I need to perhaps start to set the stage for some impending news, so I will be a tad more diplomatic in my observations on venture capitalists in the days, weeks and months to come… but I think venture capitalists don’t invest in companies or people, they ride trends.
Say all that you want: but Facebook has lost so much of its glitter in the past year, and I think Twitter will undergo the same (some would say it’s already begun). Today, Facebook can’t raise a penny over $3B, last year a lot of people (in addition to MSFT) didn’t blink at the $15B paper value. Yes, a lot has changed in the economic landscape, but I’d argue the meltdown in traditional industries has accelerated the rise of digital and interactive.
VCs have began to complain about many things (Sarbanes Oxley, banker fees, etc.) to explain their lacklustre record of late, but I think it boils down to their carpet bombing approach to backing the latest it thing, hoping for a quick flip to the greater fool.
I’d like to see VCs get back to backing great people and big ideas… today it’s Twitter API derivatives and iPhone apps?
Give me a freaking break. What ever happened to Built to Last?
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WatchMojo NewsletterAgree or disagree with all points, Mark Goldenson pens a gem, called “10 Lessons from Failed Startup”, for Venture Beat.
The ten points are:
1. Find quick money first.
2. Content businesses suck (or: do it for love and expect to lose money).
3. Know when to value speed vs. stability.
4. Set a dollar value on your time.
5. Marketing requires constant expertise.
6. Control and calculate your user acquisition costs.
7. Form partner relationships early, even if informal.
8. Plan costs conservatively and err on the side of raising too much.
9. The key to negotiating is having options.
10. Knowing isn’t enough.
Personally, I’ll simply say content creation and distribution can work. But 99.9% of content startups just don’t know what they’re doing. And to his credit, Mark is honest to admit that his was just one of many.
What’s criminal is that he raised $900,000, some have raised over $20,000,000 and lord knows they won’t be around in 1 or 2 years.
Laura Desmond, chief executive of Starcom MediaVest, the media planning arm of Publicis, says the industry is heading into a “50-50 world” in which half of revenues go to digital and interactive campaigns.
That made my day. Read more, via Business Insider. A couple of posts I written previously which now seem very conservative:
- online advertising to surpass TV advertising by 2021,
- online video to surpass search advertising by 2018.
Navigation, Content and Communication
Google would be navigation, clearly they won that game. They are now moving towards communications, with things like Gmail… but as email morphs into social networking, they are now moving into that space more and more.
This is why I think Google and Facebook are the real enemies or combatants in that space.
I don’t see MySpace and Facebook as competitors… and this kind of supports my argument that moving forward, MySpace will be increasingly a competitor to Microsoft’s MSN.com and Yahoo.com, which both aggregate content and editorialize it. This also explains why MSFT invested in Facebook, not just to avoid Google from buying/ investing in Facebook, but also as a proxy to fight Google on the communications front.
MySpace will be an entertainment hub, Facebook will be a tech platform, basically, used largely to communicate. Long term, even if Facebook seems to be more valuable, MySpace will generate far more revenue.
AOL’s ad revenues fell 20%. That was the past. Personally, I love their Media Glow strategy: creating smaller sites (but still huge) that focus on one demographic, on stand-alone URLs.
For smaller media companies like Gawker, eventually it didn’t make sense to have stand alone web properties (think Valleywag being folded into Gawker.com under valleywag.gawker.com). But for AOL - one of the largest portals around - having everything under AOL.com also doesn’t make sense.
They can still get traffic by bundling the smaller sites under AOL for reporting. But whereas previously the value of advertising real estate tumbled with each level, this way they retain more value.
For example, AOL.com being the main front page would be very valuable. Say they wanted to have a men’s channel under Men.AOL.com, this would be seen as one level lower, and Men.AOL.com/Health (for example) would - while more targeted - be seen as two levels deeper. The deeper you go into a site’s maze, the less advertisers value it.
But by having a site like Asylum.com to reach men, then Asylum becomes both the “frontpage” and a targeted, uniquely branded property, and Asylum.com/Health is both targeted and only one level down.
This might all seem rather technical, but I think that despite today’s 20% meltdown, over time, this strategy will look very smart. Read more on Business Insider.
Mind you, we’re also one of the largest online video producers - period. But, I digress.
Canada’s users are considerably advanced when it comes to web habits.
This can be explained by a few factors:
1- The nation’s service providers skipped initial over-investment in dial-up technology and rolled out broadband access early on. According to:
Mark Tauschek, a lead research analyst for Info-Tech Research Group who studies the network and wireless industry, said he’s not surprised that Canadians watch a lot of online videos as the country has historically had a solid broadband infrastructure.
2- The country has relatively speaking, few large urban centers.
3- The weather: what would you do when it’s cold? You stay in.
As a result, both media consumption and e-commerce (including e-banking) have fared strongly north of the border.
Canadians watch more hours of videos on average than internet users in the U.S., U.K., Germany and France, said Bryan Segal, vice-president of sales for the market research company comScore Canada.
However, Canadian media companies are not exactly leading the charge when it comes to digital media:
Companies are still only just beginning to think about how they can take advantage of the medium to boost revenue, he said.
Part of this is that:
- the TV-centric media companies are either heavily subsidized by the government or fear online cannibalization.
- the print-centric media companies don’t really have the in-house expertise or resources to dive fully in online video.
This is why a lot of the content that is consumed comes from South of the border.
The government is also a bit psychophrenic about what - if anything - to do about spurring growth of online video content.
- There are numerous of R&D tax credits for video game content producers
- There are also generous R&D tax credits for technology start-ups
- While Telefilm Canada does help out traditional film and television producers, it has yet to do anything for online video content producers such as WatchMojo.com.
Personally, I have tried (largely in vain) to match the amazing number of partnerships we have south of the border by reaching out to executives across media companies in Canada, but apart from a formal deal with Quebecor’s Canoe portal, we have yet to have anything in place with all of the others. We keep talking and pitching, but to no avail.
It’s their loss, frankly. The article continues:
So far, in Canada the big winner is Google and its YouTube brand. The site allows Canadians to access the short, low-resolution videos, many of them generated and uploaded by the public.
Regardless, last year we became one (if not the) largest independent online video producer, even surpassing the likes of CBC and Much Music in terms of YouTube popularity, which basically controls the distribution market and has allowed us to crush through the 50,000,000 all-time video stream mark.
If the content providers do take the right approach, they could end up being the big winners, he predicts.
The cable and satellite television stand to lose revenues once consumers can get a wide range of TV with high image quality over the internet for free.
Cable, satellite companies could lose
“I think we’re just sort at the leading edge of that,” he said. “In Canada, I think Rogers and [Bell] Expressvu are going to start feeling that.”
I agree: content, after all, is king. But we are starting to see some panic in boardrooms, which explain some of the business and corporate development talks we’ve had over the years.
Tyler Chamberlin, who researches corporate strategies for technology-based firms, said barriers remain to the wider adoption of online TV in Canada, such as the CRTC’s concern about cultural protection.
“I don’t think that we’ve really figured out yet exactly what to do with the online world where it comes to culture … which, personally, I think is to the detriment of the country economically. I think it holds us back culturally as well.”
Chamberlin, a lecturer at the University of Ottawa’s Telfer School of Management, added that Canadian companies may be reluctant to sell their content to a company like Hulu, as it may seem more advantageous for them to get access to the online market themselves than to give up the online rights.
“If people stop watching it on TV and … stream American content directly from Hulu, what’s left for them?”
After all:
“You can go from a market leader to out-of-business rapidly,” concludes Segal.
That’s why we love being on this side of the fence.
Business Week has a good quick Q&A on why Conde Nast failed with Portfolio.
Come to think of it: News Corp. and NBC - two TV-centric media companies - launched a joint venture in online video distribution by selling 10% to private equity firm Providence Capital for $100M and it has managed to become a serious contender in the professional video content space by tapping into their parents’ content libraries. Sure, they got a few things wrong, got a lot of things right and while questions remain on the viability of the property’s long term prospects, the overall tide in online video is rising, and the company can seemingly do no wrong.
On the other hand, Conde Nast - a print-centric media company - poured the same amount of money itself and basically got the timing wrong. But even with better timing, I don’t think things would have changed.
As much as I criticize VCs, I think this echoes what VCs say about picking companies based on the size of the broader market: if the market is big enough (and trending upwards) then it can fix mistakes. With print, everything is priced to perfection and the slightest obstacle can derail a product. In 2008, we didn’t just encounter the slightest of obstacles, the world went belly up and Portfolio became a victim of that.
But you have to ask yourself: why is Conde Nast not reinventing itself in new media such as online video? That’s the $100M question people!
There are a few basic lessons to be learned from Conde Nast’s decision to close Portfolio, despite sinking $100M into the launch.
Lesson 1 is the obvious: use the Web to test new products and launch with some modesty. Portfolio, of note, was doomed because it was full of hubris.
Lesson 2 is somewhat sexist but it’s true: unless you are a magazine targeting women in one specific category or another, just go online-only. End of story.
Lesson 3 is that you can pick a great category like Finance and Business but still get blindsided by poor timing and abysmal luck. However, while I’ve never read Portfolio, I get a sense that instead of covering what was actually going on in the world of Finance and Business, the editors put their heads in the sand.
The perfect storm created by these three things culminated in the news today. I reiterate: the only thing that print companies should be investing in is online video…not because I am biased… but because it remains the only salvation, not today, or tomorrow, but in 1 or 10 years down the line.
If Craiglist wasn’t “profit-agnostic” how much would Google be worth? Think about it: The run up in Google’s revenues, profit, stock and market cap has to do not just with how profitable the business is, but also with the fact that investors view it as the best play on both the Web and the destruction of print media.
So since Craigslist has itself done a lot to suck out the value from newspapers, you have to wonder, would Google be worth as much as it is worth today if investors could buy stock in Craigslist too?
After all, Google is more of a classifieds/listings business than a traditional advertising business. Yes, classifieds is a subset of advertising, I know that, but hopefully you know that I mean: if we were to rank Google relative to other “listings” business and Craigslist was a comparable, would it trade at such lofty multiples?
Anyway, Craig Newmark and Jim Buckmaster have other things to keep them busy these days.
According to a graph found on page 17 in the latest issue of Fortune (which, incidentally, looks like a very thin version of Business 2.0), even after you remove the GDP of the country of Morocco ($90B), Google’s market cap ($114B) is larger than the combined market caps of
- News Corp. = $19.7B
- The Washington Post = $3.7B
- The New York Times = $695M
Incidentally, the NYT paid $410M for About.com back in 2005. We put that deal in the Top 10 best Internet M&A deals… but right now, I am not sure what can save the NYT.
Generally speaking, I think newspaper stocks have fallen considerably not just because of the threat posed by the Web but also because newspaper companies profited from the inherent inefficiency between gathering news and publishing it. Today, that inefficiency is largely gone, but newspapers remain inefficient machines.
You have to wonder: if print-centric media companies were slow to adapt and have now seen their market caps fall by 66% since 2004 alone, how badly will TV-centric media companies fall over the next few years? In other words, even those media companies who were quick to adapt have been bludgeoned. The Web shrinks traditional media businesses, it’s not a matter of if, but rather, when and how badly.
