The technology & gadget category has rightfully been core to the web from it’s inception. Naturally, the early web participants were tech enthusiasts and the web flourished with sites oriented around their needs.
Like in many of the early web verticals however, innovation has not always kept up. gdgt is attempting to bring the best of what the social, user-driven web is all about to this incredibly large category.
At the core of gdgt are real user profiles, gdgt lists and user contributed content. Connecting people with relevant user created content when they are looking to make a purchase or need help with gadgets they already own is where the power of gdgt lies. Ultimately it’s a place where the hard-core gdgt geeks and casual consumers can meet to share information, get advice and help make purchase decisions.
We at Spark are lucky enough to be in business with two of the web’s true gadget pioneers and a phenomenal group of investors. We’re just at the beginning of this journey and very excited for what lies ahead.
I did an interview recently with Paid Content. The full post is below:
By Rory Maher - Thu 07 May 2009 04:30 AM PST
Spark Capital has had a busy few years. It launched in 2005 after raising $260 million, raised another $360 million in July 2007 for a second fund, and announced a funding initiative five weeks ago to focus on smaller bets in the $250,000 range. Spark has invested in a range of digital media companies, from thePlatform, which was sold to Comcast (NSDQ: CMCSA) for $100 million, to buzzy startups including Twitter, Veoh, Boxee and Tumblr. The firm has invested heavily in online video, which has come under pressure the last year because of the tough ad environment and has steep operating costs. Last week, I sat down with Mo Koyfman, principal at Spark, who came to the Boston-based VC fund from IAC (NSDQ: IACI) where he held a variety of strategic, transactional and operational roles. We talked about VC culture, Twitter (in which Spark is an investor), and the Asian gaming industry, among other topics. Below are excerpts from our conversation.
A Sanford Bernstein analyst published a report recently in which he called out Silicon Valley for having a culture where large Internet companies are often wooed by VCs into buying buzzy startups that have no real business model. What is your response to that?
There are certainly deals you can point to where businesses were bought that performed poorly, yet there are many other examples where they have performed tremendously well for the acquirer. It’s hard to speak in generalities. But what I will say is that big companies in general often have a very hard time innovating from within. So it is very important for the larger companies to look externally to acquire innovative businesses and technologies. Often with these acquisitions they’re not just buying the businesses, but are buying entire teams of employees – tech teams, business teams – that often will stay around for a long time and add tremendous value. But also some of the larger companies that make these acquisitions don’t always make the best home in terms of environment, support, etc., which is important in understanding why these acquisitions succeed or fail, and how much it’s a function of the acquirer versus the acquiree.
Twitter seems to be the “it” startup these days. Some of the other “it” companies of the past few years have either gone out of business or are rumored to be looking for a quick sale. How is Twitter different?
What Twitter has done is create a concept that seems very simple but is very smart in a couple of fundamental ways in terms of the character limit of instant messages and the notion of following someone online rather than the traditional friend relationship. And it’s an incredibly powerful tool because it constrains what you can put out and allows you to singularly determine who you want to follow at any time and allow others to do the same, yet not force that reciprocal relationship.
In terms of them maintaining their position in the marketplace, one of the most important things the team decided early on was to keep the platform open and to allow lots of different folks to build on top of the platform in interesting ways. And what you have now is a rich, robust ecosystem being built around Twitter, and that’s a very powerful thing. It’s not just Twitter, it’s everything that ties into Twitter. It’s the entire universe that Twittter sits in, and the more that continues to happen, the more it’s difficult to upset that ecosystem.
Digital-music startups have huge cost challenges because they have to pay the labels to get access to the music. Doesn’t Twitter have a similar issue because it has to pay a fee to the cellphone companies every time someone Tweets?
We’ve got some great folks on board that are helping us navigate those relationships, and we don’t see it continuing to be a prohibitive cost of the business going forward.
Do you think Twitter’s revenue growth is going to come mostly from advertising or commerce (i.e. sales or subscriptions, virtual goods, etc.)?
I won’t speculate on where it will come from and the mix, but I will say that they are smartly and deliberately thinking through all the monetization options. You’ll see Twitter launch some initial stuff in the near future and continue to do more over time.
You’ve invested in a few different online video companies, including Veoh and Next New Networks. Veoh is a video aggregator, while Next New Networks produces its own programming; and Veoh sells mostly banner and pre-roll ads, whereas Next New Networks sells more custom sponsorships and syndicates its content. As a VC, do you see these companies as different types of bets?
I think that there are certainly two different sides of the content/distribution video landscape, but video is an area that we believe is going to be valuable long-term on the web and we’ve placed a number of bets – from Veoh to Next New to Boxee – to try and capitalize on the video explosion we’re seeing on the web. It’s a challenging marketplace because the cost of hosting and streaming video is still expensive, but the costs will come down and advertisers have been a bit slower to take to the medium than we may have hoped, exacerbated by this economic environment. So it’s not a space without its challenges, but it’s one that over time will have some real winners.
Who will be the biggest winner – the aggregators or producers?
I think there will be winners on both sides.
You’re an investor in OMGPOP, which said it plans to make money by selling premium subscriptions and virtual goods. Some of the Chinese gaming and internet companies have been doing this well for the past year.
More than the past year, and not just in China – Korea and other nations. And by the way, Facebook by some estimates has sold in the hundreds of millions of dollars in virtual goods themselves over the past year.
Let’s talk about virtual goods—why is that market growing so rapidly?
At the end of the day, virtual goods are purchased either for status or to enhance performance or for gifting purposes – all the same reasons we buy these things in the real world. And the more time we spend in the virtual world, it follows very clearly to me that we’ll be willing to spend money to fulfill those basic human needs and desires in the virtual space as we do in the real world.
As we spend more time racing cars in the virtual space we’re going to want more stuff for those cars. As we spend more time living in the virtual space with our avatars we’re going to want to make sure they are dressed the way we’d like them to be. As we spend more time on Facebook and MySpace we’re going to want to give people Valentines’ and birthday gifts in those worlds as well. When you get down to the underlying psychological motivations for buying and giving goods many of those are transferable to virtual goods and fulfill the same need. You’re not just paying for the underlying product, you’re paying for the experience.
The re-launched Pitchfork.com is flat out excellent. I’ve been a big fan of the site for years, but it took a quantum leap forward with the recent redesign. The editorial sensibility is as sharp as ever, the layout is incredibly clean and easily navigable, the use of lists is a great way to synthesize content into smartly digestible bits and the ability to sample more music and videos was sorely needed. All in all, it is an outstanding face-lift for what was already the gold standard in music editorial on the web.
Outside of expensive video production and serious investigative journalism, the barriers to content creation are largely non-existent today. Content is flowing like water on the web. As a result, ways to filter and curate that content are becoming ever more important for overstimulated consumers.
Technology has enabled new types of open, ‘pull’ filters previously impossible at any degree of scale in a closed, analog, ‘push’ distribution world. It’s always tough to appropriately categorize and label these things, as the specifics often fall into multiple buckets, but I generally think of two categories for these new curators: Platforms and Aggregators.
Platforms such as Twitter, Tumblr (both Spark companies) and others easily enable me to get a constant flow of great suggestions from friends and other trusted voices. Folks put stuff out, and I decide what I want to consume. Twitter has effectively replaced my news reader (more on that another day), and I get a ton of music on Tumblr from folks I follow like tuneage, tracks, Andy, Bijan, Fred and many others.
Aggregators such as Techmeme and The Hype Machine present information pulled from editorial sources across the web deemed most relevant to their respective audiences. They are not purely user-driven platforms, but rather aggregate and curate largely through technology built to measure relevance.
Brands are all the way on the other end of the spectrum and are of course more traditional in their approach to content — they are fundamentally human created and edited offerings. This is where the Pitchforks of the world reside.
Maintaining and certainly building brands with so much noise out there today is incredibly difficult. And given the openness of the web, even great brands are reliant on these platforms and aggregators for distribution. I get Pitchfork updates through Twitter; I read NYTimes content through Techmeme.
And that’s exactly what is so impressive about Pitchfork. They stuck to their guns through the ups and downs and smartly built and grew a best-of-breed niche web brand from scratch — one that rises above the crowd, leveraging these new distribution points but making it worth spending some real time on the site itself. For this they will be rewarded with a business that continues to generate revenue, albeit less than what Rolling Stone made in its hayday, but with a much lower cost structure and therefore a profitable, sustainable model.
So to Dan’s question, yes Pitchfork has become ‘the man.’ But I don’t think they sold out. What they did instead is build arguably the best niche music editorial brand on the web. How many others in the music business can say anything that positive?
Pitchfork is the new model for niche web media properties. Well done.
The money stat from the Nielsen Q4 report:
The average American watches more than 151 hours of TV per month, an all-time high.
The key conclusion drawn in the LRG study:
The impact [of online viewing] on traditional TV viewing and multi-channel video subscriptions [cable and satellite] has been “negligible.”
Further, according to the LRG study:
Among all adults online, [only] 3% strongly agree that they would consider disconnecting their TV service to just watch video online – compared to 4% last year.
These results are certainly great news for an industry increasingly besieged by forces of change, perhaps still more ‘vocal’ than ‘real’ as confirmed by the latest research. And they are even more welcome as we face perhaps the worst economic downturn in our history.
I fear though that these results, as they often tend to do, may breed complacency in a media industry that should be bracing for change. Granted, with all the talk of convergence, the consumer is still not there. But mark my words he’s coming quicker than you realize.
Peeling back the onion on these two reports, a number of the secondary stats point to clearly shifting behavior:
- 74 million people watch time-shifted television vs. 54 million people in the fourth quarter of 2007, a 37% y-o-y jump.
- 31% of Internet activity occurs while consumers are also watching television.
- Young viewers (18-24) watch video on the Internet and on a DVR at the same rate: about 5 hours per month.
Simultaneous web surfing and TV viewing, the increasing move to time shifting and the growth in online video consumption, especially amongst the younger generation, are harbingers of what is to come — a largely on-demand, networked, social, lean-back viewing experience. It’s simply a matter of time.
So how should the media industry, and specifically the cable companies (where most of the value in the chain is consolidated) respond?
It is precisely at these times that they should use their existing power with consumers to lead innovation, rather than stifle it. The cable industry should act from a position of strength, ensuring that they emerge in the wake of disruption as a powerful force rather than a regulated utility.
This will involve some tough decisions and some serious wrangling between content creators/owners and distributors. But in the end, it’ll likely require some variation of the following (with many specifics of course to be worked out):
- Full embrace of the Internet as the platform for content delivery.
- Charge consumers for tangible usage rather than opaque bundling.
- Redesign content packaging to be useful for consumers rather than to protect sub-par programmers. Feed the good networks, kill the bad.
- Embrace third-party innovators and new technologies, such as Boxee (a Spark portfolio company) and others, leading the charge on the consumer front.
- A potential shrinking of overall revenue. To protect and grow margins in this new reality will require, in addition to the aforementioned ‘killing of bad networks,’ a reworking of the inflated content creation model and an end to inefficient uses of marketing dollars.
Admittedly this reality is a long way off, perhaps 10+ years before it comes to full fruition. But the time to act is now, and all parties will be better off when that day comes — cable companies, content creators, innovators and, most importantly, consumers.
Martin Peers made an important and often ignored point in his piece on online advertising in yesterday’s WSJ. Weakness in the online ad market, specifically display advertising, is not simply a current demand issue. Rather, we have a fundamental oversupply problem in the market that is only going to get worse.
As web publishing continues to be democratized, the same happens to web ad inventory. And there’s simply not enough brand advertising dollars to satisfy the level of online inventory continuing to grow by the second. So prices get hammered across the board and smaller sites are simply left out in the cold.
So how do we make money given this reality?
On the brand advertising side, it’s all about scale. The larger a *relevant* audience you can deliver an advertiser, the more meaningful you are to them. There are a number of sophisticated ways that have emerged to improve user targeting and thereby relevance of audience delivery. But in the end it must be done at scale to matter to advertisers. It’s as simple as that.
More important to the future of revenue generation on the web is our ability to tap directly into consumer’s wallets. Many have been talking about digital goods for some time, but it’s emergence is becoming ever more clear to me. As we spend more time online, more of our discretionary spend will follow; the more we live online, the more digital goods will look like regular goods.
We are just at the beginning of this migration. Most of the winners are yet to emerge. But businesses that tap into this inevitable trend early will have a meaningful advantage in the coming digital economy. They will build their retail brands on prime real estate before others have an opportunity to do so. We’re certainly thinking about this a lot across a number of Spark portfolio companies.
I ordered the new Kindle 2 this week, and I’m super psyched about it. Being on the move so much, it should make my reading life a lot easier. I’m especially excited to see how the speech to text feature works.
But one thing still gives me pause. Call me old school, but I am a serious lover of the book form factor. I simply adore books — how they look, what they represent, building my library — and I don’t want to give them up. Maybe I’ll laugh at this notion one day, but for now I’m not ready to part with them so easily.
I would think I’m not the only one that feels this way, so I was surprised to find that Amazon does not offer a reasonably priced bundled purchase option for the print and kindle versions. I’m buying the book already. How much can it cost to beam me a digital copy at the same time?
I hope Amazon offers this package soon. Otherwise, I may end up paying twice for my favorite books.
My friend Jeremy Philips penned a timely review in today’s WSJ of Steve Knopper's new book, Appetite for Self-Destruction. The book chronicles the precipitous decline of the once mighty music business.
Jeremy sums up the music industry’s grievous error and the subject of the book’s investigation pretty succinctly:
The music industry’s big mistake was trying to protect a business model that no longer worked. Litigation would not keep music consumers offline.
Broadening the point to the more pressing issue of the day for media companies, Jeremy notes:
Consumers will not wait for businesses to catch up. Media companies have to reinvent their old models while continuing to harvest (but not blindly protect) their core businesses. Television networks, for example, are now selectively providing shows to free Web sites, despite the risk of undermining the networks’ own ratings and revenues. The companies’ long-term success depends on their ability to find a model that will give consumers what they want and earn some money, too.
Refreshing to hear from an EVP at News Corp. And nowhere is this more true than in the video world. Consumers want to get video content where they want it and when they want it. Like the music business, this evolution is inevitable.
Young, nimble technology companies such as Boxee (a Spark portfolio company) are helping lead the charge on the consumer experience front. It is incumbent on the existing distributors and content creators to recognize the inevitability of this change and work together with innovative technology upstarts to help consumers get what they want, while allowing everyone to “earn some money, too.”
Otherwise, we will see what we saw in the music business — value destroyed not just for the the existing players, but for the entire industry…including the artists we rely on to make all the great stuff we want to watch.
This time, let’s harness innovation to create value rather than destroy it.
This picture reminds me of something I’ve been occasionally pondering lately — experience vs. capture. Notice not one of the kids in this photo has their eyes on the President and his wife (woah, that felt good to type), but on the tiny LCD screen on the back of their camera. Are they missing out on anything? When all is said and done, what’s a lifecast worth on a deathbed?
I think we’re going to start seeing this go one step further over the next few years, with documentation leading experience, instead of the other way around like it’s been forever. People will choose what activities they do in the physical world based on how it will appear to their friends in the virtual world via their Twitter/Tumblr/Flickr/Facebook/etc.
Pics or it didn’t happen, indeed.
Been thinking about Ricky’s very astute post for the past week or so. What I do know is that this phenomenon is very real. What I haven’t yet figured out is whether it’s good, bad or doesn’t matter. I guess we’ll just have to watch and see…
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