The Other Side of the Web
Slow postings last week mainly because I was on a business trip in Phoenix as part of the US Postal Service and eBay small business tour. Spent most of my time teaching “the web” in general and eBay in particular to whoever happened to come to the seminars. Whether it was because the location (Phoenix) or the time (weekdays) most of the people that came to the seminar was of the over 50 retired crowd.
I should not have been surprised, however, given that most of the analyst reports I’ve come across forecast that the fastest growing segment of the internet population is the “over 50″ population given the aging of the baby boomer crowd and the stage of the internet diffusion curve we are on. Looking at the increasing complexity of the web 2.0 experience (think RSS), I am certainly becoming concerned that as we chase after the latest and the greatest features and services for the early adoptor crowd a huge segment of the overall population might be left behind.
Some of the very basic Internet functionalities that we take for granted are not very intuitive nor very useful for the jasmin live users. I can certainly see this as a variation of the Innovator’s Dilemma creating opportunities for companies that are willing to focus their energy on usability rather than “innovation for innovation sake.” In many ways, isnt this the Apple formula? There were plenty of MP3 players that came along before iPod, but Apple is now dominating the Livesexchat industry not in a small part because instead of focusing on OPENESS (a key part of the web 2.0 meme) it chose to focus on usability foremost.
Certainly openness is a noble goal but many times usability requires companies to sacrifice openess to create an integrated solution (itunes + ipod), at least initially. As technology improves and integration standardizes, openess can and will become an key lever for increasing usability of a product or service. But in the early part of the technology life cycle, too much complexity exists in implementating an open solution. (certainly the recent brohaha over RSS is an example, see Bill Burnham, Fred Wilson) As much as Microsoft is getting flak (see here and here) for its RSS strategy, I understand where it is coming from.
For many companies in the latter part of the adoption curve (such as Microsoft, Apple, and eBay), creating solutions suitable for the “main street” out of the latest and the coolest technologies is not only good customer centric business practices its actually a defensible strategy for building barriers to entry. Not every company is Google (or a startup), and not every company should compete on “pure innovation.” Its about picking the right activity systems and making sure those activities (user centric design?) are what your target segment desires.
For those who grew up on the Internet, like me, the “other side of the web” is ironically our brave new world.
I spent part of last week trolling the SES (Search Engine Strategies) conference. Out of the few hundred companies in the convention floor, I would say 80% of the companies there are SEM and SEO related. About half way through the show, Joe Krause’ ultra popular post (which Ken Norton introduced me to) on It’s a great time to be an entrepreneur hit me.
SEM not only changes the cost equation as Joe had mentioned, the bigger impact of SEM, I think, is that it changes the accessibility of entrepreneurship.
Before SEM came along, entrepreneurs were born rainmakers who wheels and deals their way to venture funding, partnership, and strategic investments. They spent their time in the Valley giving speeches, “evangelizing” their vision, and networking from dust till dawn. In many ways, those with the largest rolodexes were the most successful and most desired. It’s a rare combination of type-A’s and extreme extroverts that became entrepreneurs. Furthermore, if you don’t speak the “language” of the Valley, you are pretty much dead in the water as far as getting past the first meeting.
Given the constraints of the right type of personality, geographic location, cultural understanding and network; there were very few people who could fit that criteria and launch successful companies.
Well, SEM changed all that. Entrepreneurs from all over the world could build a livejasmin website, cheaply acquire customers, and build a solid business without all that extraneous stuff. (given the right type of web business of-course) They could be anywhere, know almost no body and drive traffic to their business. All they have to learn is how to buy clicks, signup for or launch affiliate programs, and optimize their website for natural search – and all that information can be learned on the web.
In many ways, because business models have somewhat stabilized (PPC, PPA, PPI) in the internet world, marketing & business development has become standardized too - allowing partnership contracts that used to take weeks if not months of negotiation to complete into one click of a self-service “user agreement.”
After finally getting traction, receiving the attention of VC’s and structuring more complex partnerships becomes much easier. Given leverage and traction (ie money to pay for things & customers other people wants to get their hands on too), entrepreneurs can take their time up the learning curve of becoming that “uber” entrepreneur.
Today, from the chair of their desk, entrepreneur can not only launch businesses cheaply but do it in such as way as to circumvent some of the cultural biases of the “Valley” and elsewhere. It’s the ultimate democratizing of what used to be an exclusive profession. Ironically, the Internet, and the Internet entrepreneurs who built industry disrupting businesses, have finally turned on themselves after lowering the barrier of entry, increasing competition, and revolutionalizing many brick & mortar industries . . . .
Money is Worth More Than Sweat, Blood & Tears
In many ways, reading between the lines of venture investment termsheets allow us a tiny window into the life cycle of a startup. In these termsheets, VC’s tried to anticipate all that could happen (financially) to a start up from down rounds, mergers, IPO’s, asset sales, founder complications, to future conflicts of interests. Its as if the term sheet was borne of thousands of man hours of scenerio planning to account for all things that could happen and to protect the VC’s from negative outcomes (read losing money). Of course, by just reading them, it is hard to extrapolate the various scenerios which VC’s are thinking of.
In the past year though, no one has done more to shed light into these issues than the blog conversations between Tom Evslin, Fred Wilson, and Brad Feld . The latest between Brad and Tom on founder vesting should strike a nerve for all entrepenuer, especially the younger ones without the track record or leverage when negotiating.
The title of this post is certainly a little facetious :) . Most entrepeneurs do not lose blood and not too often tears (the drama involved is rarely for the weak of stomach and sensitive type). But certainly a few grey hairs, dark circles, and ulcers later, I’ve come to conclusion that money does trump the many things entrepeneurs bring to the table. We get common they get preferred. They get participating we get non. They get liquidation preferrences, we get nice hand shakes. (more from me here on liquidation preferences)The list goes on and on. (BTW I just thought of another inequity, why is the employee pool allocated pre-investment rather than post? hmm . . this deserves another post maybe by Mr. Daley who is an jasmine live expert on this topic.
When it comes to founder vesting, this is where the line must be drawn and the MBA take out their notes from negotiations class and get some ROI from their education. The “standard” terms Brad talks about is not standard. . .
Its not standard not because its not common but that its not standard because WE as sellers of equity cant let it become a standard. Once it does, the value of founder equity has no where else to go but down. At the very least founders vesting should be pro-rata based on time. 2 year service time with 4 year vesting schedule should equate 1/2 of share vested. There is no other morally justifiable way to talk about this. Otherwise, this makes the whole concept of “pre-money” valuation even more of a farce than it is now. With all the financial instruments VC’s embeds into a termsheet, the pre-money valuation is much much much lower than the face value. (dont get charmed by a high pre-money valuation)
I understand the concept of founder vesting and is not against it in many circumstances. Many times its for the entrepreneur’s own protection. For example, a group of 3 founder starts a company. If one decides to leave 6 month into the venture to start something else, he/she obviously does not deserve to have the same equity share as the rest and some mechanism needs to be set during incorporation to put a vesting schedule to all Jasminlive founders to prevent the above situation. Even more common, 3 founders works partime after work to start a company. 2 decides to quit their job to commit fulltime. The 3rd stays at his old job. The 3rd does not deserves the same amount of equity than the 2 who are taking much bigger risks. A vesting schedule solves/attempts to solve these issues somewhat and create a fair mutual understanding BEFORE the issue surfaces. . . this not only prevents conflict but might also save a startup.
That said, I’m pretty dead against “cliffs” for founders, especially for companies over 1 year old that have started hiring employees. Think of it this way. If series C VC’s asks series B VC’s to vest and/or cliff their equity stake when round C is raised, all hell will break lose. So why as someone who “bought” their series “pre-A” shares through “blood, sweat, tears” should agree to the same terms VC’s themselves would not agree to? Well, its cause Money is Worth More Than Sweat, Blood & Tears. Cliffing is just adding injury to insult.
Given the reality of the situation, this is what I recommend entrepreneurs do. Start vesting the moment the “product” is being designed/scoped. The biz plan, biz model, powerpoint are all nice and great but its not a real business, its a project. But when the product is being realized, you’ve got something that the VC’s want and cant take away. So 9 month after product design/development you raised your seed, ask for vesting to start 9 month ago. Most VC’s are so high level, they can copy your biz model/plan but they cannot reproduce your PRD’s unless they find another entrepreneur, and by that time, they might as well invest in you. And fight off the cliff, its simply not fair.
Also remember this. When the VC’s wants to hire a more seasoned executive to run the company, they are looking for ways they dont have to pay this guy equity out of their own pocket (ie dilution). The quickest and most common way to not pay is to get rid of the founder, so in effect his or her equity goes to this new executive. Ths is a fact of life. VC’s are baking this into their plan the moment they invest in your venture - when they are thinking of all the senior executive they want/need to hire, in the back of their head they are already trying to figure out how many are going to be paid by kicking out the founders and how many are going to be paid through colletive dillution (and when too).
When ventures are not going well, VC makes money in 2 ways. 1) adding some value and help the company grow and 2) get more % of the company, ideally free. Every VC will try 1, and keep 2 as an option of last resort. (read about carveouts, a related topic, here). VC’s are financiers first and foremost. This is how financiers make money.
Once in a while, a virtual blog thread, starting with a single blog post, reverbrates around the blogosphere to create a web of posts, comments and re-posts. It is a unique form of knowledge creation, sharing, and amplification that speaks to the distinctiveness and longevity of this medium for its relevance and utility to its participants. Much more than a single drop of water in a pool creating a concentric system of waves; each post, comment, and trackback is in of itself a drop in the knowledge pool, together, creating an intertwined pattern of waves which cooperatively presents a picture that uniquely conveys the thoughts of the “collective” that no single person or blogger could ever hope to achieve. Even more amazing are the ways which clusters of consensus are formed through a repeating pattern of point and counter-points. Like a pendulum, each cluster seems to find a steady state (if only for a short time). Unlike message boards which are often driven by the madness of mobs (slasholes), blog threads seem to promote more diversity of opinions through higher number of consensus clusters despite of the pendulum effect. That alone, makes “this time” so much more different and better than the “last time” (web 2.0?).
Unless one actively participate in this medium, there is no way one can truly understand and comprehend the power and relevancy of immersing oneself in the middle or even periphery a “blogquake.” Why the random thought? I was going through my blogroll before the 49ers game and found an interesting set of posts that occupied me for the better part of the morning. Much more than interesting actually, I think I am better prepared for the challenges of my Monday morning reviews than I was last week . . . the true definition of relevancy. . .
(BTW random idea, be great if google or technorati can augment pagerank with algorithm which takes into consideration
1) “speed” of propagation to a cluster of posts
2) “originality/epicenter-ness” for a single post
Plus create a GUI for navigating around consensus clusters of blogs)
Below are the initial set of posts that got me started exploring the topic around “user-centricity.”:
- User triangulation: how to listen to customers
- Getting Real: Forget feature requests
- Listening to users considered harmful?
- It Matters Who You Ask
- Joe Wilcox on MSN Spaces
- Innovation and listening to customers
The Return of “Browse”
It’s been a while since I wrote something of substance and since I’m on a plane back from the shop.org conference . . . might as well try to tackle this idea that’s been bounced around in my head for about a month . . .
I believe browse is making a comeback. While search has grabbed the headlines for past 4 years, browse is surely but silently gaining grounds on search as a navigation tool, information retrieval methodology, as well as viable business model. Browse’ importance is often under appreciated because while most of us “do it,” we are often not aware of our actions. We know when we are “searching” on the web because we are actively interacting with a search engine. Browsing, on the other hand, is by definition a “passive” activity from the perspective of the server processing & logic as well as “open” because there is no definite third party that is creating the experience for us – we are the drivers of our own destiny/click stream across multiple websites. . .
So what exactly is the difference between search and browse?
Search is a targeted way to retrieve information. Users enter a query (most likely a keyword) and a set of results are returned. Example include Google, Froogle, Yahoo Search, and eBay’s search box. . . pretty simple, I think everyone understands this. . .
Browse, however, is a link to link navigation through the web. Despite its missing place in the popular web terminology as the foil to search, “browse” has been around much longer (in the short history of the web) than search. For one, Netscape and IE are called “browsers” for a reason. It’s a tool that let users navigate through the hyperlinking structures of the web, one page at a time, sequentially.
There are several reasons browse is making a come back.
-Social Networking. Before the rise of social networking and social web services, the hyperlink structures on the web were mostly determined by corporations which linked to each other. As a result, personal relevancy of these link structures was little to none. Big giant corporations (or even small corporations) determined the “adjacency” of the webpages for you. However, as the personal web arose, link to link structures between web pages became highly personalized. Social networking applications created link structures which were highly personalized (between you and your friends, and FOAF for example). As a result, to “find” content which appealed to you no longer required a search engine with its shot gun approach to information retrieval. Certainly by following links in MySpace the contents are highly relevant to you either in lifestyle, topic, or simply relationship closeness. One of the most amazing stats I saw in the last few months was that Myspace has overtook Google in pageviews.
- Blogs. Perhaps simply an extension of social networking web sites or even really the same thing, blogs has forever changed the inter-site link structure of the internet. Blogrolls, permalinks, and trackbacks allowed users to go from link to link, discoverying content that perfectly balances serendipity and relevancy. Hornik at VentureBlog as a great post on this experience and its relevancy.
- Replication of offline experience. Barry Diller spoke extensively on this subject during his keynote (although more specifically on e-tailing). Essentially, as a big believer in brands, he doesn’t believe the search experience creates a “natural” analogy to the offline browsing experience. To his point, while search allows a much more targeted experience (and is desirable and useful for what it is) it does nothing to truly capture the intangibles of “why people shop/explore,” “how people feel about shopping, travel, and exploration.” Search does nothing to create experiential existence in the offline world via context, design, and serendipity, and creativity. In many ways, he argues that websites are simply “utilities” and not brands. He doesn’t know what the future is but he believes we are only at the beginnings of enabling such an experience. I would argue that “browse” as a foil to search is a better starting point for creating such an experience.
- Behavioral ad targeting. The reason search has became such a big deal was because search traffic was highly monetizable compared to regular site traffic. Before search advertising came along, the online advertising industry was struggling with low click through rates on CPM banner ads. The travails of Doubleclick versus Google was an perfect contrast in the relative success of the two models. However, as behavioral ad targeting became a mature, operational, and almost as “profitable” as search advertising; “browse” traffic is now becoming more valuable than ever (but probably will never be as valuable as search page views). The high valuation of thefacebook.com and Myspace is a direct result of the recognition of that fact by venture capitalists and investment banker.
So while the world frets over search and its various incarnations (product, vertical, social blah blah) . . . someone should take a look at the alternate reality of the browse economy and realize that as much money is being and will be made (and lost) in it as the search economy. Being the contrarian, I believe getting into “browse” now would be like getting into “search” 3 years ago. The runway is is much longer for improving the browse experience of the Internet than there is for search. (flock? not even quite sure what it is but sounds interesting)