Mazen Blog

Consumer Web is Global

noreply@blogger.com (Mazen) — Thu, 01 Nov 2007 23:01:00 +0000

In thinking about how Internet startups can get distribution and scale, I put together the following list of consumer Internet startups founded since 2001 that have gone on to be acquired for over $100 million.

Skype - acquired by eBay ($4.9 billion with earnout)
YouTube - acquired by Google ($1.65 billion)
ClubPenguin - acquired by Disney ($700 million with earnout)
MySpace - acquired by News Corp ($580 million)
Last.fm - acquired by CBS ($280 million)
PhotoBucket - acquired by MySpace ($250 million)

Aside from the fact that almost all of these companies have some social networking component, what's remarkable about this list is how distributed consumer Internet startups have become. Only one of these companies, YouTube, was founded in Silicon Valley. London is home to both Skype (which was also partially founded in Talin) and Last.fm, MySpace was founded in LA, ClubPenguin in Canada, and PhotoBucket in Denver. I think we will continue to see a lot more innovation from around the world going forward...

Distribution & Scale

noreply@blogger.com (Mazen) — Fri, 26 Oct 2007 22:25:00 +0000

If you're starting a consumer Internet company today, I think the most important thing to consider is how you will cost-effectively reach distribution and scale. How a startup acquires users should not just be a part of its marketing strategy after the founders have decided what to build, but preferably the first thing they think about when still trying to figure out what product to launch. Often the answer may not be immediately obvious, and may require a lot of iteration as consumers begin using your site. As Kevin Efrusy says in The Elusive Great Consumer Experience "the key hit-making characteristics of an experience are often subtle and only discoverable through early experimentation."

Today it is easier and cheaper than ever to start an Internet company. As a result more and more entrepreneurs are making the decision to launch their own business rather than join an existing one, which has led to dozens of startups in each market getting funded and going after the same opportunity. The level of competition is only likely to increase over time, as startups get more global and begin competing from anywhere in the world. Information travels so fast that's impossible for a startup to get more than a couple months lead time on its competitors.

Given these trends the only thing that will differentiate successful startups from the also rans will be their ability to acquire users, get distribution, and achieve a level of scale where network effects can begin to kick in. As Reid Hoffman likes to say “The way my investment thesis works is this: If I believe you have a chance to scale, I’m interested. If you don’t I’m not."

In a post titled Information Dissemination and Feature Parity David Beisel writes: "Features – even ones that are difficult to implement – are not barriers to entry. Instead, innovation around marketing (communications and positioning, not just tactical moves), business development relationships, and instillation of network effects are and will increasingly differentiate winning web startups from the also-rans."

Although there is no formula for how to achieve distribution in a cost-effective way, a look at the most successful consumer Internet companies (e.g. Skype, MySpace, Last.fm) reveals a few common characteristics that they all share. First is a strong value proposition, such as free phone calls, or a better way to stay connected with your friends. Second, most enable an inherently social activity, such as talking to your friends, playing games, or sharing personal media. Third, the most successful consumer Internet companies usually have strong viral growth and as a result have zero customer acquisition costs.

Viral marketing is probably one of the least understood concepts in the early stage startup world. In general your website is viral if it requires more than one person for the value proposition to become apparent. As Roelof Botha recently stated "Forget about adding "viral" to your marketing to-do list after your product is already on the market. You need to bake it into your business model from the very beginning. Viral isn’t something you can just make happen, it has to be inherent in your product."

Finally successful websites also have a great user experience, and an absolute focus on the customer. However although having an easy to understand user interface and getting certain usability issues down are key, in general focusing on your marketing and distribution is much more likely to lead to success than focusing on the number of features you have. Most of the successful consumer Internet companies had competitors that offered similar, and in some cases vastly superior products, but were unable to convert a product-based advantage into success in the market.

There are a lot of things that consumer Internet startups need to have to be successful, but in the end it's all about distribution and scale.

Bubble Talk

noreply@blogger.com (Mazen) — Wed, 17 Oct 2007 19:57:00 +0000

Good panel discussion on whether we are in another bubble.

"What's exciting now is that what you can do with so much of the new innovation, and with the cheapness of being able to start up companies, is essentially you can come up with the revisited, better developed version of pretty much every significant site on the Internet."

"What I am concerned about, there is so much exciting stuff going on, but it seems that everyone wants to start a company, so instead of surrounding one great idea and going after it, it seems that everyone wants to start their own company, and when that happens, when you have multiple companies that are being financed going after the same opportunity, things are not going to work out for everyone."

The Elusive Great Consumer Experience

noreply@blogger.com (Mazen) — Mon, 16 Jul 2007 15:12:00 +0000

The following article by Kevin Efrusy of Accel is one of the best pieces I've read on consumer Internet startups and investing. The subtle "hit-making" characteristics and importance of early experimentation are things we used to talk about a lot at each my startups.

Click here to download a copy of the PDF, or you can use the zoom feature in the embedded file below.

ValueClick Acquires MeziMedia for $100 Million

noreply@blogger.com (Mazen) — Mon, 16 Jul 2007 15:08:00 +0000

Interesting online advertising related news today - ValueClick (which I believe is the largest private online ad network remaining) has acquired MeziMedia for $100 million. The deal could be worth up to $352 million if MeziMedia hits its performance targets.

That's a significant earnout, which suggests that MeziMedia's two businesses, Smarter.com and CouponMountain.com are doing quite well (MeziMedia did around $40 million in revenue in 2006.) The comparison shopping space is such an great market for those companies that are able to achieve and sustain critical mass. I've added MeziMedia to the already impressive list of comparison shopping company exits.

Increasingly Darwinian Environment for Internet Companies

noreply@blogger.com (Mazen) — Thu, 28 Jun 2007 06:52:00 +0000

Great presentation by Peter Fenton of Benchmark:

Niklas Zennstrom At Zeitgeist

noreply@blogger.com (Mazen) — Tue, 26 Jun 2007 04:24:00 +0000

Great video of Niklas Zennstrom speaking at Google Zeitgeist 2007.

"For me, it's never been about trying to make money, or creating a big company, but always about changing something, changing the status quo, changing things for the better. People have different motivations, but what works for me is wanting to change something. I see everyday things that can be done better. It's about focusing on very basic, very simple problems in life, very simple propositions to a lot of consumers has a big impact."

"As an entrepreneur, you don't really care about having the perfect plan for 5 years and doing discounted cash flow models. You think about solving the problem and you believe that you will figure it out along the way."

hat tip

The State of the Online Advertising Market

noreply@blogger.com (Mazen) — Mon, 04 Jun 2007 02:25:00 +0000

To try and make sense of the recent M&A frenzy in the online advertising market, I put together an overview of what the current landscape looks like (click on the image to enlarge):

Looking at the gaps in the market, it's clear we can expect a lot more M&A activity in the online advertising space over the next few years. Who's next? Here's a list of some of the more likely candidates:

AdMob
Arguably the leading mobile advertising company today, having already served over 3 billion mobile ad impressions since being founded by Omar Hamoui in 2006. Almost every mobile app I talk to is buying inventory from these guys. Check out some of the early entries on Omar's blog to get an idea of how fast this company took off.

BlueLithium (Update 9/6/2007 - Acquired by Yahoo for $300 million)
Massively profitable online ad network serves over 10 billion ad impressions a month to over 100 million unique users. Able to deliver relevance through effective behavioral targeting and optimization technology. With ValueClick under investigation, BlueLithium has emerged as one of the leading remaining ad networks.

SpotRunner
SpotRunner is interesting in that it represents both a new agency model for smaller advertisers, as well as the potential to apply online advertising targeting and optimization techniques to an off-line medium such as cable TV. The company has already raised $50 million from Index Ventures, and corporate investors including Interpubic, WPP and CBS. Will they add to Index's recent successes with TellMe and Last.fm?

Tacoda (Update 7/24/2007 - Acquired by AOL for $275 million)
The leading behavioral targeting company in the market, reaching over 120 million unique users a month. In addition to the ability to deliver increased relevance, behavioral targeting also allows advertisers to spend much less to reach the same prospective customer, which may help to explain why this segment of online advertising is projected to have double digit growth for the next several years.

VideoEgg
With it's broad reach and 15 million + videos served each day, VideoEgg (a First Round company) is already one of the largest video-based ad networks in the market. Although video advertising is still in the very early stages, and online video ad spending remains a small fraction of overall online advertising revenue, the explosion in online video, as well as the opportunity to blend video's high brand engagement with the Internet's interactive, tracking and targeting capabilities is expected to drive 60%+ yearly growth in this segment for the next several years.

NexTag Sold for $1B?

noreply@blogger.com (Mazen) — Wed, 30 May 2007 16:04:00 +0000

My friend Brian Norgard seems to have dug up the fact that a private equity firm bought a large chunk of NexTag for $1 billion. If so this would be the latest in a long line of comparison shopping company exits. From ComparisonEngines.com:

Jango acquired by Excite ($35m)
Junglee acquired by Amazon ($250m)
C2b acquired by Inktomi Product Search ($90m)
MySimon acquired by CNET ($700m)
Kelkoo acquired by Yahoo ($579m)
Dealtime/Epinions formed SDC acquired by eBay ($500m)
Bizrate renamed Shopzilla acquired by EW Scripps ($500m)
PriceGrabber acquired by Experian ($485m)
MeziMedia acquired by ValueClick ($100m) (UPDATE 7/16/07)

I've always loved the comparison shopping space, however newer entrants face significant challenges in reaching critical mass. If you have any ideas on what the next generation of comparison shopping engines will look like would love to hear them.

Welcome

noreply@blogger.com (Mazen) — Tue, 29 May 2007 06:22:00 +0000

Welcome to my new blog.