Mobile Advertisement CPM

via moconews.net

[by Chetan Sharma] At least half a dozen press releases popped up during the writing of this book claiming a $50 or $60 and higher CPM rate for mobile ads. A brief look back at Internet advertising from 1998 to 2002 shows that a $50 CPM, or anything near it, is not defensible for very long. For the CPM model to work at any price point, even in the short term, these networks need a critical mass of advertisers willing to spend branding (versus direct marketing) dollars on a new, untested medium that will appear in a wide range of content. That is going to be difficult, if not impossible, to find. Since the agency ecosystem is rooted in print and TV, it is also anchored in CPMs and GRPs (gross rating points). For the near-term future, CPMs probably will determine the ratio of dollars spent in mobile. But the ecosystem is being yanked into the digital world with more transparent ROIs that gauge new levels of consumer interaction and impact. Outcomes need to be tied to more than just the theory of eyeballs in the living room. Lots more in extended entry....

Assuming for a moment that the mobile ad networks can find enough advertisers, it will increase the attraction for publishers to run ads on their networks, adding more inventory and depressing prices. In addition, web-based interactive agencies were already burned once by ad networks with prices above a $30 CPM. It is likely that the entire mobile CPM model will shrink, as it did on the Web. In both the PPC (pay per click) and CPA (cost per acquisition) models, more responsibility is put on the content providers, insulating advertisers from some risk until the consumer clicks toward a transaction or sale. However, the implementation and success of CPC and CPA models rely on huge impression volumes, an ad sales system more scalable than is required for CPM models, and a mobile infrastructure capable of monetizing consumer clicks or actions. All these are a long way off for mobile advertising. As noted by Larry Shapiro, VP of Disney; We might have 10 percent to 20 percent of click-through rates (CTRs), but 90 percent of unsold inventory and CPMs are high indicating the early stages of the market and all of this will trend down like the way you had on Internet when we had $30 CPMs, 10 percent CTRs, and 95 percent unsold and all those numbers changed in the mature market.

Two major groups are using mobile for advertising today. First are the companies that want to advertise on mobile to get consumers to click to their point of sale to buy a game, mobile music, ring tones, or video. For these advertisers, mobile advertising is about accelerating the process of acquiring a new customer. Their ad spending will be measured and driven by the lifetime value of that new customer. Mobile CPM rates above that are not sustainable for this group. For lifetime economics in these scenarios to make sense, CPM rates must drop to between $5 and $10. As mobile search-based keyword auctions appear, these advertisers may well move their budgets over. But is this type of advertiser really going to scale mobile advertising revenues? No. It will basically be capped by the marketing budgets of these smaller companies. Beyond the CPM and economic issues, arent all mobile application providers essentially competing with each other for the same time and service spends from the same consumers? How do mobile portal managers feel about semicompetitive mobile media advertising on their prime real estate with the goal of stealing a customers attention? Will every ad have to be preapproved? Will this really be the market force that drops CPM rates? No, it will not.

The second group of mobile advertisers consists of companies outside the mobile industry looking to increase the awareness of their products and services in a high value, personal scenario. These companies are just beginning to understand the unique value of mobile advertising for relevant, targeted, effective presentations to their audience. Selling these companies on the concept of mobile advertising and getting them to spend more than just their trial budgets is a long, arduous cycle. And the high CPM rates are often confusing to this group. Compared with $10 for a run on an untargeted network to $20 for a targeted web site group, there is still a question of cost and value of the $50 CPMs in mobile. Part of this high mobile CPM rate is driven by lack of mobile inventory today. Once the inventory arrives, that pressure will force the CPMs down in mobile.

Similar to the Web, the mobile CPMs will bifurcate into a lower cost, less targeted run-of-network (off deck) with CPMs between $2 and $9. The higher tier will be targeted mobile sites with specific audiences, where CPM rates will be around $12 up to $20 on the high side. The CPM rates simply follow the degree of targeting value. Better targeting equals higher CPM rates. In mobile, these will be mostly on-deck with high degrees of targeting based on proprietary mobile data being exposed anonymously for the ad campaign. Todays mobile press releases touting costly, untargeted inventory is absurd and wont last. Off-deck mobile ad networks, with less well-defined targeting approaches, will turn into the equivalent of the Webs run-of-network buys, where inventory should always be inexpensive. CPMs will be tied to a certain size of advertising buy, but it wont be an unreasonable premium for smaller buys.

But with the potentially higher value of mobile targeting into niche audiences in a fractured mediascape, is there another level of ad targeting rates, metrics, and value beyond the tried-and-true CPM of yesteryear? Yes, there is!

This article is excerpted from forthcoming Mobile Advertising: Supercharge Your Brand in the Exploding Wireless Market (John Wiley, 2008) by Chetan Sharma, Joe Herzog, and Victor Melfi.

watch this guy

Entrepreneur Marc Benioff is afraid of him. Venture king Mike Moritz wants to invest in him.

You have never heard of Sridhar Vembu, founder and CEO of AdventNet, the company behind newly launched productivity suite Zoho.

Vembu is a low-profile guy if there ever was one. He is also cheap as hell. Yet, of course, you know that among entrepreneurs, frugality is a virtue. A tremendous virtue.

Vembu has stretched this virtue to extreme limits, and added layers and layers of creativity upon it. The result? A 100%, bootstrapped, $40-million-a-year revenue business that sends $1 million to the bank every month in profits.

Doing what? you might wonder.

Selling network management tools, to be precise. But with a unique twist. Vembu employs 600 people in Chennai, India, and a mere eight in Silicon Valley. Imagine what that does to his cost structure!

Not only that, in India Vembu's operation does not hire engineers with highflying degrees from one of the prestigious India Institutes of Technology, thereby squeezing his cost advantage.

"We hire young professionals whom others disregard," Vembu says. "We don't look at colleges, degrees or grades. Not everyone in India comes from a socio-economic background to get the opportunity to go to a top-ranking engineering school, but many are really smart regardless.

"We even go to poor high schools, and hire those kids who are bright but are not going to college due to pressure to start making money right away," Vembu continues. "They need to support their families. We train them, and in nine months, they produce at the level of college grads. Their resumes are not as marketable, but I tell you, these kids can code just as well as the rest. Often, better."

(Read my full interview with Vembu here.)

With that rather unique workforce of 600 engineers, Vembu has not only built an excellent, cash-cow, network tools business, but he recently launched Zoho, which is getting a lot of buzz in the Web 2.0 community.

Why?

Well, Zoho does everything that you would do with Microsoft Office. It also has a hosted customer relationship management service that is free for very small companies and only costs $10 per user per month for larger ones. It competes with Salesforce.com (nyse: CRM - news - people ), which charges $65 per user per month.

Marc Benioff, chief executive of Salesforce.com, has made an offer to buy Zoho for an undisclosed amount. Benioff seems appropriately nervous, since Salesforce.com's sales and administration costs are high, eating up most of his earnings. Can he afford to compete if Zoho undercuts him at such a dramatic scale?

Vembu has turned Benioff down.

Many venture capitalists want to invest. Vembu's situation is one that every entrepreneur dreams of. You don't need money. VCs are chasing you. Freedom is delicious, and Vembu knows it.

Vembu has a very exciting opportunity ahead of him. What the Chinese have done in manufacturing, he is showing that the Indians can do in software: undercut U.S. and European software makers dramatically. Not in information technology services. Not by body shopping. Vembu has done something few Indian entrepreneurs have been able to achieve--build a true "product" company out of India. This is not a head count-based business model.

A brief primer would perhaps help put things in perspective. "Product" companies build once and then market and sell the same thing multiple times to multiple customers. "Services" companies that do custom software development have to use "bodies" to do customer-specific development over and over again, with limited leverage. Theirs is a head count-based business model. Recently, popular software-as-a-service companies have come up with the model of "renting" software over the Web, thereby offering "products" as "services" while maintaining the scalability advantage of products.

Vembu has first done a network management product. Then he has done productivity suite Zoho as a software-as-a-service.

True, Vembu is a rare species in India these days. As far as I know, he's one of the very few entrepreneurs who has been able to execute on the premise of building software "products" and/or software-as-a-service out of India. He has a big vision, and so far, he has executed flawlessly.

Watch this guy!

Sramana Mitra is a technology entrepreneur and strategy consultant in Silicon Valley. She has founded three companies and writes a business blog, Sramana Mitra on Strategy. She has a master's degree in electrical engineering and computer science from the Massachusetts Institute of Technology.

 

via Forbs.com via Hacker News (Ycombinator)

I would take that $99 unlimited plan

Om Malik, Friday, February 22, 2008 at 9:10 AM PT

I've been watching the mobile industry commit hara-kari over the past few days. US Cellular is the latest to join this mad dash to the bottom. Their new $99 unlimited calling plans make me wonder if they have actually thought through this move and its long-term implications.

A friend of mine, a veteran of the long-distance wars who's worked with the phone companies, both the wired and the wireless kind, described the big three mobile carriers — Verizon, AT&T, and T-Mobile — as dumb, dumber and dumbest.

These moves remind him of the crazy 1990s, when Sprint, MCI and AT&T fought over long-distance minutes by offering lower prices and thus slowly destroying their ability to make money to support their bloated infrastructure. It's pretty much the same situation here — but the pain is going to be felt much sooner.

Here is why: I am one of the high-end customers of AT&T, locked into a 2-year contract for my iPhone. I've been paying $99 a month (plus about $40 for data and messaging) for 2,000 rollover minutes, free weekends and evenings.

It's never been tough for me to go over the 2,000 minute-limit, since my mobile is my primary phone. Result: I end up paying between $25 to $150 in overages, depending on the amount time I spend on the phone. I am the perfect customer, the kind that makes up for the ones at the bottom of the pile who either don't spend enough money or didn't care to get big buckets of minutes.

But now I am going to get an unlimited plan. And that is the big question: Why would you as a company limit the amount of money spent by some of your best (and I mean high-spending) customers? I suspect most of the people who are going to sign up for these $99-a-month plans are going to be folks like me — existing customers who are looking to bring their  wireless bills under control.

These are particularly attractive options for small biz, startups and web workers. Now your communication costs are pre-determined, which is a good way to budget. I am asking the GigaTEAM to switch to a $99 plan (on offer from whatever mobile operator they use) and also putting the PBX-land line option on hold…forever.

End of Social Networking?

According to yesterday's article in the Guardian, the three largest social networks in the U.K., MySpace, Facebook, and Bebo, all experienced large drops in membership between December, 2007 and January, 2008. Is this one month of falling numbers a fluke or have the networks reached a plateau? Says, Alex Burmaster, Nielsen Online analyst, "One month of falling audiences doesn't spell the decline of Facebook or social networking. However, most of the leading social networks are less popular in the U.K. than they were a year ago."

Losses By the Numbers

According to the article, Facebook saw a 5% drop between December, 2007 and January, 2008, but still had 8.5 million users in January. This keeps Facebook in the number one position as the most popular social network in the U.K. However, after 17 straight months of growth, this drop of 400,000 users, is the first on record for Facebook in the U.K.

MySpace also lost 5% drop in traffic between December and January. They are still the number two social network in the U.K. with 5 million unique users.

Bebo only saw a 2% drop, and ranked third with a total of 4.1 million users.

Growth Rates at an End?

These drops in growth, if anything, point to the fact that the massive growth rates the networks were experiencing could not be maintained indefinitely. For example, Facebook's audience is 712% bigger than it was in January of 2007 and Bebo saw a 53% increase in the same period. I would argue that these numbers point to the networks being more popular, not less, than they were a year ago, so I'm not sure what Burmaster meant in that earlier statement unless he was solely referring to growth rates.

However, Facebook and Bebo's growth may have come from MySpace's loss. The News Corp. giant actually saw its number of unique users fall by 9% since January, 2007. Says Burmaster, "Growth among the big players looks to be more about getting people from their competitors, not attracting new people to social networking."

Does these findings foretell a saturation point for social networks? Or are the networks just not that cool anymore now that everyone uses them? In a BBC News article on the subject, Nic Howell, deputy editor of industry magazine New Media Age claimed, "Social networking is as much about who isn't on the site as who is - when Tory MPs and major corporations start profiles on Facebook, its brand is devalued, driving its core user base into the arms of newer and more credible alternatives."

Interestingly enough, the exodus from the larger networks may have had an impact on some of the smaller networking sites that grew during the month of January. Less trafficked social networking sites like Windows Live Spaces, which just launched a refreshed version with some Facebook-like features, saw a rise in number of users at this same time. Other U.K.-oriented sites like BBC Communities and Friends Reunited also saw growth in January.

isn't that wonderful - a home made motion control system

or this one: head tracking control

how to publish facebook status updates to twitter

With the addition of public facing feeds to Facebook I am now able to publish my status on Facebook to Twitter.   

Here's how you can do it also.

First, find your status RSS feed on Facebook.   It is buried.  (Thanks Bizzle! for helping me find mine.)  To find it, you need to visit your profile on Facebook and on your mini-feed select "See All".   On the right you will see a list of items, select "status stories" and finally below this a feed link can be found.

Don't see a mini-feed on your profile page? 

You've most likely been changed your feed settings.  Resetting them to their default values from the feed preference page will bring back the mini-feed.

Finally add your newly found status RSS feed to the TwitterFeed service.  I set mine to update every thirty minutes, prefixed it with "From Facebook..." and am publishing just the title from the status feed.

 

via Jeff Sandquist blog

Now T-Mobile USA Announces Flat-Rate Too; SMS/MMS Included For $99.99

So now I may not have to change to AT&T (NYSE: T) after all: T-Mobile USA, which is the carrier I have been using for a long time (and Staci and Tricia here do too), has also announced a flat-rate unlimited package, costing the same as the ones announced by Verizon Wireless (NYSE: VZ) and AT&T earlier today. The plan from T-Mob is $99.99 and begins Feb. 21, and cover all types of mobile messages, including pictures, in addition to voice calls.

Meanwhile, Sprint (NYSE: S) said today that it was testing plans in four markets with unlimited voice, text and Web access for $119.99 and $149.99. Meanwhile, MVNOs Boost (owned by Sprint) and Helio. co-incidentally tweaked their unlimited plans earlier this month.. Also, second tier carriers Leap Wireless and MetroPCS offer unlimited calling for customers, but with no roaming.

AT&T Joins The Flat Rate Bandwagon, Hours After Verizon Wireless; Only Voice

Yea...finally competition is spurring some change. Hours after Verizon Wireless (NYSE: VZ) made it official that it was going flat-rate unlimited on certain plans, rival AT&T (NYSE: T) comes out with its own announcement: it would offer unlimited mobile phone calls for a flat rate of $99.99 a month, same as VZW. AT&T said the new fee option would be available on February 22 and that existing customers could sign up without having to extend their service contract. Unlike VZW, however, it only includes voice calling, and data and messaging will still require an additional fee. More info in the release here.

Sprint-owned Nextel and some other smaller carriers have had unlimited plan s for a while. As Dianne mentioned in her post on VZW, will Verizon's plan spark a price war that will lead to the commoditization of mobile voice calls? Seems like it now. According to UBS analyst John Hodulik, quoted in this Reuters piece, the move would likely spur Sprint (NYSE: S) to come out with an even more aggressive offering, which could be bad news for the entire industry. "A more competitive Sprint combined with increasing pressure on voice ARPU does not bode well for medium-term growth of carriers with significant wireless exposure," Hodulik said in a research note.

Verizon Rolls Out Unlimited Flat Rate Monthly Calling Plans

Verizon Wireless (NYSE: VZ) is rolling out an unlimited flat rate monthly plan today, which it says will help it lock down high end users. But is Verizon's "Nationwide Unlimited Anytime Minutes Plan"-starting from $99 a month-the beginning of the end for operators? That is, will Verizon's plan spark a price war that will lead to the commoditization of mobile voice calls?

USAToday.com reports that Verizon COO Jack Plating says the company "isn't expecting a price war," and that the plans are really aimed at high-end customers who spend at least $100 month for mobile services. But he added that Verizon would be able to differentiate itself with the quality of its network should other operators match its plan. Full list of changes from Verizon are here.

Plating also said that Verizon is not abandoning the lucrative "bucket business." Operators usually price minutes by the "bucket,"-for example, 450 minutes for $39.99 a month-and literally bank on the fact that consumers will go over their allotted talk time. "Millions" of wireless consumers apparently exceed their minutes each month, and are then charged up to $0.55 a minute for calls. Apparently, these charges are called "overages" and make up around 15 percent of the wireless industry's annual revenue.

from powerpoint to webapp

via Hackernews

 

In my consulting career, I've been fortunate to see similar problems multiple times -- hopefully, I'll learn from each one and not make the same mistakes the next time I encounter that particular situation. One situation in particular involves a conversation with an entrepreneur, and it goes something like this :

Entrepreneur: I have an idea for a web app that will revolutionize the [blank] industry, and make us bajillions!

me: That's great! I can tell you are passionate and excited, and that's critical to your success. But do you have enough cash to pay for this coffee?

Entrepreneur: Yes, we have some funding to get started. And I have a business plan explaining our strategy, and I have a powerpoint deck of what the product does.

Me: That's even better! I'll have another espresso then.

Entrepreneur: We'd like you to get us started on our website development. Here's our feature set for beta release. How long is this going to take? How many people, and what other stuff do we need?

Me: Ummm....and that's where the conversation gets difficult. Because the business plan doesn't go into great detail about the product (it shouldn't), and the powerpoint slides have a bunch of boxes and arrows but don't show what the screens look like or what actions the user takes, we can assume the founding team hasn't thought much about how people actually use their product.

So at this point in the conversation, I face an uphill climb. I have to explain to (and convince) my client that they have a lot of hard work figuring out how their users are going to use this tool to accomplish their tasks, what those steps are, and what they look like. I have to tell them I don't know how long this is going to take, and I doubt anyone else knows either.

Most of these conversations end with me suggesting some homework for the founders. It's kind of a toolkit of useful things that you probably need, but it's definitely not everything you need. But it's a start.

• read "Getting Real", the 37signals book. PDF, online, or print version, I don't care. Read it, and know it. When in doubt, consult this book. When not in doubt, consult this book and make sure you are still on the path. I hate to use the word 'bible', but it's the closest thing we have. It lays out the process of building a web product, from concept to delivery and beyond. If you're under 25, I guess you can real Paul Graham too.
• setup a server on slicehost for development (for rails, anyway). Easy, cheap, and upgradeable.
• likewise, set up a subversion repository to hold your source code on svnrepository.com. You could host your own, but I like the peace of mind I get knowing my source is backed up and secure. As a bonus, you get a Trac instance for bug tracking, and it includes a wiki and other tools to make developing your web app easier.
• hire a designer, probably a freelance one, to draw some wireframes for you. Give them lots of your time, because that's how you're going to figure out what exactly your app does. This is probably the most important person on your team right now, and you should be focused on this. Ideally you can find a good reference through your network, but if not post a well-crafted ad on craigslist and look at their portfolios.
• At the same time, you probably want a developer to start working on your site. Maybe the developer came first, and she's found someone designer-y to work with -- even better. Just get some stuff down on paper so you can discuss it, scrutinize it, see what works and what doesn't. If your designer is good, and you've spent enough time with them describing what you want, they should have something workable.
• Start building your product. Get your developer, or outsourcer, or nephew or whatever to hack some code.
• Your developers are probably following some sort of Agile process like Scrum. You should be seeing new features and changes on a daily or weekly basis. This is important, so you can play with your app as it is being born and give some feedback, change it, and make it better. If you're waiting weeks or months before peeking, you're doing it wrong. Good chefs taste as they cook.
• Once you have something you like, and works, and does what it's supposed to, consider doing a limited release. Announce to your friends and families, have them play with it, ask for their feedback. If you can't get your loved ones to pay attention to something you've been slaving over, well, that's not a good sign.
• While you're at it, put some site monitoring on it like site24*7.com -- so you'll know if you get swamped with too much traffic from Digg or Slashdot or nytimes.com, should they write about your site.
• Go slow. look how your userbase is growing, if it is at all. Get some more users -- email more friends, or blog about it, or buy a few Google ads. Setup Google Analytics to track visitors to your site, and learn what is working and what isn't. Measure, always measure.
• Get more feedback. Listen to your users. Make them happy. As your userbase starts to grow, spend some time thinking about how you can handle the extra load.

... and that's about it. You've just built and launched an app. Hopefully, you have some users and they like it,maybe even willing to pay for it. Maybe it sucks, and is a stupid idea. But more likely, it works, has some flaws, and could use some work. So work on it. Improve. Iterate.

Of course, what is considered 'best practices' today may not be the preferred methods of tomorrow. So I read a lot to stay on top of where the industry is going. A have a million feeds in my Google Reader account, but only a handful I consider invaluable -- including TechCrunch, Found+Read, Read/Write Web, and Signal vs. Noise.

Microsoft/Yahoo - a Good Deal for Silicon Valley ?

fantastic post via blog.pmarca.com

 

This post is not about the potential Microsoft/Yahoo merger.

Instead, let's just assume for the moment that Microsoft succeeds in its bid for Yahoo.

What would a Microsoft/Yahoo merger mean for startups in Silicon Valley?

Some smart people whom I respect a great deal believe that a Microsoft/Yahoo merger would be bad for Silicon Valley startups.

Says Bill Burnham, for example: "By swallowing up Yahoo, Microsoft will be removing one of the biggest and most active acquirors of start-ups in Silicon Valley... [making] M&A less competitive in general and [reducing] the # of potential exits... [which is] bad news for Internet [startups] and their VC backers anyway you look at it."

I respectfully disagree; I think that a Microsoft/Yahoo merger would have practically no impact on any high-quality Silicon Valley startup.

And here's why:

First, Yahoo has simply not been all that active in buying Silicon Valley Internet startups -- nor, for that matter, has Microsoft and Google -- contrary to popular perception.

Since Terry Semel's arrival as CEO, and continuing since his departure, Yahoo has become quite conservative when it comes to buying startups.

Yahoo only bought a relative handful of companies in 2007. The big ones were Right Media and Blue Lithium in the advertising space -- where Yahoo was highly motivated to make progress -- and Zimbra in the email space. The small number of other acquisitions (three in the US, I believe -- Mybloglog, Rivals, and Buzztracker) were tiny enough that Yahoo didn't even have to disclose the purchase prices.

Similarly, Microsoft bought surprisingly few companies in 2007. aQuantive was the big dog, and Microsoft was similarly motivated by a high degree of urgency to get on the advertising bus. Apart from that, you're looking at a very small number of very small deals, such as Screentronic and Jellyfish -- fine companies, I am sure, but tiny deals.

And even Google, which did more deals than Microsoft and Yahoo combined in 2007, only did a coule of sizeable ones -- Doubleclick (again that advertising thing), and Postini in email. And, Feedburner got a fine exit from Google given that it hadn't raised much equity funding. But most of the other companies Google bought largely to acquire engineers, and perhaps nascent products that hadn't yet shipped -- not doubles or triples or even necessarily singles from the perspective of venture-funded Valley startups.

Microsoft, Yahoo, and Google are only buying a relatively small number of smaller companies at all today -- so given that, taking Yahoo, or even Microsoft for that matter, out of the M&A races isn't going to reduce the number of deals going down each year by very much.

Second, the spectrum of companies that are doing Internet M&A is surprisingly broad, and, drawing from lists of deals from just 2005-2007, includes names like:

• Akamai
• Amazon
• American Greetings
• AOL
• CBS
• Cisco
• CNet
• Comcast
• Digital River
• Disney
• eBay
• Expedia
• HP
• IAC
• Jupiter Media
• Liberty Media
• Marchex
• MercadoLibre
• Monster
• Motricity
• NBC Universal
• New York Times
• News Corp
• Omniture
• Priceline
• Publicis
• Real
• Sabre
• Scripps
• Shutterfly
• Sony
• Valueclick
• Viacom
• WPP

So the base of buyers for Internet startups is considerably more diversified than you might think.

Third, consider what's likely to happen next.

Many of the traditional media companies -- in the US and overseas -- are looking at their core businesses today and seeing either rapid or imminent deterioration. This is certainly true for television, radio, music, newspapers, and magazines, and quite possibly also true for movies (given the decline in ticket sales and the recent apparent stalling out of the DVD market). And this is also true -- or will be true -- for a pretty broad range of various other businesses that are getting touched by the Internet.

For historical reasons -- skepticism about the potential of the Internet, combined with the false hope presented to many traditional businesses by the dot com crash of 2000-2002 -- many of these traditional companies are not yet appropriately positioned for an Internet-dominated future.

And now, if the Microsoft/Yahoo deal does go through, those same companies in many cases will be looking down a very scary double-barreled shotgun of an ascendant Google and an armored-up Microsoft, aimed right at their lunch, if you know what I mean.

I'm pretty confident guessing that the level of concern and even panic among many traditional companies -- particularly media companies -- is only going to escalate from here, as traditional non-Internet businesses in various sectors deteriorate and consumers continue moving en masse to the Internet.

And from there, it's not hard to guess that Internet M&A is likely to heat up considerably over the next several years, compared to the last several years, across a very interesting and surprisingly diverse cross-section of buyers.

Fourth, new buyers appear on a regular basis.

It wasn't that long ago that Google would not have gone on anyone's list as a significant buyer of other companies.

In the meantime, Facebook has emerged as a company with considerable financial firepower and is already starting to do M&A.

If past is prologue, several new buyers of one form or another will pop up over the next five years, and one or two of them will probably be on the "top buyers" list in 2010 or 2012 -- when you'd be selling a company you start today -- even though we probably haven't even heard their names yet.

Think also about the telecom companies, the mobile carriers, the Japanese consumer electronics companies, the Korean conglomerates, the mobile handset makers -- Nokia is ramping up their Internet M&A efforts right now, European media companies... not to mention the Chinese Internet companies. Any of these could emerge as meaningful buyers of Silicon Valley Internet companies of various forms in the years ahead.

After all, in a world where Cisco is buying social networking startups, anything is possible.

Fifth, building your startup with a goal of getting acquired is foolishness anyway, in my opinion. Smart people disagree with me on this, but I'll make my case in two points:

• Big companies don't want to buy startups that want to get bought. Instead, big companies buy startups that have built something of value that they decide is important to them.

• You can't possibly guess what things of value big companies are going to want to own in one or two or three years. The world is changing too fast -- witness the Microsoft hostile bid for Yahoo itself! -- and besides, big companies are Moby Dick and you can't understand the reasoning behind their decisions anyway.

Combine those two points with the fact that no big company buys that many startups each year anyway, and it's easy to see that the odds of you successfully anticipating something that a big company is going to want in the future and then actually selling your company to them -- as your strategy -- is a very risky proposition that is highly prone to failure.

And in fact, in my experience, most startups that start with the goal of getting bought, fail.

The formula for success in startups is the same today as it's always been, and it will be the same post-Microsoft/Yahoo:

Build something of value -- something that people want, and something that will be profitable at the appropriate point -- and the world is yours.

Successful companies -- companies that have built something of value -- have many options. They can stay private and throw off dividends. They can go public. They can get acquired by big companies who suddenly decide, hey, that looks really valuable, let's buy that. They can sell minority stakes to big investors or strategic partners at very high valuations. All options that are typically not open to the startup that started with the goal of getting bought and didn't build something of independent value.

Or, reduced to a phrase: the best way to get bought is to not be for sale.

Because of this, even if Microsoft, Yahoo, and Google stopped doing M&A completely, the strategy of any high-quality startup in the valley would not change one bit.

Sixth, I believe that a Microsoft/Yahoo merger would actually be a net positive for many high-quality Silicon Valley Internet startups, for a completely different reason.

Again, suppose the takeover bid succeeds. You're looking at probably a year of government approvals, followed by at least a year of integration.

You can't speed up the first part, because that's up to the government, and they don't react well when you scream "hurry up!" at them. And you don't want to speed up the second part, because integrating two companies of the scale and scope of Microsoft and Yahoo is an absolutely enormous undertaking and you want to make sure you do it right, or you're not going to get any of the benefits.

In practice, that will be two years in which both Microsoft and Yahoo will most likely be considerably less aggressive on rolling out new products and new initiatives -- because the key people at both companies will be consumed with the merger.

And, just think, if they are buying fewer companies as a consequence, that also means they're less likely to buy one of your competitors and come after you while you are building your thing of value.

I think this merger, if it happens, will help clear the field for a whole new generation of Silicon Valley Internet startups to create and scale the next set of killer consumer services that will go mainstream and be used by hundreds of millions of people worldwide.

Where does that leave us?

The Microsoft/Yahoo deal, if it happens, means very little for the entrepreneurial climate in Silicon Valley, or the opportunities available to you and your startup.

Your job is exactly the same as before: build something people want, scale it up, make sure it's defensible, and make sure you can make money with it.

Build a company you are proud of.

If you do those things, you'll do just fine; if you don't, neither Microsoft nor Yahoo nor any other big company were going to rescue you anyway.

Nobody ever said this was easy, but in a world moving this fast and this much in flux, it certainly is fun!

everything you need to know about advisors

lovely post from Venture Hacks

http://venturehacks.com/articles/advisors

Microsoft/Yahoo - a Bad Deal for Silicon Valley

via Burnham's Beal

 

There's a ton of discussion today about Microsoft's unsolicited bid for Yahoo.  Much of the discussion focuses on whether or not the deal is a good thing for Microsoft, Yahoo or Google's shareholders.  While it's possible it could be a good or bad deal for one, the other, or all three, one thing is for sure:  this a bad deal for Silicon Valley start-ups and their VCs.

How could that be?  Because by swallowing up Yahoo, Microsoft will be removing one of the biggest and most active acquirors of start-ups in Silicon Valley.  The intense competition between Microsoft, Google, and Yahoo has arguably been one of the main factors helping drive up M&A activity and prices for internet related start-ups.   It seems like every rumored acquisition over the past few years has had all three fighting in some way to win the deal.

Even though Yahoo has been wounded of late, it still had a market cap in the 10's of billions of dollars which allowed it to be a legitimate competitor for any deal under $1BN and in fact Yahoo has been a pretty active player in that market whether its del.icio.us, flickr, Rivals, etc.

If it's acquired by Microsoft, that will leave only two Internet media/search acquirors with the ability to easily do sub $1BN deals.  What's more, while Microsoft has recently show a willingness to deal really big deals such as Acquantive and now Yahoo, it has traditionally been less willing to smaller "tuck in" deals, deals that Yahoo has traditionally been much more active in.  Indeed, Microsoft has traditionally been dismissive of these deals because they just don't move the needle for them and their engineering staffs still retain a relatively high degree of NIH attitude.

Losing one of the Valley's most reliable "tuck in" acquirors and second place bidders is a net negative for the Valley.  It will make M&A less competitive in general and will reduce the # of potential exits for "me too" start ups" to 2 instead of three.  That's bad news for Internet content/search start-ups and their VC backers anyway you look at it.

10 Steps to Innovation

via wonderful Found&Read

 

1. Don't take things for granted
2. Watch for inconveniences
3. Watch for possible gaps
4. Follow tech trends
5. Watch how your competitors work
6. Observe different people in different places
7. Capture every idea
8. Create a master list of problems
9. Review your master list of problems
10. Take action

Do as I say, not as I did

lovely article, again thanks to Found|Read

Last September, Ev Williams gave a speech about some of the mistakes he made as CEO of Odeo.

Since then, a lot has happened. We turned out to totally wrong about one thing: "So what's he doing to fix these mistakes? Not refunding the VCs their investment, that's for sure." That's exactly what Williams did just a month later , refunding his VCs and angels their $5 million stake.

Williams' fortunes have changed radically since then, as Obvious Corp, which he formed to buy Odeo, has also developed the smash hit web product of the season, a casual blogging tool called Twitter.

Williams said he created Obvious to pioneer "a new model for building and running web products," one that uses cheap and rapid development to test an idea before turning it into a company. So far, it appears to be working.

This week, Williams indulged us by reviewing the list of Odeo-screwups we covered last fall and, importantly, shared with us what he's doing differently this time at Twitter.

Mistake #1: "Trying to build too much"
Retake: Where Odeo had a mess of products, Twitter is singularly focused on the short-form shout-out. Tell your friends what it is that you're doing in 140 characters or less. The thrift and simplicity of Twitter posts are comparable to the site, which simply takes the messages from SMS, IM, web form, or third-party application and sends them back out. Says Williams via email, " It does very little. (In a good way.)"

Mistake # 2: We weren't the target users of our product
Remake: The makers of Odeo weren't podcasters and didn't listen to many podcasts themselves, so they lacked intuition for their users' needs. Twitter is the opposite, according to Williams, because it's a product his team uses and loves. "[Obvious employee] Jack Dorsey introduced the idea of Twitter to us, because he'd been wanting it for a long time. We built a prototype and started using it internally and, based on that, decided to invest further."

Mistake # 3: "Not adjusting fast enough"
Remake: Odeo couldn't compete when Apple introduced a competitor, but Twitter has tried to be more agile. Rather than stay bound to long-term strategic visions, Twitter has made many adjustments to its product over the last several months, aiding its astronomical growth this March.

Says Williams, "We didn't have the formula right for Twitter at first. We liked the app, but for the first few months, it wasn't clicking with users. We changed the positioning, the relationship model, and other things until it started working. I think we could have been faster, but we got there. Now we're trying to adjust to the scaling requirements."

Mistake # 4: "Raising too much money too early"
Remake: Williams' new theory is "Some things are perfectly worthwhile but don't need to be a company" in the "hits-driven" consumer web business , where anything less than a 45-degree trend on the growth chart considered flat-lining. Due to the pressure of responsibility to its funders, Odeo had to be a company before it had proved it was a successful product. Twitter hasn't raised any outside funding yet, though Williams says "It's likely we'll need to before long, but we're past the point where I think it would be too early."

Mistake # 5: "Not listening to my gut"
Remake: Williams says, "This has a lot to do with who I'm working with, what we're working on, raising money, etc. Safe to say, we're doing better in all departments."

Angel Funding Toolkit

Angel Funding Toolkit Posted: 11 Jan 2008 07:31 AM CST Aruni Gunasegaram has a great post up on GigaOm's Found|Read titled My Funding Toolkit.  It's a nice summary of stuff that Aruni has put together in the quest for her next round of angel funding.

via Ask the VC

Youth speaking about their handset preferences

interesting to take a look

http://www.youtube.com/watch?v=GbyEOmD-apk

 

via the [non-working] Wireless World Forum.

PhoneCasting Raises $500,000 Seed Funding

via MocoNews

 

Houston-based startup PhoneCasting has raised $500,000 from undisclosed angel investors. The company plans a service to let people listen to podcasts on a phone, and also create podcasts by recording them with the handset. PhoneCasting bought Podlinez and modified it into a white label service, and will offer its platform and services for free reports Tech Confidential . Founder and president Michael Sharp hopes to get a wide audience and sell advertising, and tie podcasts with affiliate marketing opportunities—"for example, if a podcaster reviewed the latest Stephen King novel, a listener could press a key to buy the book on Amazon.com (NSDQ: AMZN)". The proceeds will be split with 20 percent going to PhoneCasting and the rest to the podcaster. The company is seeking a $10 million first round.

Top Ten Myths of Entrepreneurship

great list of points via Guy Kawasaki blog

 

This is a guest post by Scott Shane as a follow up to his entrepreneurship test. He is the A. Malachi Mixon Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of seven books, the latest of which is The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By . Many entrepreneurs believe a bunch of myths about entrepreneurship, so here are ten of the most common and the realities that bust them:

1. It takes a lot of money to finance a new business. Not true. The typical start-up only requires about $25,000 to get going. The successful entrepreneurs who don't believe the myth design their businesses to work with little cash. They borrow instead of paying for things. They rent instead of buy. And they turn fixed costs into variable costs by, say, paying people commissions instead of salaries.

2. Venture capitalists are a good place to go for start-up money. Not unless you start a computer or biotech company. Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and seventy-two percent of the companies that got VC money over the past fifteen or so years. VCs only fund about 3,000 companies per year and only about one quarter of those companies are in the seed or start-up stage. In fact, the odds that a start-up company will get VC money are about one in 4,000. That's worse than the odds that you will die from a fall in the shower.

3. Most business angels are rich. If rich means being an accredited investor –a person with a net worth of more than $1 million or an annual income of $200,000 per year if single and $300,000 if married – then the answer is "no." Almost three quarters of the people who provide capital to fund the start-ups of other people who are not friends, neighbors, co-workers, or family don't meet SEC accreditation requirements. In fact, thirty-two percent have a household income of $40,000 per year or less and seventeen percent have a negative net worth.

4. Start-ups can't be financed with debt. Actually, debt is more common than equity. According to the Federal Reserve's Survey of Small Business Finances, fifty-three percent of the financing of companies that are two years old or younger comes from debt and only forty-seven percent comes from equity. So a lot of entrepreneurs out there are using debt rather than equity to fund their companies.

5. Banks don't lend money to start-ups. This is another myth. Again, the Federal Reserve data shows that banks account for sixteen percent of all the financing provided to companies that are two years old or younger. While sixteen percent might not seem that high, it is three percent higher than the amount of money provided by the next highest source – trade creditors – and is higher than a bunch of other sources that everyone talks about going to: friends and family, business angels, venture capitalists, strategic investors, and government agencies.

6. Most entrepreneurs start businesses in attractive industries. Sadly, the opposite is true. Most entrepreneurs head right for the worst industries for start-ups. The correlation between the number of entrepreneurs starting businesses in an industry and the number of companies failing in the industry is 0.77. That means that most entrepreneurs are picking industries in which they are mostlikely to fail.

7. The growth of a start-up depends more on an entrepreneur's talent than on the business he chooses. Sorry to deflate some egos here, but the industry you choose to start your company has a huge effect on the odds that it will grow. Over the past twenty years or so, about 4.2 percent of all start-ups in the computer and office equipment industry made the Inc 500 list of the fastest growing private companies in the U.S. 0.005 percent of start-ups in the hotel and motel industry and 0.007 percent of start-up eating and drinking establishments made the Inc. 500. That means the odds that you will make the Inc 500 are 840 times higher if you start a computer company than if you start a hotel or motel. There is nothing anyone has discovered about the effects of entrepreneurial talent that has a similar magnitude effect on the growth of new businesses.

8. Most entrepreneurs are successful financially. Sorry, this is another myth. Entrepreneurship creates a lot of wealth, but it is very unevenly distributed. The typical profit of an owner-managed business is $39,000 per year. Only the top ten percent of entrepreneurs earn more money than employees. And the typical entrepreneur earns less money than he otherwise would have earned working for someone else.

9. Many start-ups achieve the sales growth projections that equity investors are looking for. Not even close. Of the 590,000 or so new businesses with at least one employee founded in this country every year, data from the U.S. Census shows that less than 200 reach the $100 million in sales in six years that venture capitalists talk about looking for. About 500 firms reach the $50 million in sales that the sophisticated angels, like the ones at Tech Coast Angels and the Band of Angels talk about. In fact, only about 9,500 companies reach $5 million in sales in that amount of time.

10. Starting a business is easy. Actually it isn't, and most people who begin the process of starting a company fail to get one up and running. Seven years after beginning the process of starting a business, only one-third of people have a new company with positive cash flow greater than the salary and expenses of the owner for more than three consecutive months.

The Art of the Sign Up Page

interesting article found thanks to Found|Read.