Those of us in online media are on the cutting edge of reinventing a critical channel for human communication. It's exciting, historic, and perplexing. Often we're so focused on problem-solving that we lose sight of our role as pioneers. Today's offhand decisions become tomorrow's precedents and benchmarks. This blog aims to contemplate progress and strategize next steps in the process of reinventing media for the digital age.
Last month the Kauffman Foundation released results of its annual survey of businesses that launched in 2004, which explores the unique character of startups from perspectives such as financing, staffing, intellectual property, and owner demographics. The foundation calls the Kauffman Firm Survey, which is tracking the fortunes of about 5,000 companies, "the largest longitudinal study of new businesses ever conducted." The results so far cover the cohort's operations in 2004 and 2005.
Unfortunately the research buckets businesses into antiquated categories that make it impossible to drill down to specifics for online or web services companies (for example, the categories in "high tech" are based on 1991 definitions limited to "chemicals and allied products, industrial machinery and equipment, electrical and electronic equipment, and instruments and related products"). Nevertheless, with startups being such a critical component of Silicon Valley culture and a major driver of innovation in the online and social media space, the survey's findings are interesting. Some highlights:
More than 91 percent of the businesses survived their first year
Consistent with Silicon Valley mythology, almost half the new businesses reported operating from home or a garage
About 2 percent received patents during their first year of operation, 9 percent received copyrights, and 13 percent received trademarks
Almost 60 percent reported no employees and about a third had 1-5 employees; less than 4 percent had 11 or more employees
Less than 30 percent offered health insurance and only 6 percent offered stock options
37 percent reported no revenue and 17 percent had annual revenue above $100,000; less than 5 percent had profit in excess of $100,000
56 percent of the companies used debt financing in their first year of operation; 23 percent borrowed $25,000 or more. Of those with debt financing, 48 percent used personal debt, often credit cards. About 25 percent took on business debt.
80 percent used equity financing and 9 percent had equity greater than $100,000
69 percent of owners were men; 81 percent were white, 9 percent black, and 4 percent Asian. 19 percent were under 35, 63 percent were 35-55, and 18 percent were over 55.
About 23 percent had some education beyond a four-year college degree; 53 percent did not receive a bachelor's degree
For 58 percent of owners, this was their first startup. 6 percent were serial entrepreneurs who had launched four or more companies.
I've been checking out social networking sites for kids. Although the idea seems like a natural it's a more challenging market than for adults because of extra concerns about safety, privacy, and marketing. From the business perspective these add cost and complexity that can slow the growth rate and concern investors.
I haven't covered the full spectrum of options yet, but so far it seems like this is one area of the web where the US is in second place. From what I've seen the Japanese site Sanriotown--populated with the wildly popular Sanrio characters such as Hello Kitty--is the leader, with the most full-featured, fun, and not overly commercial features that include the requisite games as well as blogging, polls, discussion groups, videos, and more.
US sites are more specialized. Imbee is an independent site with a strong content creation platform, including blogs, audio, video, photos, and trading cards. Disney's Club Penguin (purchased from the founders last year for $350 million) focuses on games and chat and touts the fact that it's ad-free...but there's a prominent shopping link. Disney also maintains the Virtual Magic Kingdom (VMK) site, which offers gaming and a tie-in to the theme parks. Webkinz has an unabashed tie-in to the stuffed animals sold by its parent, Ganz. They offer games and chat. Nickelodeon's Nicktropolis is connected to the parent TV network, offering lots of Nickelodeon video plus games. Mattel's Barbiegirls also has games and chat, plus a "design fashions" feature. Most of the sites with gaming also offer the opportunity to create and decorate a personal space, or "room."
Interestingly, the kids' social networking sites are adopting more gaming-derived virtual world technologies than their adult counterparts. This seems to validate the vision that some day (perhaps when these kids grow up!) many web interactions that now occur in static media such as text will migrate to a 3-D virtual reality format along the lines of the Second Life platform.
Just as with social networking for adults, the kids version is attractive for its powerful engagement and loyalty attributes, as well as highly scalable model of user-generated content.
Because of the somewhat higher barrier to entry there's currently less competition among kids social networks than in the comparable adult space. As clear winners emerge on the adult side, expect competition to pick up significantly in the kids arena. Looking at the products currently on the market, there's lots of room for innovation and better quality before this niche is mature.
Hello Kitty Online: virtual (sur)reality integrated into online social networking:
A current trend in social networking is empowering real-time connections--think Twitter's up-to-the-minute mobile tweet-streams. A startup I'm working with, iPling, helps you connect to others nearby who share your needs and interests at the moment. But there's another side of social networking, reconnecting with people you may have lost touch with. Venerable sites such as Classmates.com have offered that service for years. Now it's getting more sophisticated. Last weekend I tried out the reconnection angle by creating a group on LinkedIn for colleagues at a former company, GoTo.com. An Idealab spinoff during the dotcom boom, GoTo--based in Pasadena, California--was founded in 1997, went live with a product in 1998, and morphed into Overture Services in October 2001. In 2003 the company was acquired by Yahoo; the name changed again, to Yahoo Search Marketing (YSM), and operations moved to Burbank. GoTo was notable for originating the world's first successful pay-for-performance bidded marketplace for search advertising--the product concept Google improved upon when it created AdWords.
The company also gained a bit of notoriety as the object of one-time celebrity stock analyst Henry Blodget's hypocrisy, when he publicly touted it, pumping up the price, while privately disparaging it--an action that eventually attracted securities fraud charges from the SEC. My first day on the job at GoTo was Monday, March 13, 2000...a date memorable as the first business day after NASDAQ hit its all-time high of 5132.52 on Friday, March 10. In other words, my first day in the internet sector coincided--hopefully in a random rather than correlated way--with the beginning of the bubble bursting. For a few weeks I worked in the helium-headed environment of the bubble days--a time when GoTo still aspired to be a consumer portal rivaling the likes of Yahoo. As 2000 wore on and we began to accept post-bubble realities a new, less costly business model was needed. The biz dev team began talking to large portals about a back-end service to monetize their search traffic. In the fall of 2000 we went live with a partnership with AOL and GoTo v2.0 was born. The new strategy was so successful that we were one of the few dotcom winners in the difficult 2000-2001 period.
As is often the case, competition eventually eroded our success. Google launched its competing cost-per-click version of AdWords in 2002, luring away AOL. Because we were completely dependent on partners for distribution, and therefore for all-important scale, our stock price became quite volatile, shooting up and down as big partners signed or departed. Also, as the partners recognized their critical role, they bargained harder and our margins shrank. Ultimately, acquisition by a large portal that could guarantee a steady traffic stream made good business sense.
In any case, I left GoTo--by then Overture--in February 2002 for a job at Yahoo. When I arrived at GoTo two years earlier, it was in the midst of ramping up after an IPO the previous summer. There were about 250 employees when I joined and close to 1,000 when I left. It was a pretty tight-knit group that had been through highs and lows together and bonded accordingly. When Yahoo bought Overture in 2003 it was a reunion with old colleagues, many of whom I continued to work with until I left Yahoo in 2005.
Recently, with the corporate turmoil at Yahoo, I noticed a number of connections from the GoTo days were reaching out to fellow GoTo "alumni" on LinkedIn. Since I have a special interest in social networking and media, I decided to take the small step of creating a GoTo group. LinkedIn makes it easy to set one up and invite a seed group of members. From there, virality takes over, as friends and friends-of-friends show up in one another's updates and display the group logo. Already, less than two days after inviting the seed group, there are more total group members than initial invitees.
My biggest gripe so far is that I have to hand-approve membership requests from people not on the invite list. I would prefer that people be allowed to join by default, then inappropriate individuals could be removed if needed. However, LinkedIn doesn't offer that feature. One thing's for sure: with hand approval required, LinkedIn gets a lot more pageviews.
By the way, if you worked at GoTo before it was Overture and want to reconnect with old friends, you can join the group here
For media web sites, slideshows are a great way to get your audience to spend more time on the site and give you more pageviews. When I was leading InfoWorld.com they were an important strategy in our successful efforts to build engagement. Like many relatively simple solutions, slideshows have been around awhile but the concept continues to evolve.
On Sunday WashingtonPost.com had a great feature that combines the power of the slideshow with user-generated content: Peeps Show. Getting away from its staid image (another must to succeed at online media), the Post invited its audience to create dioramas based on the chemically candy treats/pop culture icons known as Peeps (more on the Peep phenomenon in the Wikipedia). Timed for Easter, the peak Peep season, the Post selected finalists from over 800 submissions, then presented them in a slideshow.
Augmenting the slides were a text article about the contest, an online voting form allowing the audience to select a favorite, and an interactive live chat with Dan Zak, the Post reporter who managed the contest. Today the slideshow is ranked as the most popular show on the Post site and over 4,000 people have voted on favorites. The Peeps content is a nice win for the Post and a great example of how to leverage content in ways that are optimized for online media.
There’s been some buzz this week about the Project for Excellence in Journalism’s new State of the News Media 2008 report, which records the Norma-Desmond-like dilemma of traditional media faced with a growing disconnect from leading-edge trends and popular taste. “The crisis in journalism, in other words, may not strictly be loss of audience. It may, more fundamentally, be the decoupling of news and advertising,” the massive (180,000+ words) study frets.
Time for a wake-up call! In the media business advertising follows audience. Making that happen is the function of marketing and sales. The audience is attracted by content. The business formula isn’t very complicated. What’s changed is that online, not all content needs to be created by professionals, and distribution opportunities are vastly larger than with traditional media.
As its sponsor’s name suggests, this report was assembled from the perspective of self-identified “professional media,” some of whom are having trouble accepting that they’re no longer indispensible for setting the national—indeed, global—thought agenda. Some sections read like a portrait of a massive industry in eclipse. The study rather hopefully observes that “even with so many new sources, more people now consume what old media newsrooms produce.” True enough, but a rising tide floats all ships. Online, audience growth alone isn’t enough to ensure commensurate increases in revenue and profits.
Details in the study begin to pinpoint a big problem: high-cost professional content mills that too often are out of touch with audiences’ information needs and consumption habits:
“The media and the public often disagreed about which stories were important in 2007”
“Most Americans believe the news media are politically biased, that their stories are often inaccurate and that journalists do not care about the people they report on”
“News people are uncertain how the core values of accuracy and verification will hold up”
Some media companies may also have lost sight of their fundamental business, delivering audiences to advertisers. “Advertisers no longer have to depend on paid media to distribute their messages,” the report hypothesizes, citing alternatives including starting their own web sites, posting to YouTube, or guerilla campaigns. But each of these options has a cost and as the study rightly notes, savvy marketers are more attuned than ever to ROI. The challenge for media businesses is to deploy resources to deliver superior ROIs, acting as specialized marketing channels for the advertising community. That’s always been true in media and the advent of the internet hasn’t changed it.
Most acutely, the new report raises the question of the future of branded media “in an age when so much information is so readily available that it is viewed as a commodity.” Bottom line, brands exist as a strategy for capturing higher margins. In the online media business, where the competition is only a click away, it’s only worth incurring the cost of creating branded content to the extent that it monetizes better than commodity content created by partners or the audience itself—for example, by attracting a demographic advertisers pay a premium for.
To fully close the loop, sales teams and advertisers need to buy into a site’s content strategy. The study observes that may not yet be the case. “The business side has begun to be identified as the problem area, the place where people are having the most difficulty changing,” it comments. And, “Madison Avenue, rather than pushing change, appears to be having trouble keeping up with it.” The report finds the “ability to get much more granular data and the pressure felt by chief marketing officers to justify their ad dollars have made ad spending accountability the No. 1 priority among marketers today.”
The study closes with a prediction: “2008 looks to be the year the mainstream press tries to lure citizens toward creating the content within their own outlets.” Once they attract the user-generated content, it will be interesting to see what they do with it—how it’s monetized and whether it’s fully integrated into the site or cordoned off in a UGC ghetto.
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