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Safari for Windows, and the power of the default January 14, 2007

Posted by jeremyliew in browsers, Consumer internet.
10 comments

Download Squad reports on a rumor that Safari might be released for Windows, citing Mary Jo Foley who found the speculation on Mozilla’s Firefox 3 requirements wiki. (The speculation has since been removed form the Mozilla wiki.)

The comments discussion largely focuses on how Safari’s features stack up against those of IE and Firefox. I think one other important factor comes into play, the power of the default.

Like many other’s in the tech industry, I have a weakness for overthinking features. But my experience as a former General Manager of Netscape taught me that feature comparison is not how the general public makes its consumer technology selections. Very often, the general public will go with the default technology choice, only looking for an alternative if the default is obviously inadequate in some way.

The best example is the story of how IE won the first browser wars against Netscape. Microsoft worked with the PC OEMs to ensure that IE was the only browser shipping on new PCs and that eventually caused market share to tilt overwhelmingly in IE’s favor. (Microsoft eventually settled the anti-trust case with AOL for $750m.)

When Firefox came along, IE was starting to show obvious signs of inadequacy in the security arena. Even the general press was reporting on virus outbreaks and other security threats, and they were blaming IE. This was raising the level of attention of the general public – it helped Firefox grab and hold the “IE Alternative” mindshare in the US. Interestingly enough, this is geography dependent, with Maxthon holding 30% market share in China, and Opera strong in some countries in Europe.

At Netscape we found it very hard to create a “third alternative” in the minds of the general public. It seemed as though there was only one slot available in people’s minds as the alternative to the default. Although I haven’t tracked browser market share by geography much recently, I suspect that this may also be true in Asia and Europe, and that there is still a strong power law to market share distributions among browser vendors in each continent. Our primary mode of distribution was through our own portal, where we had the “default” position.

Safari is the most popular browser on Macs because it is the default. But I suspect that it will run into the same problem that we did if it is released for Windows. There is really only room for one “default alternative” and so they will find themselves fighting with Firefox instead of fighting with IE in the minds of possible users.

The new “must see tv”… January 12, 2007

Posted by pchiang in Consumer internet, Digital Media, Search, startups, Venture Capital, video.
2 comments

On Wednesday, Yahoo! and Akimbo announced a new partnership to bring the most popular selections of Yahoo! Video to the Akimbo video-on-demand service. This announcement comes on the heels of the launch of Apple TV, a set top box that wirelessly transfers digital media from user’s computers to their TVs. Both announcements highlight, the increasing convergence of video platforms. As Jeremy points out in his “2007 Consumer Internet Predictions”, time spent consuming videos both online and on the TV are increasing. Not only are people watching more videos than before but they are also watching videos in many more ways. Television/video viewer behavior is in the middle of an evolution.

A number of factors are driving this change:

1) There is the increasing adoption of TV/video technologies such as digital video recorders, video on demand and video downloads/streaming, not to mention Apple TV and iTunes/iPods. According to Forrestor, “DVRs have entered the hypergrowth phase, reaching more than 13 million households, including 17% of digital cable subscribers and 19% of satellite subscribers. DVRs will surpass 50% of homes within four years.” DVRs and the other technologies are enabling the “time shifting” of programs, the skipping of commercials and the ability to consume videos in smaller chunks and in different locations.

2) Decreasing costs of bandwidth and storage are removing the economic and practical barriers of having and distributing videos for both content owners and consumers. Broadband is dramatically improving the user experience of watching streamed videos. Peer-to-peer networks only increase the ease of distribution and access.

3) As everyone knows, alternative video platforms such as YouTube and other streaming videos sites (NBC Rewind, CBS Innertube, ABC.com, Fox On Demand…) are proliferating. The major studios saw what happened to the music industry and are trying to find ways in which they may embrace these changes without losing control over their assets. They are making more and more content available on their online destination sites and iTunes. For the consumer, this equates to more types of content and in more places.

These fundamental changes in the way people can watch videos are shifting mindsets to an “on demand” mentality. People are becoming the programmers of their own personal television network, dictating what they want to watch and when they want to watch it.

In recognizing this shift, two areas of opportunity come to mind.

1) Search/navigation/discovery of content. With so much content coming from so many different sources, the networks and cable channels are no longer the ones telling you what you “must see TV” is. Interesting content can now come from anywhere. However, more video options mean more videos to sort through to find something of interest. Some companies such as Blinkx and CastTV address the problem through improved video search relevancy. While others, such as CozmoTV and StumbleVideo, focus on video discovery through the votes of the community of users. Convergence of platforms and media types only promises more complication.

2) New advertising models that will capitalize on these shifts. As many people have predicted, TV advertisers will to continue to see their 15 and 30 second commercials go increasingly unwatched. Brand advertisers, who spend the $60B a year on television advertising, will still need to find a way to reach their target consumers. Advertisers still don’t seem comfortable associated their brands with the unpredictability of user generated content. While I agree with Jeremy’s assessment that the shift will take time, this advertising budget will go to new ad models that reach consumers in a more targeted and relevant way. One such model is that of broadband television networks, such as Revision3, which produces serialized content targeted towards specific interest groups at a fraction of the cost of mainstream television programs. Brand sponsorships are embedded into the programming itself and can be targeted toward the specific demographic of the show. Revision3 makes their content distribution platform neutral, allowing users to choose how and where they watch each episode.

These are only a few of the many new models bubbling up. I believe there will many opportunities for entrepreneurs who understand the evolution in user behavior and recognize the power of the different players in the value chain.

Lead gen is dead. Long live lead gen January 8, 2007

Posted by jeremyliew in Consumer internet, Ecommerce, Lead gen, Search, startups.
13 comments

There has been some vigorous comment discussion on the post of 2007 consumer internet predictions, mostly about the lead gen prediction. Firstly, its wonderful to get comments – thank you. When you first start blogging it feels like shouting out a window into the darkness; you’re not really sure if anyone is out there, listening. It’s good to know that I’m not just talking to myself!

On to lead gen. There were two broad schools of thought on the state of lead gen. One is epitomized by a Jason Calacanis’ comment which, while lacking in detail, none the less crisply conveys his opinion of the industry and those who work in it.

Lead generation is dead. Companies would really be foolish to start a new leadgen company – especially NOW. Geesh.

Others shared more detail, and see a troubling situation as the arbitrage opportunities between buying CPC advertising and selling leads dry up. The markets, both in paid search and in remnant banner advertising, have become more efficient, squeezing margins for lead gen companies.

Yet others are more optimistic. Langley Steinert (co-founder of TripAdvisor, now CEO of Cargurus.com, and one of the pioneers of lead generation) believes that advertisers would much prefer to pay for leads, and others agree, although sometimes with reservations about if this is in the long term interest of the lead buyers

How can we reconcile some of these positions?

Simplifying substantially, lead gen comprises three processes:

1. Acquiring traffic (e.g. from paid search, organic search, brand advertising, banner advertising, distribution deals etc).
2. Converting traffic to leads through a form-fill process
3. Finding the highest value for a lead among multiple buyers (ie having a network of advertisers and knowing who placed what value on each lead)

Historically, most lead gen companies have been vertically integrated, doing all three processes. Also, historically, lead gen has been focused on a small number of industries, including mortgage lending (including refi, and home equity), consumer credit (including credit cards, educational lending, auto loans), new auto sales and online education.

In these industries, I think it’s fair to say that margins are shrinking and that competition is growing fiercer. The market, while not perfect, is becoming a lot more efficient. Some companies have established a competitive advantage in process #1 by locking in traffic either from organic search, from long term distribution deals, or by having established branded destinations (e.g. Lending Tree). Others have established a competitive advantage in process #3 through the breadth of their buyer network (e.g. Autobytel). Entering these markets today is going to be a tough road to hoe.

As I said in my prior post, I think we’ll see similar principles applied in other categories that also have high customer value, can sustain a sales person’s costs, are infrequent purchases by consumers and have complexity in the decision making process. Possibilities include wedding photography, plastic surgery, LASIK, cosmetic dentistry, eldercare, even business purchases. These categories still allow arbitrage opportunities between CPC advertising and lead gen as they are still inefficient. However, they will also become efficient over time, and long term winners will need to establish competitive advantage in processes #1 and #2 as outlined above.

Interestingly enough, some companies, notably Leadpoint and Root Exchange, are trying to commoditize process #3 by establishing a “marketplace” for buyers and sellers of leads to efficiently find each other (taking a cut of the transaction in the process). If they are successful in doing this in the newer lead gen markets, they will serve to accelerate the margin compression and force successful lead gen companies to focus on the three elements of traffic acquisition that can sustain arbitrage: organic search traffic, branded destination traffic and long term distribution relationships.

It will be interesting to see how this industry plays out. Comments and thoughts, especially from industry practitioners, most welcome.

UPDATE: Some very interesting comments posted – worth reading if you are only getting a feed

Whither widgets? January 7, 2007

Posted by jeremyliew in Consumer internet, Digital Media, social media, social networks, startups, widgets.
25 comments

A couple of posts on Techcrunch, one on Filmloop entering the Deadpool, and another on a rumor that Slide took $20m in funding have sparked some lively debate in comments about the business models for widgets. I don’t pretend to have the answer to this, although I did note in my earlier post on 2007 Consumer Internet predictions that this would be the year that social networks would find a business model.

I led Lightspeed’s investment in Rockyou early last year (Sequoia was our co-investor). Rockyou is a competitor to both Slide and Filmloop – they help people to customize their online representations (on social network pages, blogs etc) by embedding widgets, including photo slideshows, glittertext, image text and other widgets. As has been noted in the comments to the Techcrunch posts, the technology involved here is not terribly complicated (although the challenges of scale are meaningful). We invested for a couple of reasons: (i) Rockyou had achieved very real adoption from users and (ii) we really liked the two founders, Lance Tokuda and Jia Shen. Lance and Jia have a great sense for their users needs. Here in the valley we can get a little insular, but Lance and Jia have developed a fantastic sense of what their user, the Myspace/Bebo/Friendster user, is looking for.

We have been very happy with our investment in Rockyou. It has only continued to grow since we invested – it now serves well over 100 million widget views every DAY, and it has diversified well beyond a dependence on Myspace (a majority of its visits do not come from Myspace anymore). Having too much of a dependence for new users on a single source is a scary thing for any company. When Myspace launched its photo slideshow widget a few months ago, we waited with baited breath to see the impact on our growth. If Myspace blocked Rockyou (or Slide or any other widget company) it would have a meaningful impact on the business. However, Myspace has grown in large part by being open. It briefly blocked YouTube in December of 2005 (eventually attributed to a misunderstanding) but reversed that shortly afterwards, perhaps due to complaints from its users. Its hard to read the FIM/Myspace tealeaves, but they have had plenty of opportunity to block successful widget companies in the last year and have not chosen to do so so far, even while they have launched competing services internally.

That being said, like most startups just past their one year anniversary, Rockyou is not yet profitable. As I mentioned in my prior post, Youtube is really the only company that has suceeded in turning widgets into a destination website that can be monetized directly. Photobucket drives enough traffic from users uploading and editing photos to be able to generate significant revenue from advertising as well. Its fair to say that none of the other widget companies, Rockyou included, have achieved the same level of success in creating a destination browsing experience to the same degree.

Its not yet clear what the business model for such widgets will be. One possibility is sponsorship. Rockyou partnered with Sony to offer “Casino Royale” themes and with Nettwerk Records to offer “Matt Wertz” and Leigh Nash” themes that users could apply to their slideshows. All three have been successful, with large numbers of users choosing these themes resulting in 10s -100s of millions of widget views. This could well be a path to monetization. Another is freemium models. Although the base products will always be free, users may be willing to pay for certain premium customizations. Rockyou allows users to customize a “pin” to replace the rockyou watermark on their slideshows for a small fee. Its early days, and we don’t yet have a clear picture of exactly what the monetization model will be, but these are both highly promising options. Venture investing, and starting companies, always carries elements of risk after all!

Is Google unassailable? If so, Why are VCs chasing search? January 5, 2007

Posted by ravimhatre in Consumer internet, Search, startups, Venture Capital.
3 comments

Several recent articles (NYT, Richard MacManus, etc) on next generation search and the questionable wisdom of backing businesses with a mission to displace some or all of Google’s current market domain caused us to do some of our own reflection.

Not only is Google tremendously good at what they do, in less than 10 years they’ve established a consumer brand with iconography to rival the likes of Nike’s famed athletic swoosh or Coca Cola’s signature “wave” heralding the onset of good times. Google’s navigational search delivers tremendous value when consumers know what they are looking for. Its unlikely we’ll witness the demise of this offering anytime soon.

However, there are many instances where a minimalist approach to search results simply can’t deliver what the user wants because the user doesnt know what he or she wants.

For example, I had a friend who recently contracted SSHL, a termporary hearing loss condition. I needed information. My search on Google yielded a hodgepodge of linear page results, most of which had nothing to do with the medical condition. My search on Kosmix (Lightspeed portfolio company), a category-based search engine, provided well organized, relevant results and suggested specific symptoms, treatments, medications, best hospitals, and other relevant directional tips to guide me through my discovery process. Similarly, when I was looking for post-holiday sales on Espresso Machines, I found Google’s answer to be virtually unintelligable versus the clean array of choices yielded by TheFind.

While Google has a dominant brand and will continue to be a “start-point” for many navigational searches, there are a variety situations where the answer to a user’s query doesn’t reside on the top page of links from a Google search results deck.

There in lies the opportunity. While there are challenges for start-ups in developing the right distribution channels and content syndication partnerships to scale up traffic and consumer mindshare, if the quality of vertical search experience can consistently create “aha” moments for the consumer it will yeild market opportunity.

As previous articles have noted, its not a matter of out-Googling, Google. More likely, it will be about identifying segments of search where consumers need more than a traditional page of linear result links to easily answer their information request. Over time, it doesn’t make that sense one size will fit all. Google may evolve and adapt to this segmented notion, but they will be required to learn the same lessons and develop similar alternative approaches to those of many start-ups that have already begun the process of search disaggregation.

Ecommerce 2.0 doesn’t explain Google’s growth January 5, 2007

Posted by jeremyliew in Consumer internet, Ecommerce, Lead gen, Search.
5 comments

I got a really interesting email in response to the 2007 Consumer Internet Predicitions post from Iggy Fanlo (CEO of AdBrite, ex President of Shopping.com and a guy who knows a thing or two about CPC advertising!):

You talk about cos like Zappos filling the SEM void, but the math still doesn’t work… if search revenues (online advertising generally) is rising at 70-80% and e-commerce (total, not just the established entities) is rising at less than 30%, AND folks still aren’t using search for branding, then what is going on?

(a) Either we are moving to a far greater lifetime value model for customer acquisition (which really is branding in disguise) OR

(b) There is an rapidly approaching upper limit on search revenue growth that approximates e-commerce growth (Google and others’ slice of pie cannot get much greater) OR

(c)There are lots of greater fools (small cos trying to get off the ground, large cos not watching their SEM spend with any discipline) and will still end up drying up in the end.

Thoughts?

I’m going to hand-wave a little in my attempt at an answer here, but would love to hear comments from those more knowledgeable than I am about Google.

Google grew its revenues at 70% Year on Year according to their 2006 Q3 financials.

Lets say 30 percentage points of that came from the growth of US ecommerce as per Iggy (Comscore says 26%, I’ve seen others a little higher).

Search Engine Watch and Neilsen say that Google has increased its market share from the mid 40s to around 50% of all searches in the last year or so, which is about a 10% increase for Google, so that gets us to 40 percentage points of growth.

Google’s international growth is outpacing US growth as per their Q3 earnings slides: 92% vs 56%. I wheeled out my creaky excel and crunched the numbers, and this international growth premium over the US contributes about 14 percentage points of growth, getting us to around 54 percentage points.

Lead gen isn’t included in the ecommerce growth numbers, but is also clearly a driver of search engine marketing. According to the IAB, lead gen was up over 70% in H1 2006 over H1 2005. Its still a lot smaller than ecommerce, so perhaps that adds another 5 points of growth to get us to 59 points.

That still leaves around 10 points of growth that is likely due to increased pricing. I scanned some analyst reports which seemed to agree about pricing but couldn’t find size estimates

So Iggy is right. But its not as dire as it looks at first glance, or perhaps not as imminent. I agree with his point (a), that margins are getting skinnier and in some cases Search Marketers ARE applying a Lifetime Value analysis and taking a loss on customer acquisition for the first transaction. (I would disagree that this is branding in disguise though as it is still trackable). I don’t think his (c) is a major factor – people are being pretty rigorous in their ROI analysis in this area in my experience. But (b) is ultimately right – it has to be eventually. I don’t think we’re quite there yet though.

Comments and discussion much appreciated.

I’m going to post on Monday about Lead Gen in more detail as it generated a lot of comment discussion in the earlier post, and I think the SEM trends very relevant to that topic also.

2007 Enterprise Technology Predictions January 5, 2007

Posted by John Vrionis in Digital Media, Infrastructure, Security, startups, Storage, Venture Capital, WiMax.
1 comment so far

First – Happy New Year! The Lightspeed Team is very excited about the prospects for 2007. We’re just getting rolling with our blog here and hopeful it can be a positive resource to let you know how and why we approach things the way we do.

I wanted to follow up on Jeremy’s post earlier this week 2007 Consumer Internet Predictions and share some of my thoughts regarding areas we’ll be watching closely this year. Full disclosure – I didn’t fully realize how hard blogging is. I’m really nervous! I have a lot more respect for all of you who routinely put yourself out there for the world to read about. But I do think there needs to be a lot more transparency from the VC community, so here goes…

1. Where are the NEW IDEAS in security? Despite the venture community pouring hundreds of millions into best-of-breed, segmented security solutions, it turns out customers want to buy and manage one complete, layered suite. The problem is that with 200,000 pieces of malicious code officially logged (100,000 of those appearing in the past 18 months according to McAfee’s AVERT Labs), the model for traditional anit-virus programs looks less and less exciting. The good news is that most experts finally agree that ridding software of vulnerabilities at the code level is the best defense. It would seem to me that companies such as Fortify Software and Mu Security are on the right track. So what’s next then? Mobile security is a relatively untapped (huge) opportunity. Two of the of the fastest growing things I can think of – social networking websites (Facebook and MySpace) and the proliferation of intelligent mobile devices serve as great mediums to spread malicious code – even if enterprises are well prepared!

2. Intelligent storage solutions. Talking with CIO’s from Lightspeed’s CIO Forum, I get a lot of great feedback about what the priorities are for 2007. One consistent message (complaint) I hear is regarding the explosive growth in unstructured data and the associated storage costs. Despite the continued decline in disk costs, overall storage costs as a result of needed capacity and performance, not to mention space and power, continues to be a major concern for CIOs. I’m hopeful 2007 is a year where we see more exciting new ideas about how to manage data intelligently over pure performance or blind capacity.

3. WiMax – Why not? I’m really excited about WiMax. As mentioned in a recent post by Katie on GigaOM, the mutiplayer chess match is just starting to heat up as massive players such as Sprint and Clearwire manage the infrastructure buildouts and work with the likes of Nokia and Motorola. I have this grand vision where some day there will be super cheap WiMax (only) enabled devices that are perfect for SMS, IM, sharing pictures and video, and VoIP calls. They’ll be available in vending machines and a quick password entry (or biometric signature) will instantly customize the device for your personal use (as all your information will inevitably be in the cloud). Ok – I know it’s a bit out there and I don’t think that happens in 2007 (probably not in 2008 either) but as I said, I’m excited about the possibilities that come with ubiquitous, ultra-high bandwidth.

4. Innovation for international markets. Is 2007 a watershed year in the sense US based companies start thinking about developing technologies primarily for international markets? The $100 laptop? Clearly there has complete acceptance of the idea of leveraging international talent and labor to build products for the US market (first), it will be interesting to see how global market demands influence innovation here in the US.

As always, I look forward to hearing from you. Feel free to drop me a note anytime (john@lightspeedvp.com)

Stocktickr, Stockpickr, other stock tip sites and the implicit web January 3, 2007

Posted by jeremyliew in Consumer internet, Ecommerce, social networks, startups, user generated content, viral, web 2.0.
8 comments

The WSJ (subscription) has a good article this morning on a new set of networking sites for investors. Techcrunch separetly has a review of stockpickr.

We’ve seen a few of these stockpicking sites over the last little while. I think that there is a risk of a conflict of interest in touting stock picks, although if people are truly your “friends” and not just people you met on the site, this might get mitigated. Otherwise, it seems like a happy hunting ground for stock tip spammers.

The best remedy for this to my mind is to use real data. Stockpickr lets you see Warren Buffet’s actual portfolio – not much opportunity for “gaming” that system!

If there were a way to verify people’s “stock picks” – say by tying into brokerage accounts with permission to verify that they really do hold those stocks or really did make that trade, then you’d have some very interesting data. As Seth and Fred have said in the past, implicit data is much more interesting (as well as painless to collect if given permission) and truthful than explicit data.

Imagine being able to see other users’ actual accounts and trading history, and being able to tell the real trading superstars from the ones who weren’t willing to put their money where their mouth was. Would active traders be willing to pay to get real time access to the transaction flow of the top traders? People already do this for Jim Cramer. A subscription model like this would potentially generate enough money to incent top traders to open up access to their real time trading and their portfolios. They would be able to earn a nice secondary income stream and it actually HELPs their positions if others follow them. But if these active traders start gaming the syste,, people will stop following them and they run the risk of losing their own money.

I’d like to see someone take a shot at this!

2007 Consumer Internet Predictions January 1, 2007

Posted by jeremyliew in Consumer internet, Digital Media, Ecommerce, Lead gen, startups, web 2.0, widgets.
38 comments

Happy New Year everyone.

It seems to be the season for consumer internet predictions, so here are mine:

1. Ecommerce 2.0 arrives. Google‘s search revenues continue to grow at 70-80% growth rates. Yet the public ecommerce companiesrevenues are growing at “only” 25-30% at best. But almost every Google click is going to an online transaction somewhere – people still aren’t using search advertising for branding purposes. So what is filling the gap? Some of it is the multichannel retailers coming on strong, Walmart, OfficeMax, etc. But a lot of it is from the next generation of ecommerce companies, still private but doing revenues in the $10s and sometimes $100s of millions that have quietly been growing at 50-100% per year through the last few dark years. Companies like Zappos, Art.com, Mercantila [a Lightspeed portfolio company], Netshops, CSN Stores, Backcountry, Bodybuilding.com, Toolking, US Auto Parts and dozens more have grown up, mostly away from Silicon Valley, and many without the need for venture capital. Those that have taken investments have often been at scale and profitable when they do. Watch this space as the next generation of ecommerce sites ride people’s growing willingness to buy online, use search to acquire new customers and focus on verticals rather than trying to be an all encompassing department store.

2. Social Network widgets find a business model. Pete Cashmore and many others have proclaimed the rise of the widget economy, but there hasn’t been too much money floating around this economy to date. Widgets have been primarily a marketing tool, used to drive traffic to a destination site, with Youtube being the most obviously successful at doing this. Once there, monetizing traffic on your own site is uncontroversial. But few others have been able to build a browsing destination on the back of widgets, which begs the question as to how widgets can be directly monetized where they are embedded, and what sort of revenue splits will be struck between the three relevant parties; widget owner, social networking site, and user. I don’t know the answer to this, but have some ideas (syndicated advertising, sponsorship, micropayments for bling, freemium models etc). I think we’ll see more clarity emerge in ’07.

3. Lead generation breaks into new categories. You rarely see ads for mortgages, online education, new autos, credit cards and other financial services products anymore that don’t lead you to a form to fill out to get free quotes. CPC and CPM banners for these products, as well as search engine ads and optimization, all drive you quickly through a form-fill process so that you can be sold as a lead to vendors of these products. Vendors prefer to pay for leads as it makes their marketing costs much more accountable. I think we’ll see similar principles applied into other categories that also have high customer value, can sustain a sales persons costs, are infrequent purchases by consumers and have complexity in the decision making process. Possibilities include wedding photography, plastic surgery, LASIK, cosmetic dentistry, eldercare, even business purchases.

4. Social Networking finally becomes a feature. I think it will be hard for new broad based social networks to emerge; the existing networks are strong and good and are serving their users reasonably well. But social networking, like message boards, is now getting baked into vertical content sites as a mechanism to help drive user generated content. Yelp uses a core of social networking to incent its Yelp Elite and other core users to write local reviews which then benefit any user of the site. Youtube absolutely uses social networking to reward video contributors. Tripadvisor reviewers get compliments and get told how useful their reviews are, as do Amazon book reviewers. Flickr has always had a core of social networking and profiles for regular photo contributors. Others are doing this in other verticals, including Flixster [a Lightspeed portfolio company] in movies, Kongregate in flash games, and many more. These are not social networking sites per se – they are city guide sites, or video sites, or travel sites, or book sites, or photosites. You can enjoy the specific content without ever joining the network, or even being aware of it, but the social network reward mechanisms are incenting the power users to contribute the content that we all benefit from. Watch this space.

5. News of TV’s death is greatly exaggerated. There is no question that people are watching more video online then before. But a Media Life report from earlier this year suggests that people are acutally watching more TV, not less. It is radio, magazines and newspapers that are suffering the most from increased internet usage. Even if TV usage does decline, don’t expect the massive TV ad budgets to wash into online video right away. Looking back a few decades, you can see how long the lag was between viewers switching from broadcast to cable, and ad dollars following them. Broadcast still commands a premium CPM to cable during prime time in most instances. Look for technologies to emerge that help TV increase their CPMs as viewers start to defect. Spotrunner is a fine example.

6. Software as a Service gets customer facing. When you think SaaS you typically think enterprise applications used by employees. Salesforce.com is the classic example. But increasingly we are seeing websites use customer facing functionality delivered on a SaaS basis. A few lines of javascript on a page gets you behavioural marketing, user reviews, live customer service, or collaborative filtering. Typically, these companies charge the website owner/enterprise a variable usage based fee for their services. Furthermore, the demands on your development staff are relatively low, especially compared to building this functionality yourself. Having run a business, I know that although your wishlist of features is two pages long, you’ll only ever get the first half of the first page done in any given year. SaaS allows you to get some of the lower priority features added quickly and easily without impacting your key focus areas. This will really help level the playing field for smaller publishers and e-tailers who can now add the same functionality that their top tier competitors have been able to build in house. It turns features into companies.

Update: My colleague John Vrionis has added his 2007 Enterprise Technology predictions here

Update II: In response to comments and other events, I’ve posted more on predictions #3 (Lead gen) and #4 (widget business models)

Startups from Australia January 1, 2007

Posted by jeremyliew in australia, startups, Venture Capital.
7 comments

I recently got back from a fascinating conference in Sydney which brought back about a hundred of us expat Australians to talk about the Australian diaspora and how we could continue to help Australia from overseas. Peter Costello, the Australian Treasurer, said in his address that there are about 750,000 Australians working overseas. For a country that only has a population of around 20,000,000 that is pretty remarkable. Unlike most other diasporas, this hasn’t been driven by turmoil or disaster at home, but rather by opportunity abroad, and as a result the Aussie expats have tended to do pretty well.

Aside from the self congratulation, mutual admiration and networking (which is always fun!), I also really enjoyed the discussion on how to drive more innovation from Australian companies. A number of Australian tech companies and tech companies with Australian founders have seen some degree of success, including Hitwise, Looksmart and Massive among the better known ones. Other Aussie tech companies that have come to the US more recently and are getting some press or conference coverage include Bluepulse, Minti, Veetro and In The Chair.. And Eurekster has its roots in nearby New Zealand. So I took the opportunity during my trip back home to meet with a number of the local Venture Capital firms to get a flavor of the market.

The VC Industry in Australia is still young, with most firms currently raising their second, or at most third fund. The early part of this decade was as tough for the Aussie market as it was for firms of the ’99 ands ’00 vintage in the US, and since this was the first or second fund for many of the Aussie firms, they are just now getting their portfolios into shape to be ready to raise new funds. The consensus of opinion seemed to be that the Israeli model of Venture was the way to go.

If you look at most Sand Hill Venture firms that have an office outside the US, they will be in one of four geographies; China, Europe, India and Israel. One of these does not look like the others… Israel, like Australia, has too small a domestic market to be able to nurture a venture backable company. From the beginning, Israeli startups have to look to a global market. That often means eventually moving customer facing components (sales/marketing/business development, and often the executive team) of the company closer to the markets, usually the US. Development can often stay at home, where often costs are lower.

There is a long history of Israeli companies making this progression, and the partners at Lightspeed have been investing in Israeli companies making just this transition for many years. Many Israeli Venture firms end up leading the first round of investment in Israeli companies, then look to a US based Venture firm to lead a later round and help those companies move their market facing operations to the US and fill out their management teams. One of the reasons that this is common may be that the Jewish diaspora has led to many partners at US VC firms with ties to Israel. When faced with a very long flight to look at a potential investment, and VC’s general preference to invest within the same area code, having some personal connection to the geography can help bridge the gap.

Which brings me back to the Aussie diaspora. As an Aussie, I would LOVE to be able to fund promising Australian startups and help them make the jump to the US. As far as I’m aware there are only two other Aussie partners at VC firms in the US (although I haven’t done an exhaustive search and stand to be corrected in comments), and hopefully as the Aussies diaspora matures and more Aussies expats find them in positions where they can help Aussie startups make the jump, we will see more Australian founded companies make it big on the world stage. This would be good for Australia, good for the founders, good for Aussie VCs and good for US VCs with ties to Australia.