If you want something chewy to read over Thanksgiving, I recommend FeedBurner’s thoughtful piece titled How feeds will change the way content is distributed, valued and consumed (also available as a PDF.) This is the first article in FeedBurner’s “Feed For Thought” market reports. Fred Wilson also had a good post on The Second Coming of RSS worth chewing on. I promise neither of them are turkeys.
Last week, Judy’s Book announced that Mobius led an $8 million Series B financing with existing investors Ignition Partners and Ackerley Partners and that I joined the board of directors.
The founder and CEO of Judy’s Book – Andy Sack – is a long time friend and colleague. I was the lead investor in Andy’s first company Abuzz – which had a very successful outcome when it was acquired in 1999 by New York Times Digital. Andy has been involved in several other projects with me, including successful ones like Quova and not-so-successful ones like BodyShop Digital (what were we thinking – two American guys who rarely to use deodorant and often wash our hair with bath gel investing in the dotcom spinoff of a UK-based health and beauty company?) So – we’ve definitely had our ups and downs together.
When Andy founded Judy’s Book with his co-founder Chris DeVore, I didn’t really get what they were up to. I understood CitySearch and the emerging local.yahoo.com / local.google.com – so I thought I got local search. I also understood the power of the lead fee model through my investment in ServiceMagic. However, for whatever reason, I couldn’t synthesize these ideas into what Andy and Chris were thinking about. So – I passed on investing in the first round, even though I hate to pass on investing in an entrepreneur that I’ve been successful with in the past.
Over the last year, I’ve paid attention to what Andy, Chris, and team have been up to. I’d periodically go deep with them on their business and had a very productive day with them on a trip to Seattle several months ago. We spent a lot of time talking about the challenge of user-generated content from a user-centric point of view (e.g. mine) and I described my fantasy world for creating content on the web. As an active blogger, I obviously have a vehicle for generating content, but if I want this content to end up anywhere else (e.g. book reviews on Amazon or restaurant reviews on local.yahoo.com) I’m reduced to a stupid cut-and-paste approach that typically loses all formatting and links. I described a “write-once, publish-many” approach that I lusted after in my quest to populate Google’s carnivorous index with the word Feld.
During this same trip, Andy and Chris showed me two things – their traffic numbers and the v1 user-interface (Judy’s Book is currently in beta). Both blew my socks off. As a Judy’s Book beta user, I’d had plenty of complaints (and “constructive suggestions”) about the UI. Even with the limitations, the traffic numbers – especially the growth – were stunning given the tiny investment that had been made in driving traffic to the site. However, the v1 UI – which is coming out in Q106 – was spectacular and addressed many of the issues that I’d raised over the previous months of feedback.
As I pondered their progress and vision, I started thinking about what drove ServiceMagic’s success. ServiceMagic started out in an unbelievably competitive market segment – with over $300 million of venture capital being invested in their competitors. At some point, the founders of ServiceMagic turned their entire business into an algebra problem and became obsessed with figuring out the math. At one point, one of my favorite partners referred to ServiceMagic as a “shitty little business” (at the time, they were loosing $500k / month, their revenue was anemic, and their projected revenue ramp was hard to believe). Two years later they were profitable, growing 10% monthly, generating a prodigious amount of positive cash flow, and were the only company left standing as all their competitors has spent their money without any benefit, while ServiceMagic nailed the math. We now regularly joke that we are always looking for “shitty little businesses” to invest in.
Judy’s Book is in the same position. “Local search” is trendy and overpopulated – both with older and newer players. “Reviews” have been around forever. The “lead fee” model isn’t new (although it is rarely mastered). User-generated content is quickly overtaking Web 2.0 as an user-overused buzzword. Data “at the core” vs. “at the edge” is entering into the debate. Lots of VC money is getting poured into this type of problem.
Fundamentally, whenever you are thinking about supply and demand on the Internet, you have a math problem to solve. Effectively creating the drivers for both supply and demand – at the right price – and then figuring out how to turn it into money is hard – eBay, PayPal, and Google AdSense / AdWords are brilliant examples of getting this right. Ironically, many new companies are focused on only one key variable (either supply or demand) with the expectation that “once we get big enough the other will take care of itself.” One lesson I learned from ServiceMagic is that this is a fundamentally incorrect assumption. Most of ServiceMagic’s competitors only focused on one of the variables (and most of them never actually sat down and figured out the equation that described their business premise.) It’s not as simple as supply and demand needing to be equal – you have to start with the math problem, treat supply and demand as variables, and then iterate on the equation. Not surprisingly, this isn’t a linear equation (especially when you add time into the mix), so you’ve actually got to put some thought into it.
While Judy’s Book is a long way from having things figured out, it’s a great start with a super-capable team that is now well-financed. Enjoy the beta cycle for the next few months (and offer feedback) – when they launch v1 you’ll start to see what I’m talking about.
Do you like NewsGator? Do you want to make some extra money? Do you want to help one of my companies out? If you answered yes to any of these questions, you’ll be happy to hear that NewsGator launched their global partner program last week.
Affiliate programs are nothing new – Amazon has one that is well known to bloggers. Software reseller programs have been around since the beginning of PC-time. Co-promotion programs were made popular by the web in the mid–1990’s. NewsGator has combined all three into their global partner program. It’s easy to sign up for any or all of these programs.
This blogvertisement brought to you by “The friends of NewsGator coalition.”
FeedBurner just completed its second hackathon. Eight hours of focused hacking generated the following features:
Eight hours, eight new features into production. Nice job guys.
Dick Costolo – the CEO of FeedBurner – sent me a link to this great photo last night. FeedBurner exhibited at the Portable Media Expo & Podcasting Conference 2005 this weekend in Los Angeles and invited publishers using FeedBurner to sign the banner in the booth. This is what it looked like after the first day.
I love it. These are just a few of the 139,039 feeds (including 24,669 podcasts) from 92,068 publishers that FeedBurner manages as of mid-week last week (11/09/05).
The recurring theme of the power of word-of-mouth marketing came several times for me yesterday. My day started out with an email from Raj Bhargava, the CEO of StillSecure, that pointed to an unsolicited positive review of StillSecure’s StrataGuard product on an end-user’s blog. Later in the morning, I had a meeting with a new consumer product company with a cool invention that was created by a friend / neighbor. They had built 25 prototypes and had 24 of the 25 users of the prototypes rave about the product. At the end of the day I had a meeting with a $400k two person software company that is trying to figure out how to accelerate their growth.
I had the word-of-mouth theme in my head from the StillSecure product review post. In my first meeting, I listened as the entrepreneurs told me they needed a $2 million financing to do the first production run of the product (1,000 units) done, get a marketing guy hired, do “marketing”, build channel relationships, and see if things worked. If they did, they either needed $0m of additional financing or $8m of additional financing, depending on how they rolled out the next wave of marketing.
In the second meeting, the founder told me that of all the marketing approaches he tried (trade shows, print ads, cold call of industry lists), the only one that was working effectively was Google AdSense. In this meeting, he suggested that he was going to try a bunch of new (and the same) things. When I probed, I found out that his existing customers are ecstatic with the product, the company has plenty of leads, but he can’t figure out how to motivate the leads to quickly turn into customers.
In both cases, I kept hearing the word “marketing” used generically. I despise the word “marketing” – it’s often the weakest link in a startup company. “Marketing” is vague and non-specific, often poorly executed and measured, and usually a huge waste of money relative to the output. Oh – and while there are plenty of “tried and true” approaches (that any marketing consulting would be happy to charge you plenty of money to explain to you) – the effective approaches have been evolving a lot lately, especially as user-generated content becomes ubiquitious.
Several years ago, I suggested to my portfolio companies that they fire their VP of Marketing and hire a VP of Demand Generation (it could be the same person if the VP of Marketing was willing to accept a quota and meaningful, measurable variable compensation.) Hopefully, this VP of Demand Generation understands the incredible power of having your customers so happy with your product that they’ll talk about it online. To see an example of this, FeedBurner has been doing a great job of highlighting this with their Publisher Buzz blog where they link to posts from “people who kind of dig FeedBurner.”
I suggested to both companies that I met with that they stop talking about “marketing” and instead focus on getting their existing customers to tell the world about their product through blogs, references, online interviews, and at cocktail parties (these are both products that the target customer will ultimately start talking to a friend about over a drink).
Try something – for 24 hours, substitute the phrase “lead generation” for “marketing” in every conversation you have and see what happens.
Today the Houston Chronicle went live with FeedBurner’s feed management service.
When I invested in FeedBurner, one of my premises was that traditional media would rapidly adopt RSS for content distribution and – as part of this adoption – would aggressively look to outsource part (or all) of the feed management activities to a company (e.g. FeedBurner) that had built out a broad series of feed management tools and services. I had real conviction about this (as did Dick Costolo and the FeedBurner team) so I didn’t bother calling anyone that I knew in traditional media – given how early things were with regard to the adoption of RSS, most of the people I knew would have said “tell me what RSS is again?”
A potential investor was less convinced and talked to a number of his traditional media friends. They all said – unambiguously – “no way – we’d never outsource that – what that RSS thing is.” Of course, a year later, all the folks that this potential investor had talked to has outsourced their feed management to FeedBurner.
This is a classic challenge in the VC “due diligence” process. All VCs (including me) want validation that the product, service, or technology will be adopted by the market targeted by the entrepreneur. However, in very early markets, this is extremely difficult to validate and more often than not you end up with “potential customer bipolar disorder” – either customers say (as in this case) “no way – not interesting” or – alternatively – they say “definitely – I’d love that” but leave off the key phrase “if it was free.” Obviously, bad decisions can be made if one places an inappropriate weight on this variable.
In an early market, I’ve decided that this validation isn’t important to me. I don’t blindly invest – I think hard about it – but I recognize that whatever market data I collect could easily be a complete head fake. As a result, I look for analogous situations in older markets (especially ones that I have experience with), use my instincts, and think hard about how things might play out. I recognize – a priori – that I could be wrong and I’m willing to take that chance.
In FeedBurner’s case, I was right. FeedBurner has already built up an incredible customer base of traditional media companies who are outsourcing their feed management to FeedBurner. Look for more announcements coming soon – the Houston Chronicle is simply a good example of how deep into mainstream media (the Houston Chronicle is a top 10 newspaper and is part of Hearst Corp) this can go.
Several weeks ago, Postini announced a new product called PTIN Access – enabling enterprises, solution providers, and OEMs to have access to the Postini Threat Identification Network. PTIN is Postini’s real-time sender behavior analysis for email threat prevention and is the core for Postini’s remarkable email security service (which I like to refer to as “magic” as this is what it’s like to go from a spam-filled inbox to no-spam at a flip of a switch.)
Today, Postini announced that Return Path will use data from PTIN to support the Return Path Bonded Sender email accreditation service. While whitelist and blacklist services have existed for a long time, they don’t work very well anymore in today’s spam filled world. As a result, legitimate emailers get blocked (or categorized) as spam regularly and – in an effort to deal with this via whitelists – spammers exploit these lists and bad stuff gets through. There’s a tough balance here as directory harvest attacks, phishing attacks, virus, and ever more sophisticated spam approaches increase the pressure on email security providers, resulting in “tighter filters”, which then blocks legit email, and on and on it goes.
Return Path has been at the forefront of the email deliverability issue. Postini has been at the forefront of the email security / anti-spam issue. I’ve been involved in a number of investments around email over the past 10 years and know – as well as most – how the level of complexity around email has increased as it has become pervasive in our lives. It’s completely logical and exciting to me that Postini and Return Path would work together to help separate good email from bad email.
I don’t usually pay much attention to Online Journalism Awards (and such things) but I’m proud of Jonathan Weber (co-founder and editor in chief of The Industry Standard) and his team at New West Network who just picked up two awards this weekend:
I’m an angel investor in New West Network – it’s a small media deal (not a VC-oriented deal) – but Jonathan has created something that’s editorially relevant, becoming very popular, and has a unique approach to media in the “new west” with coverage in Missoula, Boulder, Salt Lake City, Boise, Albuquerque / Santa Fe, Northern Idaho, Aspen, Durango, Bozeman, and Columbia Gorge. If you live in, visit, or care about any of these cities, I recommend you subscribe (and it’s easy via RSS).
Congrats Jonathan and team