Insights Archive

Today Lehman is filing for Chapter 11 bankruptcy protection, and Merrill Lynch is being bought for chicken feed by Bank of America.

The Wall Street sky is falling. but what does that mean to tech companies, and particularly to startups?

The last five or six years have been all about community, "social media" and other related types of communications. That era has ended and the next phase of the Web will be about *real* productivity. That means products that make you more efficient, and more effective. It means software that saves you money or makes you money. And yes, we are really going to have to start paying for the good stuff.

One theme that has been emerging is being referred to as "web meets world". It’s an idea that has been discussed by Brad Burnham from Union Square Ventures, and also the folks at the Web 2.0 Summit. The concept is that the web needs to actually help you do things in the real world, and not just meet other folks on the web. I think this is all true but it is really just a fancy abstraction for helping people do things that matter, and things that they will pay for. As an example, Union Square just invested in Meetup — a terrific investment. Meetup makes real money charging people for helping connect them to other people. They are providing real value and so people pay real money.

I find this "web meets world" concept particularly interesting because of a controversial piece I wrote back in April called "Free Is Killing Us, Blame The VCs." The core of my thesis in that piece is not that free is inherently bad, but that too much free was distorting the value of the market because the free is only supported by VC money and not real value being delivered to users.

As a result, I opined, it was way too hard to start a small business and to grow it because you need to "get to scale" since everything is expected to be free and monetized by advertising, which requires lots of users. Perhaps the idea people found most objectionable was when I said the following:

In today’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small companies could succeed at a small scale and grow. But it is very hard to charge when your competition is free.

People really objected to the idea that "in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it." And of course there is room for debate here. But what is not debatable is that by and large, tech startups engaged in offering totally free services ( I am not talking about freemium here) are not making money, and they are not getting acquired. Its fine not to get acquired, but you can’t do that very long if you’re not making money. And now that "free" VC capital is drying up, sustaining such businesses will be really tough.

Interestingly, at the time, Brad, among many others, took me to task for having a dated view of the online world, and for not understanding how it really works.

But in my view, Brad’s stated new thesis is exactly in line with my writing at the time. "web meets world" really might be better phrased "web meets money." There will be fewer and fewer companies getting funded by offering services that help online folks interact with other online folks, because cool as it is, people won’t pay for it, and the bottom is going to fall out. Brad and Union Square’s new investment thesis is the canary in the coalmine for that strategy.

Brad’s rebuttal to my April piece talks a lot about new business models that are going to emerge that I am just missing. But five months later, I see no evidence of it, and "web meets world" to me, suggests that in their heart of hearts, they don’t either.

In fact, I think companies like 37 Signals have had it right all along. They preach charging people for services, and staying small, and adding real productive value. Scale is irrelevant in this model because the software ads value to the individual without the network effect. In this model, scale is a benefit, not a requirement. I am not saying there will not be successful advertising based companies, but I am saying they will have to solve really serious issues like improving the value equation of online banner ads, in order to be successful.

As I see it, this is a fantastic shift in the marketplace, because it means if you have a company that adds real value, you are less likely to get thrown off course by a flood of capital creating unsustainable competition. I am very happy the venture markets are making this shift.

This article was authored by Hank Williams who is a New York-based entrepreneur who explores the tech marketplace from 10,000 feet at Why Does Everything Suck?.

Yesterday I received a survey from one of the services that provides paid content. I thought it would be interesting to share the questions and my responses. I would love to hear your thoughts as well. My general take has not changed – I am all in favor of advertorials but not in favor of paid reviews. Advertorials would be full "posts" that a company purchases similar to full page ads in newspapers. Labeled correctly, advertorials could be a huge winner for blogs. As I do with all advertising on any of my sites, the ads would need to meet my standards before accepting. The comments below only relate to advertorials not paid/sponsored reviews.

Intro from email sender: I am trying to best understand what is most important to bloggers like you. I would greatly appreciate it if you could take the time to answer a few questions.

1. At what price point is making a sponsored post interesting to you? $100/post? $500/post? $2000/post? More?

Allen: In general terms, the price for an advertorial should depend on the site’s real audience (not the fake rss numbers, etc.), the site’s reach and what media the advertorial includes (i.e. video/audio). The other consideration to look at is how long the advertorial will run. Pricing should also be in line with the monthly sponsorship pricing. Each advertorial should be priced accordingly.

2. If you have no interest in including sponsored content on your blog at any price why?

As I stated above, advertorials would be ok in moderation. For a large blog, running one or two a week would be acceptable. I wouldn’t run sponsored reviews for any price.

3. If you were to include sponsored content on your blog would you rather write a review yourself or simply place an advertorial?

Answered above. Sponsored reviews are not healthy for the overall market. There will always be the question lingering as to why the review was positive. We are starting to see some interesting business going on with video bloggers and decisions they are making around sponsorship and what amounts to paid reviews. This type of business needs to be corraled before it gets out of control and puts a hurt on the overall blossoming video industry.

4. In addition to full in-post disclosure what other conditions would you have for accepting a sponsored content?

To properly handle advertorials, naturally in-post disclosure is required. In addition, I’d like to see an "advertorial standard" created – similar to the IAB ad format standards. This will allow search engines and other aggregators to properly handle this type of sponsored content. Whether it’s some type of microformat or a specific "rel" tag or some other technical means to handle, it’s critical that this is setup correctly from the beginning. If it’s not handled correctly from the beginning, it will not work over the long-term.

With that said, there are a variety of other concepts and ideas I have for ways to monetize blogs. I will begin to share them over the next couple of weeks. It’s time for the CPM ad to rest in peace.

Editor’s note: Dan Zarrella has put together a viral content sharing report and below is a small part of the report focusing on content types and online content sharing.

When most people think of viral content, one of the first things they think of is humor, silly Youtube videos, hilarious cartoons and toungue-in-cheek articles, but as I discovered with my viral content sharing report, the most savvy and prolific viral sharers prefer spreading news more than humor.

When I looked at the profile segments I constructed out of the survey data, I noticed a pattern among those respondents who frequently used new and geeky social web technologies, like Twitter and Digg: they prefer sharing funny content less than their less-social-media-savvy counterparts. The same pattern appears for frequent users of less bleeding-edge technologies (like blogs and Facebook), but it is far less accute.

Not only did I observe this preference when the respondents were sharing content individually with their friends, but also when they’re sharing in one-to-many ways (broadcast sharing, like submitting to Digg, Tweeting or blogging):

One possible reason for this may be that savvy social media users have become desensitized to all the “funny” attempts at viral content and have much higher funny-enough-to-share thresholds.

When I looked at those users who shared content more frequently or with more people than the average respondent I noticed the same trend:

Even if your ultimate target market is not early-adopter geeks, as a viral marketer it still pays off to focus on the types of content these highly prolific users prefer to share, as they’re the ones who are more likely to spread your content and when they do they can spread it much further. When you’re developing your next piece of hopefully-viral content, keep this in mind and instead of reaching for the trusty humor hook, try something timely or useful (like a how-to).

This is a small part of the large data presented in the full report I did on the results of my survey, if you want to know more, be sure to read the rest of my viral content sharing report.

Dan Zarrella is a social and viral marketing scientist, check out his blog or follow him on Twitter.

Just two weeks after our interview with Pandora founder Tim Westergren, he sat down with the Washington Post today for a very serious discussion about the future of Pandora and of webcasting in general. In our interview, Tim spoke openly about the royalty and licensing issues around music and called the situation, "a real mess".

Peter Whoriskey spoke with Westergren today and if you are into music streaming online, the interview is a must read. Westergren opens with the following, "We’re approaching a pull-the-plug kind of decision". And he closes with, "So if it doesn’t feel like its headed towards a solution, we’re done". The article also notes that Pandora’s royalty fees this year will amount to 70 percent of its projected revenue of $25 million.

Here’s the bottom line around the royalty issue from Whoriskey, "The Copyright Royalty Board last year decided that the fee to play a music recording on Web radio should step up from 8/100 of a cent per song per listener in 2006 to 19/100 of a cent per song per listener in 2010." That’s $17 million for Pandora this year based on usage. Smaller webcasters may already be out of the game due to the increased royalty rates. On the radio stations I listen to on iTunes, many of them have messages about the royalty rates throughout the day.

The question here is whether other music streaming companies (last.fm, imeem, etc.) will face the same struggle that Pandora is. And the answer so far is yes. Perhaps we will need some sort of pay model for these music streaming companies to foot the bill.

Steven Hodson also has some good insight into the issues facing Pandora and the industry at large.

On the NY Tech mailing list this week there has been a good discussion about the launch of a mobile commerce site by clothing manufacturer Polo Ralph Lauren. Dianne from mocoNews commented on the launch yesterday. Normally a mobile commerce site launch is not that exciting but in this case, Polo Ralph Lauren is using print advertising to drive shoppers to the mobile site via QR codes.

"This is about someone who’s interested in our brand and interested in technology, and wherever the two meet, that’s what’s appropriate," David Lauren, son of CEO Ralph Lauren, said.

The image on the left is of a QR code. If you are new to QR codes, check out our coverage which includes a Japanese perspective where these codes are well received among consumers. You can think of QR codes as upc codes with more intelligence.

RL Magazine has an overview of the QR codes from their perspective which includes, “You’ll be able to walk past fruit at the supermarket, scan an apple, and see when it was picked and where it came from,” says Jonathan Bulkeley, ScanLife CEO. “While buying hair dye, you’ll be able to scan the code on the signage and see instructions. You can create your own code, put it on a T-shirt, and then let people scan your shirt and link directly to your MySpace page."

I still believe that the use of QR codes will change the mobile marketing and ecommerce landscape by allowing consumers to "pull" the marketing we want. That is, once the majority of mobile devices can handle processing the codes.

Unfortunately Alexa didn’t make it. After stopping to count again yet again, Dr. Stern did all he could to bring the service back. Rest in peace Alexa, rest in peace.

It seems the new buzzword these days is Cloud Computing. Years ago it was called "ASP" then moved to "SaaS" and now it’s "Cloud Computing". While some have talked about Web 3.0, it seems like cloud computing is this year’s hot topic. The most simple definition of cloud computing is that it’s a way to access files and services outside of your own space.

With that said, we received the following video today which I thought was worth sharing: