Fred Wilson who invested in Feedburner and sold it for $100M, and who is an investor in darling Twitter, seems to have his fingerprints all over the news today that Feedburner’s former CEO Dick Costolo has become Twitter’s COO.
It’s a shame, when you think about it, that Google basically paid $100M for Feedburner but hasn’t exactly taken RSS to the next level.
A lot of people view Twitter as the evolution of email lists/newsletter/RSS feeds, and today’s announcement that Costolo is joining the party is only going to increase expectations of great things to come from Twitter.
Found via Tech Crunch, here are VC’s Fred Wilson’s six words to live by on the Internet: Global, social, open, mobile, playful, intelligent — and a bonus seventh one: instantaneous.
Not quite “Life, liberty, and the pursuit of happiness” but true words indeed.
This begs the question, how do these words apply to content?
- Global: unlike local TV, web video has, in the words of Jack Welch, a “boundary-less” audience. Your content can cover a very local topic but if you can wrap it up in a global context, you will get a better ROI, because more people will consume and volume will drive revenues.
- Social: Video is infinitely more valuable than text content because of the sharing and commenting aspects of the medium. If you think about it, advertisers are starting to look increasingly at “time spent on a site” over pageviews. Yet “time spent on a site” is oftentimes amplified not by the time one spends strictly consuming the content, but the commenting on it. Go to any Youtube video page and see how many of the same users go back to the same page to comment on it. For better or worse, that increases time spent on the site, making the content more valuable.
- Open: YouTube sold for $1.65B mainly for its ability to make video “explode” by popularizing the embed function, something that Adobe’s flash enabled but founders Steve Chen and Chad Hurley learned at Paypal, whose payment buttons proliferated all over the Web.
- Mobile: strictly speaking, this refers to mobile as in wireless devices… but broadly speaking, this includes creating videos that are valuable enough to be on every platform: web, wireless, television and out of home (a market we now reach nearly 20,000,000 consumers each month). But, of course, this also means being able to let consumers take your video and take it where they want. This last part is something that freaks out traditional media, and allows new media producers like WatchMojo.com to leverage to disrupt the content business.
- Playful: Put simply, to quote Johnny Carson, “People will pay more to be entertained than educated”…
- Intelligent: … but that being said, so much of the value of content is derived from others’ (be it readers/viewers/listeners, employees, investors, and mainly advertisers) desire to be associated to it, and one’s desire to be associated to something/someone else is based on how intelligent its perception is. One of the growing markets we see (but rarely talk about) is the educational market. We have about a dozen or so educational organizations that license our content for their academic clients/needs. This in of itself translates to little financially right now, but it does suggest that the content is intellligent enough to make others (advertisers) want to associate themselves to it.
- Instantaneous: Like I tell my team, online, you can’t wait for things to be perfect, you have to put it out there and then continuously improve the quality, quantity, frequency, and consistency. But once something is out there, the impact is usually instantaneous, so make sure you pour everything you have in the content before it goes out there.
Yesterday Henry Blodget reported that Twitter is looking to raise a Series C financing round of up to $15M on a $60M pre-money. If investors bite, that would give the short-form publishing platform a $75M post money valuation and effectively dilute the company by 20%.
Previous, Twitter had raised $5M on a $20M valuation, whereby they had sold off 20% of the company.
- Listen to your Money-man
Fred Wilson published a piece on how raising too much money before you have defined a successful business model. I covered this here and heaped a lot of praise on Wilson for admitting that too much VC money is what oftentimes kills businesses. He said:
Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.
When recently asked by a user to describe what that is business model actually was, Fred replied:
build a service that tens of millions of people love using every day, then build a revenue model that is native and appropriate
That sounds really great in abstract terms, but it fails to define what model that will actually be… My guess, frankly, is that no one really knows but they all have plenty of ideas and opinions. You know what they say about opinions…
This funding then must be for IT and infrastructure which users say is unreliable. It’s not a coincident that changes at Twitter’s IR brain trust have been numerous of late: first Blaine Cook, then Lee Mighdoll.
You can call it a coincidence, but in a culture where money and success outweigh personal lifestyle, I don’t buy it. This is what I think happened:
- The company’s management team has to change some things and people before raising more money, investors probably told them, and this was the purge, veiled under these seemingly independent and unrelated moves. People don’t leave “hot” startups in the Valley.
OR
- The CEO had to get senior management members to sign off individually to certain things, and the IT guys did not agree to those metrics, objectives and steps in getting there. So, they left and in order not to freak out would-be investors, they concocted a personal reason to leave. It happens all the time.
Notice the VP of Sales did not have to sign off on anything, presumably because sales are not a top priority right now… and this might become problematic, more on this below. Better question: is there a senior level executive in charge of sales planning and strategizing? I doubt it. What many companies do is build all of these assumptions and promise numerous things to investors then hire a sales guy to make it happen. Sales guy knows this is all rubbish, but to get the job, stock options, etc., agrees to it all during interviews, because sales guys are like that… then afterwards they realize “what did I get myself into?”
So seeing that Twitter fails to have any semblance of a business model, then I assume they are not going to go against Fred’s advice and this additional funding is probably indeed for IT purposes first.
- When in doubt, Blame Ruby [on Rails]
When I thought of writing this post, I knew I had to address the IT matter but I am not a techie so I figured I should asked one, ideally someone knows about Ruby on Rails, the platform that Twitter is built on.
I asked Heri Rakotomalala who is a Ruby expert, runs a Ruby consulting shop and writes the authoritative blog on Montreal startups (he’s always been extremely supportive of our company). Anyway, not being an expert on Ruby on Rails, I thought it would be prudent to ask him why Ruby gets some flack before pontificating on the matter.
I asked him: “why do I keep hearing Rails does not scale?”
He answered:
Because you read too much techmeme and stories about twitter.
more seriously, rails is a relatively young framework. very powerful but also very easy to use. developers who don’t have experience in architecturing big systems can use it to develop a web2.0 website with full features etc. then they are surprised it can’t handle the load. the equivalent of giving kids a battlecruiser.
also, at its beginning, some developers saw their server stopped working unexpectedly, but there are solid tools now to prevent this (monit, nagios, god etc to monitor the server)
fiy, here is a list of big companies using rails
for me, we are going through the same things that Java went through, at its beginnings, it was very slow, too complex, irrelevant to IT etc. And now 10 years later, it’s king in banks systems, insurance firms, healthcare etc. Rails is going the same way.
- Lesson from Facebook I: Cool is a passing state of mind
When Twitter launched at SXSW last year, it blew up and all of the early adopters jumped on the bandwagon. This is generally a smart and clever way to go about. However, early adopters tend to move on quickly, too.
Just this past winter, Facebook was the hottest thing in the world, fetching a valuation of $15B and raising an additional $240M (and then much more by way of Li Ka-Shing). Today, there’s talk of Facebook hate and API frustration.
Facebook’s time has passed in a way, because it is still searching for a business model and every avenue it goes down in hurts the user experience or frustrates the same lot that hyped it last year.
I see Twitter facing the very same challenge, already!
- Social Media: Cool until you wanna make a buck
Let’s face it: we’re seeing a purge in Web 2.0 Bullshit. The social media hype train just past the 6th inning. Right about now, in case of rain, the game is over. This year, investors are growing spines as advertisers are searching for quality.
But even if you boast quality in social media, it does not translate to advertising success and financial payoff.
As an advertising-centric executive and business guy, I personally don’t see anything exciting and revolutionary (heck, even evolutionary) that would really help advertising come to the Web at a faster clip, in bigger portions…Digg, Slide, Twitter, Facebook, etc. - all of these companies deservedly get props and rave reviews from developers and fanboys but none of them, frankly, are what advertisers are looking for or what will make online advertising surge.
Social media is one dangerous, double-edged sword: it attracts and sucks out a lot of attention but it fails to live up to any conventional advertising metric. I wrote about this some more here and here.
Yet to then tell marketers “tough, pound sand and adapt” is foolish. We want online media to remain a free ad-supported environment, so we have to play along with advertisers (not kowtow to them, but listen and understand to them).
Spewing nonsense about how the web changes all of the rules is mumbu-jumbo. Even if there will be many revolutionary shifts in the paradigm (insert many more buzzwords) it won’t mean that overnight things shall change all that much.
- Marketing: Promotional vs. Commercial
Most of the new platforms, services and sites we see these days are both promotional and commercial. Commercial in this context does not imply e-commerce, it includes advertising revenue. In other words, as I’ve outlined here, YouTube is a perfect example of a service that gives tremendous promotional value but does not clearly allow all content owners to monetize it via advertising. We’ve started to do that successfully, but we also have a big presence on YouTube. MySpace is also very similar. Facebook too, but in different ways.
Twitter, I suppose offers some promotional utility but as a commercial/advertising service, I doubt it has much promise now. However, as a commercial e-commerce/shopping platform… that I see. In fact, I’ve been testing it because writing about something without ever trying it is pretty incredible (as is, would lack credibility) and I see some ways that Twitter could make money.
The problem here is that thanks to Google envy, everyone wants to be in the advertising game. eBay? Amazon? So passe…
But what if Twitter overlooks the e-commerce angle because of Google envy? The more funding it gets, the more it has to adopt an advertising strategy, and as we have seen, social media and advertising don’t go hand in hand.
- Advertising: Push vs. Pull
If Twitter were to want to pursue an [eventual] advertising sales strategy. Then it needs to understand and accept how their one major variable plays into advertising: Twitter is a push mechanism, not a pull one. As with email, this creates an instant spam issue. But even devoid of spam, it creates a barrier to its growth.
When you go to Google and search something, you are pulling data: be it organic or paid results.
When you use Twitter you push out data; Twitter cannot push out ads and expect a) as little resistance or b) as much success as Google due to that variable.
This nuance deserves a considerably longer discussion and this post is getting long enough… so we’ll come back to it at a later date.
- Bad Culture: Business Model Bad; Financing Good
But the key theme I am hinting at is Twitter: as one entrepreneur to another [admittedly more successful] bunch: don’t fall in the trap of raising too much money, too soon. Most companies fail because of that.
Build a company and a business first, then start to worry about investors’ lack of understanding of advertising models. Don’t start to put up with investors’ lack of advertising models while you are trying to define one. It will never end.
VCs know a lot about many things, but ad sales ain’t one of them.
Two years ago, I could not raise a dime because I was being unfairly sued in a meritless and frivolous lawsuit which created a liability around my neck that made an albatross look like a nice pet to own. I won that case and it’s behind me.
Last year, I could not raise a dime on my terms because video content was not in vogue as investors were investing in more platforms and video tools.
Today, content is the new “it” in thing in video all of a sudden and we can raise money pretty easily, especially as overall video funding does not cease to grow and you see more and more digital media content funds.
However, I am still biding my time because I want the model to be very clear so I don’t have to waste 4 hours a day talking to know-it-all VCs. Yes, I said that.
For the record, I am not saying we’ll never raise money, I resign to the fact that entrepreneurs like to build HUGE companies and inevitably you need outside financing to scale (assuming we don’t finally accept a buyout offer), but once you define a business model and successfully start to build on that, you have leverage to do way with draconian terms and unrealistic growth plans, which, I suspect explains why Twitter’s IT guys are out.
Raising too much money is an instant fail because some companies cannot even spend that much money within a year and end up wasting it. When you waste, you destroy value.
Once you have a culture and mindset of waste, it’s over. You will never be able to right the ship.
Twitter is probably raising more money because it sees other raising money. That almost becomes the entrepreneur’s greater fool theory…
- Lesson from Facebook II: Don’t Overfund Yourself
At Tech Crunch 40, Evan Williams (co-founder of Twitter and founder of Blogger - which was acquired by Google) said something that stuck with me as an entrepreneur. He said (I am paraphrasing):
When someone comes to you and wants to buy the company you started, if it’s relatively young, then it’s about what amount it will take for you to sell. It’s less about revenues, profits, multiples, etc., and more about that question.
Connecting the dots, once you start to raise more and more money and your “startup” becomes a well of VC’s money, then your head becomes a moving target and your company becomes unsellable. I fear that this Twitter round is going to do just that: could you imagine Twitter having $25M in funding? There was even talk of a $150M round.
Beware: a VC who would want 5x, 10x, 100x or 1000x return on their investment won’t be happy with a small exit. MySpace fetched $580M not because the Silicon Valley early adopting digerati and technorati loved it, au contraire, everyone else did…
Facebook tweaked their Status bar and became an overnight competitor. Pownce launched something and copied it in a week. Twitter’s team should focus on a more modest approach to build something. This is one case where too much money will ruin a, well, a thing. Whether or not Twitter proves to become a good thing remains to be seen.
However, the fact that Alley Insider just-so-happened to get its hands on this leak suggests that this is Twitter’s founders and investors to let would-be buyers one last chance to pay what Evan (and I presume, Biz Stone) are asking for before the clearing price goes up…
Time will tell.
Poor Fred Wilson… after hits like Feedburner ($100M), Tacoda ($275M) and not to mention Geocities ($2.3B), looks like Fred Wilson has fallen on hard times.
In one day, he’s trying to raise funds, first by unloading a red hot iPhone, then by scalping two tickets to a Neil Young concert. I’ll try to set up a Donate button soon on this post, let’s help Fred out… the man’s got a couple of kids, after all.
Just kidding Fred… you know we’re just having some fun. Jokes aside, we’ll argue that Fred Wilson had the most accurate thing ever to say about why VC-backed firms fail. Check that out here, with our commentary here and here.
Wow.
All right, I lied, though a short post would be fitting for my first ever Twitter post. Brad Burnham and that “other guy” Fred Wilson’s USV invested an undisclosed sum in Twitter today.
For once, I’ll abstain from commenting.
All right, I lied again. I think what I meant to say is I’ll hold off judgment on this for a couple of reasons. Notably, while many VCs have yet to show off any tangible returns from their Web 2.0 investments, USV has Delicious, Feedburner and Tacoda to show off as investment of the second wave of web investments, if not Web 2.0 related per se (Tacoda?). And, of course, Wilson also got a exit - albeit small - on his personal Wallstrip investment.
In fact, even Valleywag, that has been known to grill VCs on their lifestyle and investment, this week gave a glowing review of Fred’s philosophies and moves. In fact, this 2-year old article in Business 2.0 has proved might prescient.
To his credit, on the VC’s blog, they admit that much like the investment in Delicious, they did not know what the business model - if any - would be. Of course, Delicious’ business model was selling for $20-30M to Yahoo! and then seeing Yahoo! muck it up to some extent by missing out on the video tagging boat (what - along with flash video and embed codes - partially made YouTube become a $1.65B exit, by the way).
That being said, since I did clearly lie about not commenting… one has to wonder what the rationale is on this one, because while Delicious had built a lead in tags etc., Twitter remains a tool by the few for the lessor. Sure, by the early adopter crowd it has caught on, but by and large do you really see that many people twittering and others really caring? And, did Jaiku and Pownce not practically overnight duplicate their respective version of Twitter on steroids?
I don’t know,
- on the one hand, yes: Wilson and USV really have proven to be in a league of their own in terms of exits, but this one does remind me a lot of a given era that shall remain nameless when the more uncertainty existed around an idea’s business model, the more welcome it was by the investment community. I’m not alone there, by the way, since a member of said community chimes in and seems to agree, here. Wilson himself, conceded in 2005: “Looking back on [Flatiron’s portfolio] now, Wilson offers a blunt assessment: ‘Yeah, boy, we really screwed up a bunch of things.’”
- on the other hand, I’m a believer that any business model can win online if you have a good team and you can execute. It’s early enough that no one can predict user - and consumer - behavior. In fact, I’ll add this: that same B2.0 article quoted Wilson as saying three fields would be most impacted by the Web, the three being a) media, b) marketing and c) finance.
Wilson made and exited several investments in a) and b). Perhaps in Twitter’s future Wilson sees an answer few others do, d) which is all of the above.
Time will tell. Like I said, the jury’s out on this one…
VCs and tech entrepreneurs have a convenient way of justifying products that media companies allege infringe on their rights: it’s innovation. Fred Wilson, one of the classier VCs out there, argued in my earlier post “When Does Being Cavalier Become Criminal?” that:
The “disdain” [between media companies and tech outfits] comes from the fact that the traditional media companies don’t want to see innovation, new business models, and platforms that opens up their content to massively new markets. If they were more open minded, so would I be.
I’m biased in the debate in that as a web entrepreneur, I am all for innovation.
As a consumer, I encourage it and embrace products like Napster or YouTube that cross the line.
Yet as a content producer I also recognize and understand that media companies are less than thrilled when such disurptive innovations are unleashed: Napster and its successors hurt the record labels. I understand that the record labels inflicted a lot of damage to themselves for being defensive, but it’s not just rich record label executives that got hurt in the file sharing stampede, artists did too. Of course, artists largely re-engineered themselves to generate more money from tours etc., but the fact remains, blaming the RIAA solely is unfair (though we sure do love to do so). Anyway, I surely don’t want to come across as being on the side of the content-owners only, I think they need to update their modus operandi and understand that social and technological advances (be it opportunities or threats) are a fact and reality and they need to be on the front lines, not in the rear seats.
But despite that argument, I wonder: is innovation an obligation, a right or a privilege? In other words, just because one can, does it mean they should? Of course, if one does not, then someone else will… that was way too philosophical for my liking… theory is one thing, practice is everything in business.
And, I guess that’s the ultimate lesson.
Technology is akin to the cat being out of the bag, you can’t slow down the pace of invention, and that means that someone will come along and innovate. It is a case of survival of the fittest. If the media companies don’t adapt and embrace new inventions and innovate, someone else will. It’s not a matter of is it right or fair, it just is.
In that context, it’s not so much a question of whether is innovation a right or obligation, but a fact. Just do it, or someone else will.
I think the world of Fred Wilson, so this isn’t a criticism of what he said, but it does reveal a lot about the chasm between media, technology companies and the VCs that fund these. In the excerpt below, Fred is talking on his blog about a NYT article on Veoh:
Veoh came in as an also ran in the web video sweepstakes. We all know that YouTube won that one going away. But instead of giving up, they’ve copied Joost and build a client side app that acts as a set-top box style interface to video. But, and this is a big but, instead of going and asking permission from the content ownes like Joost is doing, Veoh is just pulling all the stuff that’s already on the web. That’s the way to do it. Nobody wants a closed system anymore other than the content owners. Open wins, closed fails. My only beef is with Todd Dagres’s quote (Todd is a friend who sits on Veoh’s board). Todd says:
“We are going to try to be friendly to content owners,” said Todd Dagres, a partner at Spark Capital who serves on the Veoh board. “We are going to try to be the white-hat company.”
Not exactly Todd. Joost is the while hat company. That’s why Veoh is going to win and they are going to lose.
I can’t think of anything more revealing about the distrust and disdain between media companies and tech outfits that essentially build businesses in a cavalier manner.
I actually like the fact that Veoh is not content to being in the shadows of YouTube, but when VCs give such positive reinforcement and credit to tech companies that show little concern for content-owners’ intellectual property, I wonder who is on the right side of ethics. Of course, Fred isn’t saying “Veoh should be the black hat video site”. But the fact that a winner needs to do things in such a brazen way when it does not own the underlying asset is questionable. Of course, I’m biased as a content guy, even though as a web video content guy I do look to Veoh and YouTube as a promotional platform, I understand why TV executives would disagree… In fact, I wonder how VCs would feel if I allowed myself to build a business on tech companies’ assets without their permission and then turned around and said “I’m doing them a favor, can’t you see?”
Don’t get me wrong, I have far more sympathy for technology entrepreneurs than established and entrenched media companies who put their own bottom line ahead of their customers’ interests and desires, but reading that boldfaced quote makes me wonder a lot about what kind of values we want entrepreneurs to adopt. Worst part, that’s Fred Wilson, not exactly one of the types that gives VCs a bad name! I can just imagine what kind of an incentive some entrepreneurs are given to raid established businesses for their own success.
Related:
- Chasm between tech and media firms
- Silicon Valley must adapt, too
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