3 Suggestions on How To Survive The Downturn: Recapping Sequoia Capital’s "Doomsday" Scenario

Om Malik provided a recap of Sequoia Capital's meeting with its portfolio companies. I'm not going to try to paraphrase it; instead, I'd encourage you to read his excellent post in its entirety.

Having just experienced a similar meeting at Liberty NetLeaders, a gathering of CEOs from local companies and Liberty Media portfolio companies, there were a lot of similar memes.

First, this downturn is not like anything we've ever experienced before. Forget 2000, think of this as the economic equivalent of the Hundred Year Flood, an engineering exercise used to model extremely rare events. Here in Denver, things tend to hit us later and last longer. I suspect the tech industry will react the same.

Second, this will have a profound effect on culture. Leaders must be prepared to toss aside all of the assumptions they have made while preparing their managers and employees for the storm. Events like this tend to expose all of the cultural schisms that get overlooked as long as the company's prospects are sunny. It will be an enormous challenge to maintain morale and stay on point.

Lastly, there will be tremendous opportunities for those companies that keep their head together. There are obvious opportunities, but at these meetings there were discussions of what kinds of opportunities were likely to present themselves, based on hewing to a clear vision and maintaining a strong cash position.

In this politically charged environment, there are any number of scapegoats that we can assign blame to. The companies that survive will be the ones that manage to stay above the fray and find ingenious ways to achieve their mission.

Oct 10 Update: Here's the presentation:

The #1 Source of Consumer Aggravation: What Happens When Maps Aren't Accurate?

NeworleansFirst, reviewers (New York Times, Seattle P-I) started discovering inaccuracies in local city guides for the iPhone.

Then, in the wake of Hurricane Katrina, map accuracy is being called into question. Peter Zollman, writing for Poynter, shows how the Lakeview residential area (shown to the left), is actually filled with houses "...(that) are either restored, gutted and awaiting restoration, or demolished."

Peter should know, he lives there.

So I checked this against some construction taking place across the street from the Colorado Convention Center. Looking at Yahoo, Google, and Microsoft (note these three links display the same area on the various services), Yahoo and Microsoft both show the area as a parking lot. Only Google shows any construction, which actually broke ground on May 15, 2007. The image below shows the same area as of January 2008: clearly not a parking lot!

In other words, the satellite views for all three services are at least 15 months old.

Spire_today I really did like Microsoft's bird's eye view here, but wrong is wrong. Local search should be accurate, whether it is search, video, or maps. No one likes going online, driving a few miles to go somewhere, only to find the place is either closed or no longer exists.

Years ago, it was easy to underestimate the value of TVGuide. Analysts would ask, if you had relationships with all of the television networks, how hard could it be to recreate the enterprise? The fact of the matter was that TV stations' programming was often out of local control. Print products could take days to get to market versus hours for electronic programming guides (EPG), but if the EPG showed television shows that weren't going to air, even the slickest EPG wasn't really going to be worth much.

It appears that investors have a strong interest in local applications, which will only intensify if Apple releases a $499 netbook in September. Given these developments, it will be interesting to see what investors in local media will choose to do in order to to ensure their investments feature accurate, up-to-date information.

WWJMD? Some Corporate VC Advice for David Drummond

GooglevcToday, noted VC Fred Wilson chimed in on Google's venture capital aspirations. Fred is a Google investor and points out some of the major disconnects between corporate and entrepreneurial venturing. I'd encourage you to read his post in its entirety, he raises some important points. But as David Drummond and William Maris sort out the pros and cons of corporate VC, I thought I'd share a few observations.

First, I should point out that I'm not a venture capitalist. But I had a short but meteoric career at the nation's largest cable TV company in their fledgling VC group, and I think I had a good opportunity to see what was and wasn't successful.

Perhaps some history would be in order.

Cable operator Tele-Communications Inc. created Liberty Media in 1991 and hired Peter Barton to whip things into shape after his successful stint at Cable Value Network. Liberty's entrepreneurial culture flourished in the entertainment mecca that was Cheyenne WY, far away from the parent company. This set the tone, as each investment kept its management and corporate culture intact. Over the next few years, Liberty Media helped a lot of today's cable channels got started, thanks in part to its recurring revenue model: for every cable subscriber, the network would get anywhere from a penny to a quarter, every month.

Strong, predictable cash flow covered up a multitude of sins, and early cable networks gained access to the resources they needed to grow. For example, ESPN soon stopped airing ping pong and tractor pulls and landed lucrative contracts with the NFL, NBA, MLB and college football. It got to the point that the major leagues today depend on television revenues for their livelihood, something I've blogged about here. (I should note that Peter left the year after I left TCI, and passed away entirely too early in 2002 at the tender age of 51.)

Now, Dr. John Malone and Peter understood pop culture intersected with technology. TV networks, like Microsoft, understand that the key to their profitability is the ability to obsolete their own products. That might may have been one reason why they invested in a slightly eccentric billboard executive's vision of a 24-hour news network.

If you buy into that premise, it means that future web service development may look more like television programming, where a TV network might manage production risk by investing in 10 pilots and only committing to making 2 of them into a series. For example, a few weeks back we had reports that eBay's growth had stalled, growing only 8 percent from the year-ago quarter, a steep decline compared with its robust double-digit growth in previous quarters. Consumers have become price sensitive and the auction model has failed to find the same traction as fixed price. I believe eBay will become increasingly irrelevant because it continues to hold onto a transient business model and has failed to identify the logical successor to its auction product.

Once, Google leapfrogged Yahoo! by combining a great technology vision with pop culture - people loved Google's clean interface more than Yahoo's cluttered interface. But history has a habit of repeating itself, and as Microsoft and IBM can tell you, nothing lasts forever.

Google might want to get into VC, if only to place strategic bets on emerging utility computing concepts that have a shot at obsoleting its search utility model.

JCDecaux: The Biggest Outdoor Media Company You've Never Heard Of

Digitalposters Here's the next outdoor display concept destined to burn brightly, if only for awhile: 65 inch Sharp PN655R LCDs acting as "digital posters", courtesy of Engadget.

They're super-crisp, and if you've seen them at CES, you know how amazing it looks up front.

Yet every time I see a technology like this, I'm reminded of a little French company called JCDecaux, and how the latest technologies are frequently humbled by unexpectedly primitive alternatives.

JCDecaux happens to be #2 only to Clear Channel in outdoor media. Slowly but surely, JCDecaux has become the outdoor media magnate of choice not only in Europe and the US, but also in emerging markets like China. They've done it not by relying on the latest technology, but by providing a brightly lit image that rolls up periodically to reveal the next image, and securing important rights-of-way with cities and other property managers. If you've visited high-end properties managed by Simon, Taubman or Westfield you've probably seen JCDecaux displays in the common areas.

Outdoor media is important because the next generation of consumers will base their life around the mobile phone. If you can't count on your message being the top icon on every consumer Blackberry or iPhone, then you're going to need outdoor media to provide the call-to-action. I know that many people swear that people will become more accepting of mobile coupons automagically personalized to individual preferences and delivered to phones via Bluetooth; but somehow that only makes me admire JCDecaux a little bit more

Emerging Sponsorship Categories: Custom Publishing Comes of Age

Custompublishing Bill Chipps over at IEG recently shared the next up-and-coming trend in sponsorship: on-demand book printing.

Figure it out: if you were invited to a golf tournament, you met a ton of celebrities, and had a lot of fun -- how would you feel if you received a surprise in the mail: a hardcover coffee-table style book, filled with great pictures of that event of you and all the people you met? If you're like millions of other Americans that love seeing pictures of themselves, you'd love it!

With vendors ranging from Blurb to Lulu to Amazon's CreateSpace.com, these books typically cost between $20 and $50 per book. Bill indicated these books are useful in three ways:

  • It's an emerging category to pitch for sponsorship.
  • They become tools to create or supplement fulfillment reports and sales materials.
  • They are an excellent activation vehicle for sponsors.

Bill cited the example of Newport Harbor Corp., who last fall began using iPhoto to create custom books for sponsors like the Stop & Shop Supermarket, which sponsors Taste of Rhode Island. While the sponsors were already expecting to see reports describing traffic, the books provided a visual reminder of the event and the sponsors' participation. Interns manage the photography and design elements while the sales team writes copy. They plan on creating books this year for every sponsor paying over $10,000.

The uniqueness of this sponsorship category, combined with the familiarity of such books provides a unique opportunity for forward-thinking marketing organizations. The on-demand part is important: you don't have to have a minimum order; so whether you order 1 or 10,000 the economics are very similar. Some potential opportunities for such custom publishing include

  • Restaurants: combine photos, beloved recipes and historical documents (articles, reviews, awards, etc.) to create unique souvenirs for their most beloved customers, or distribute them to local hotels and concierges in recognition for business.
  • Hotels: celebrate employee-of-the-month programs that emphasize the service standards of the hotel, but include pictures of the employee and co-workers, personal thank-yous from management team, and copies of letters from appreciative guests.
  • Cruise lines: Create a template that includes postcards and mementos from various destinations, include maps and fun facts about destinations. When there is a multi-week cruise, take a lot of pictures of the passengers over the first few days and place them into the template. Email the template to the vendor so when the cruise winds down, passengers receive these books when they disembark.
  • Convention and Visitor Bureaus: Reward conference organizers with multi-year deals with books filled with pictures of their membership having fun. Include lots of pictures featuring local restaurants and other venues. In other words, create an emotional component that reminds them how much fun they have visiting your neighborhood.

Can I Borrow You For A Moment? The New Cognitive Surplus

Istock_000003622473smallI've had a lot of conversations recently about crowdsourcing - using web tools to engage the public (or other large groups) to solve problems. Jeremiah Owyang of Forrester Research provides an example of how crowdsourcing helped improve a conference session by turning a boring panel into a more lively one:

"...Questions made the panel: Love hearing viewpoints from people with boots on the ground."

Now, Clay Shirky provides a completely different context for crowdsourcing: with all of the free time we are no longer spending on television, and instead spending with Facebook and other social applications, can we find a way to solve some of the really big problems? He asks:

"...Let's say that everything stays 99 percent the same, that people watch 99 percent as much television as they used to, but 1 percent of that is carved out for producing and for sharing.  The Internet-connected population watches roughly a trillion hours of TV a year.  That's about five times the size of the annual U.S. consumption. One per cent of that is 100 Wikipedia projects per year worth of participation."

When he says "Wikipedia projects", he means things like Vasco Furtado, a Wiki Map for crime in Brazil. If there's an assault, if there's a burglary, if there's a mugging, a robbery, a rape, a murder, you can go and put a push-pin on a Google Map, and you can characterize the assault, and you start to see a map of where these crimes are occurring. While that might not mean a lot to someone that may never visit Brazil, in some of my previous posts I've noted how similar local projects led to a fifty percent drop in crime.

Think of it: just a change of 1% in your TV watching habits can lead to a hundred projects, just like these. Clay notes the last time there was a similar change in how we spend our leisure time as significant as this, it gave rise to gin and sitcoms. Read the post for yourself, or Dave Morin over at Facebook posted a video of Clay's talk.

Why We Facebook: Inside the Emotional Cues That Motivate Us

When I worked for TCI Technology Ventures (the venture capital arm of what was the largest cable company), we would look for the cues that would trigger a positive emotion, which would help lock in the customer. For example, while basic phone service is unsexy, voice mail had a lot of emotional cues. People would save key voice mails from loved ones and return to them later. The number of voice messages was a proxy for how loved the person felt.

I know it sounds cheesy, but when you are dealing with sixty million subscribers, emotional cues were among the most reliable indicators of whether a sub was likely to churn out.

So fast forward to social networks. Beyond all of the technical gobbledygook about privacy and data portability, could it be that people use Facebook because of similar emotional cues?

To answer that question, we reference an unscientific survey of Facebook users via SurveyMonkey, which yielded the following factoids:


What Facebook Users Do Every Day

1. Look at Photos (28.1%)
2. Poke Someone (12.3%)
3. Send Private Messages (10.5%)
3. Write on Someone's Wall (10.5%)
5. Add a New Friend (8.5%)
6. Comment on Photos (6.1%)
7. Add Photos (1.8%)
8. Edit Profile (1.2%)
9. Add New Applications (0.9%)

What Facebook Users Do Frequently

1. Look at Photos (43.9%)
2. Write on Someone's Wall (34.2%)
3. Add a New Friend (32.9%
4. Add Photos (27.2%)
5. Edit Profile (21.0%)
6. Send Private Messages (17.5%)
7. Comment on Photos (15.8%)
8. Poke Someone (14.9%)
9. Send Gifts (6.1%)
10. Participate in a Group (5.3%)
10. Add New Applications (5.3%)

What Facebook Users Never Do

1. Use the Marketplace (81.8%)
2. Create Your Own Group (54.4%)
3. Comment on Notes (49.1%)
4. Write Notes (44.7%)
5. Create Your Own Event (42.1%)
6. Send Gifts (40.4%)
7. Add New Applications (31.6%)
8. Poke Someone (28.9%)
9. Participate in a Group (23.7%)
10. Comment on Photos (6.1%)

When looking for emotional cues, I look for things that people do somewhat obsessively, for example, every day. Using that criteria, "viewing photos" and "poking someone" rank higher than "send private messages", which is a form of email. Sharing photos is a very intimate exercise common among family and close friends, and has become more widespread thanks to photo sharing sites like Facebook and flickr.

As for "poking someone", it's helpful to understand what a "poke" actually means. A common answer is it's a mindless way of saying "hello", but others have compared it to online flirting: if someone pokes you, and you poke them back, it's a way of saying, "Yeah, I'd date you."

Compare this to the #1 activity that people never do, which is "visit the Marketplace". (Notice that "Use Beacon" wasn't included as a choice ;) Brands that are seeking to get involved with Facebook should look for ways to emotionally involve their target audience, or as Don Dodge puts it, execute a "head fake" where you entertain people with shiny, fun activities; all of which are just a front for your sophisticated data-collection operations.

How It Really Happened: The Hypocrisy of MySpace's $234 Million Judgment

Sanford_wallace_spam_kingMediapost writer Wendy Davis reports on MySpace's legal victory against Sanford “Spamford” Wallace and Walter Rines, who targeted members of the social networking site by stealing passwords through "phishing" scams, then emailing other MySpace members to induce them to visit other websites.

The irony is that MySpace itself was built, thanks to marketing methods that we know today as spam. Trent Lapinski over at Valleywag.com writes that "Myspace is Spam 2.0", and goes on to describe the company's real history:

  • CEO Chris DeWolfe, who from October 1999 through March 2001 acted as the VP of Sales and Marketing at Xdrive Technologies, Inc., a company that offered millions of users large amounts of free online storage during the dot-com bubble. He learned all about the business of "free," and more importantly, "...that people will sign up for almost anything that they find useful, and they could care less about the fine print."
  • Tom Anderson, the eventual face of MySpace, was originally hired as a copyeditor in DeWolfe's marketing department at Xdrive. He later became the friendly face for the PR campaign.
  • DeWolfe's new company, ResponseBase, was purchased by eUniverse on September 9, 2002. This date was the actual moment of birth for MySpace. In August of 2003, eUniverse CEO Brad Greenspan received and accepted an invitation to join Friendster from Chris DeWolfe, who had been a member since June 2003. Recognizing Friendster's potential, a plan was hatched to quickly mimic the appealing features of the site, re-brand it as MySpace, and then out-market them using eUniverse's resources.
  • According to internal emails and documents, MySpace 1.0 was ready within ten days. As part of the internal testing and promotion of the site, the company held a contest to see who could sign up the most people. The hope was that if all 250 eUniverse employees brought on 10 friends, they would have a starting user base of 2,500. Even self-proclaimed loner Tom Anderson took part, stating in an email, "I am as anti-social as they come, and I've already got 20 people to sign up."
  • After the 250 employees spammed their friends, and those friends spammed their friends and their friends' friends, MySpace went on to become the marketing juggernaut it is today.
  • DeWolfe's original business model was to sell accounts to MySpace, but it was Greenspan who proposed to keep MySpace free and to make profit through advertising. Greenspan believed in the concept so much, he even cannibalized his other assets, such as dating site CupidJunction, which at that time was a top dating website with over 3 million users.

As tawdry as this may seem to some people today, it will be interesting to see how historians judge this medium. After all, when you compare the early history of MySpace to daily newspapers (which, according to some accounts, were created "...to spread defamatory reflections"), Brad Greenspan's intentions seem downright benevolent. 

Comfy Shoe? Or the Next Media Giant? Inside Crocs 'Cities By Foot'


Does advertising work?

Not when every consumer is overwhelmed by magazines and images that all pretty much look the same. So, to cut through the clutter, Crocs' director of marketing Ed Wuensch set out to engage their consumers by offering a service, not an ad. They just launched "Cities By Foot", which was designed and managed by Denver agency Red Robot. One of the most interesting things is that the site features some 70 videos of different destinations, all two to three minutes long, and all owned by Red Robot and licensed to Crocs.

(It kind of reminds me of how the first soap operas were paid for by Proctor and Gamble, Colgate-Palmolive and Unilever...but ended being the basis for powerful television empires that we know and love today. By the time they figured out the opportunity they had missed by not taking an equity stake -- well, it was too late.)

More Questions Than Answers: Rethinking the Web Video Business Model


Will Richmond of VideoNuze provides excellent daily coverage of the web video market. This morning was no exception as he recapped Digital Hollywood by asking three questions:

  1. What role will current video distributors play in an increasingly broadband-centric world?
  2. Is the ad-supported business model for broadband video going to deliver for all the content providers relying on it?
  3. What does all this mean for Hollywood?

Once upon a time, people couldn't imagine more than a few dozen video channels. Now, not only do we have niche channels for just about every topic imaginable, we have web video channels that cater to every variation imaginable.

While the video providers initially thought this was a great development, the problem is that Wall Street valued cable operators based on the revenue per subscriber. As the number of channels available increases, the number of channels watched actually remains fairly constant. As a result, IPTV and other new video providers have an uphill battle to get anywhere close to the lofty valuations of their satellite and cable competitors.

It is no secret that Will and myself are both huge believers in the syndication model, given our respective histories in cable television.  It starts with the premise that more distribution leads to less risk. For example, early cable TV was partially funded by selling so-called bulk accounts to hotels and apartments. While the revenue per room was less than a home install, the agreements were for three to seven years and were easy to maintain. In exchange, every hotel in the 1980s proudly proclaimed "free cable" or "free HBO" as a way to distinguish themselves from the hotels down the street.

It's my sense that similar types of arrangements are just around the corner. When people understand how video can be used as an amenity, to enhance an experience, then I think the boom times in web video will return again.

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