playing in the larger web-optimization and analytics market which with Kefta’s sale to Acxiom is a pretty interesting market these days. We’re really entering a pretty interesting era where technology is finally starting to deliver the much promised personalized online experience.
Congrats to Phillipe and his team (including Andy Sack)… Great to read about the news! Having used Kefta’s software in a live comparison against competitors like Optimost and Offermatica – I can certainly say their software really works and kicks their competitors behinds. Expensive but good (I guess in life you get what you pay for). Good luck with the new owners.
Also, I am excited to see Spock come out of its shadows today with a positive review from Sr. Arrington, the arbiter of startup coolness. Spock’s tackling an incredibly complex problem of trying to distill unique identities from multiple sources found online. I have a huge amount of faith that the giant brained development team can pull it off. Good luck guys – can’t wait to see more. Spock will be demoing at the Web 2.0 Expo Launch Pad - Monday at 4:10pm.
Fred Vogelstein’s interview with Eric Schmidt presents an interesting story about classic DIY/NIH impulses that comes from engineers and developers - in this case Larry and Sergei desire to build a financial system themselves instead of buying one from Oracle. At every startup I have worked at this desire comes up. Developers are builders and they like to build things and more importantly they like to know how things work which they often feel comes from building things themselves. And as a business guy, you will often find yourself wanting to hit your head against the wall as your dev teams want to build things that should just be bought. For instance at a fomer company, the devs tried to build their own CRM system. Let’s just say that Salesforce.com is currently the CRM system being used there. Lesson learned.
At some level hearing the Google story is encouraging to hear that what I have experienced with developers is not unique. But it’s interesting how a lot of the innovation in the web 2.0 ecosystem absolutely flies in the face of the developers’ natural instinct to build it themselves. Numerous VCs and entreprenuers have talked about how its easier and cheaper then ever to do an internet-based startup because you can outsource so many elements of the business – accounting software, CRM, hosting, email, storage and even CPU hp thanks to Amazon’s Web Services. And in startups where resources are scarce (and money even scarcer), you have to leverage whatever cheap, outsourced alternatives you can so you and your team can focus on building the nugget of IP and value that makes all those back-end services unqiue to your customers.
Today only in enterprises where abundance is king – and Google certainly qualifies much like Microsoft in its hey day – can you even think (however irrationally it likely will be) about building or doing things yourself. It will be interesting to see how the excess of profits that Google enjoys plays out in terms of building enterprise value or whether Google’s cultural bias to build things themselves ends of wasting billions of dollars of enterprise value.
Personally as I embark down my own startup paths, I can certainly tell you that I am big fine of the innovation in outsourcing and plan on outsourcing as much as humanly possible.
Thanks for John Battelle and Eric Goldman for pointing out Utah’s rediculous attempt to save businesses from the vagueries of competition. In a prior role, I had the good fortune to meet and get to know Eric. Eric’s a really smart legal professor who has to be one of the leading legal experts with regards to online advertising law, regulation and legal theory. So I tend to agree with Eric’s reasoning on issues like Utah banning Keyword (“KW”) advertising. Let’s see, let’s ban the holy grail of online advertising, hmmm, yeah that’s a good idea. If I were a SEM firm in Salt Lake, then I might think about relocating to friendlier climes lest you be labeled an outlaw or worse a criminal enterprise.
Having worked in the online and keyword based advertising for a number of years, this issue has its roots a long way back. From stories that I have been told, this dates back to what can only be best described as a holy war between Whenu and 1-800-Contacts. The story goes like this (and having told it to be people familiar with the Utah lobbying scene and online internet advertising law-making no one has ever thought it to be untrue so I tend to believe their must be a seed of truth to the story). 1-800-contacts sued Whenu for KW targeting ads against 1-800-contacts web site. Unable to win in court, 1-800-contacts, a Utah based company, pleaded its case to the Utah legislature with a large amount (all legal) of donations to the Utah legislature. This lagresse resulted in an anti-Whenu bill effectively banning Whenu’s targeted ads being shown to Utah users. Unfortunately based on the dollars and sob story of how 1-800-contacts business was being ruined by Whenu, they also got Utah to ban KW based targeted ads in the same bill (collateral damage). Fortunately, 1-800-contacts ability to buy legislation has its limits as the bill was ultimately overturned in federal courts.
And not having learned it’s lesson the first time, Utah is back again trying to save the world from KW advertising with a its most recent legislative volley. It will be interesting to see when Utah’s legislature finally wakes up from the trance of its business backers to realize the folly they have been lead on. If Utah was being considered for a Google server-plex anytime soon, I have to imagine this killed any of those thoughts.
Update: ClickZ does a little investigation into the motives of this law and seems to corroborate my story about Whenu and 1-800-contacts. Amazing how easy it is to buy a law if you were to believe the story.
First off this isn’t another Google/YouTube v. Cuban fan post. And I swear this will be the last post about him or his businesses for a while. However as a fan of Mark since our days of doing business together, I’ve followed his post broadcast.com ventures with interest. One of the more interesting was Mark’s purchase of the Landmark Theaters movie chain. Mark likely saw the same opportunities to shake up the old ways in the movie presentation business as he saw with professional basketball. Mark has also invested in content production both movies and HD content. One area Mark has been pushing hard on the movie side is that movie companies should be simultaneously releasing movies on DVDs and in theaters as a way to maximize on interest and marketing in a movie. Mark has also asked for ideas on how to get people into theaters more efficiently – despite some time in the media business I didn’t have a great answer (or I likely would have started my own company if I did have it).
After attending a showing of Music and Lyrics at a local Landmark Theater in Seattle (Metro) – I came to the conclusion that the theater business has really missed something. Films are clearly one area of our culture that we share in common and like to talk about – look at the incredible rise in Flixster from nothing to millions of users over the last year. Like books – people like to talk, debate and share their movie experiences. And going to the movies is definitely one of those experiences. That is why even as home theaters have grown in their sophistication – people still and will always go to the theaters – there is something special about watching a film with hundreds of other fans.
Looking at a similar business – what was one of the reasons that Barnes and Noble took over the book retail business? They latched onto the experience of browsing, sharing and reading books. They but into cafes, couches, expert staff and community areas and wouldn’t you know people started wanting to go to the book store to spend a lot of time and the more time they spent the more books they bought. You could find other book lovers at Barnes and Noble, you could talk about books, you could share your passions. And even better once that concept took off Barnes and Noble had something all companies want – viral marketing. Even today – I think to go to Barnes and Noble before the library for a lot of the reasons listed above.
And this is where theaters and especially Landmark completely drop the ball. Landmark is unique in that it is a chain of historical theaters that were built before the rash of the big box cineplexes in the 80 and 90′s. Every theater is unique and offers its own experience. (Ed. note: Landmark isn’t alone – their are even independents like Paul Allen’s massive one-screen Cinerama here in Seattle the absolutely best place to see summer blockbuster movies with perhaps the largest screen in the U.S. and seating capacity – a few thousand seats). But as a sat in the lobby of that Landmark Theater looking at a half-ass cafe and a few scattered tables and more importantly a TON of empty, under-utilized space it hit me.
Why aren’t theaters as natural a place to go to talk about and socialize over movies? Why isn’t there a cafe (a real cafe or coffee shop not the excuse for one at the Metro)? Why aren’t there tables so a friend and I can chat about the movie we saw last week or want to see tonight? Why isn’t there a DVD store? A movie memorabilia store (seriously movie posters would be a natural)? Why aren’t there small group movie areas where I can meet with some other buffs and watch and critique a film real time?
Why do I have to just go to this theater once a year when they just happen to show a movie I want to see – why isn’t there a reason for me to just drop in when I have some time to kill? Imagine a theater that invited you back for all the ancillary reasons that you like about movies? Now that would be a great business. Here’s where Landmark can excel – it’s theaters aren’t cookie cutter. They are inviting, they are in cultural centers in cities, they show interesting films, but they could be so much more.
Someone is going to likely put two and two together – movies are social and the places that show them are destinations. Figuring out how to put the together seems as natural as chocolate and peanut butter.
