After digging into the market I have to say I am left scratching my head.  There are some exceptions, but the typical customer of this service, by definition, does not already have an assistant.  Most early adopters fall into one of two camps:  A.) they need a full-time assistant but can’t yet afford one, or B.) they have a couple tasks here and there that require assistance but not enough for a full time assistant.  It turns out that both of these users are hard to scale.  The price sensitive consumer jumps from service to service, and likely churns after a few months.  The less needy consumer struggles to find continued use of the service, and he or she also churns regularly.  There are some fixes to help bridge the gap for both users, but it is a tough problem to solve.

It dawned on me that there is another idea out there that nobody is focused on (at least not anyone I have met).  Rather than try to convert people who don’t currently have assistants, how about developing software for people who do have assistants, but want to empower them to do more?

There are millions of professionals in the US with full time assistants – virtually every lawyer, banker, doctor, and business executive has one.  That is an easily quantified market.  And the ROI seems pretty clear – just by avoiding last minute airfare hikes a business traveler would save thousands of dollars a year.  And how much could you save on hotel rooms, rental cars, or airline change fees?  For professionals who charge by the hour, how much more money could be made by predicting when a customer or a patient is going to cancel their appointment?  All it takes it a little software.

On the other side, assistants need help answering email, logging contacts in multiple CRM systems, and even remembering hundreds of personal preferences.  The tool could learn from experience, automatically completing tasks and suggesting the right answers.  If you are having lunch with Jim, who is vegan and lives in the West Village, the system knows where to go.  If you are flying across country with multiple stops, the system knows how to book airfare based on weather delays, destination changes, and even the potential for cancelled meetings depending who you are visiting.

Maybe this is a pipe dream, but I know that Microsoft Outlook is not going to get there anytime soon.  This is the last mile of productivity, and it seems like a big opportunity to me.

]]> http://www.sigalow.com/2013/04/the-assisted-future/feed/ 1 http://www.sigalow.com/2013/04/the-assisted-future/ http://feedproxy.google.com/~r/sigalow/~3/Qy1jCPm9Tfw/ http://www.sigalow.com/2013/04/is-linkedin-the-new-facebook/#comments Thu, 11 Apr 2013 03:37:45 +0000 Ian Sigalow http://www.sigalow.com/?p=1235 Continue reading →]]> When was the last time you added a new friend on Facebook?

I still go to Facebook every day to browse links and baby pictures, but like many people I know, I am not adding many new friends.  The problem is that my personal information on the site has built up over the past few years, and I have second thoughts now about sharing things like wedding photos with anyone outside my inner circle.

This is the paradox of Facebook.  As time goes on I have become more vested in the platform, which is what Facebook wants to happen.  I add photos of friends and family, and I comment on my friend’s stories.  But the flip side is that I find myself second guessing who I want to share this information with.  As of this morning, I am sharing wedding photos with 1,059 friends.  I think that is probably enough.  And yes, I know there are Facebook privacy settings to solve this problem, but it is a pain to go back and edit six years of content.

When was the last time you added a new connection on LinkedIn?

As of this morning I have 2,434 connections on LinkedIn.  I add a few new connections every week.  Even my friend Michael Lazerow, who is the most active Facebook user I know (and built a business on Facebook), has more connections on LinkedIn than Facebook.

This sample size of two may not be statistically significant, but the growth across the network is undeniable.

Does this mean that LinkedIn will topple Facebook for social media supremacy?  Maybe not.  The type of personal media on Facebook creates more page views and interaction than the professional sort of media on LinkedIn.  In a world where attention is traded for advertising dollars, that edge goes to Facebook.  But the two sites continue to evolve in different ways, and I can’t help but think that the number of individual connections will be a key component of value creation down the road.  At the very least, I believe it will help LinkedIn grow faster than Facebook for the foreseeable future.

At the moment we are entering a new innovation cycle, where the labor market is taking on characteristics of the technology market, with scalable, on-demand labor resources.  This trend is early and doesn’t have its own vocabulary yet, but at Greycroft we call it crowd computing.  There is a big efficiency element to crowd computing, but more importantly it has the potential to create new services.

The NY Times touched on the concept of crowd computing earlier this week, with coverage on how companies are turning to human intervention to improve applications and make sense of mountains of data.  Most companies have teams (ranging from one person to 100,000) who spend all day in front of a terminal manipulating data.  This covers every industry, from healthcare to financial services to consumer packaged goods.  And it is equally common for both large and small businesses.  Even at Greycroft we have two teams of people who spend all day entering data, one focused on portfolio company financial information and the other on pipeline information for our new investments.

If you want to build one of these teams, you either open a satellite office and hire workers, managers, and quality assurance professionals or you go to a business process outsourcing (BPO) provider that has already done some of the legwork.  Either way it is time consuming, inflexible, expensive, and hard.

In 2011 we seed funded a company to fix this problem, called Crowd Computing Systems (CCS).  They offer two different solutions – one is a “public” crowd and another is a “private” crowd.  For people who are familiar with cloud computing this distinction is self-explanatory, but the general idea is that a public crowd is a shared resource that many companies use at the same time, while a private crowd is a dedicated team that only performs work for one company.

CCS’s technology has three components. First, they have a reputation system that scores workers on error rates, availability, throughput, and a number of other factors.  This determines a crowd’s ability to process tasks.  Second, they have tools to break complex processes into simple tasks that can be easily performed in a few seconds.  This is akin to a production line in manufacturing, but for data and complex business processes.  The third and final component is an artificial intelligence system that learns over time from observation.  This allows companies to focus human effort on high skill tasks while pushing redundant work to machines.

While this is still early days for CCS, we recently closed a larger investment to scale the business and they are off to a good start with a handful of Fortune 500 firms including Thomson Reuters, Walmart, Amazon, and Coca-Cola.  I am still waiting on case studies to share but the early data is exciting.  Overall I expect this space will be one of the best areas to watch over the next decade, as well as create major economic change for many companies

Once a candidate arrives for work he or she represents the company, which opens a whole new series of questions.  Does the employee describe their company in a flattering way on LinkedIn?  Is the company’s name even spelled correctly?  Is the employee connected to the right people?  The Internet has already democratized “what you know”, and it is only a matter of time before it democratizes “who you know”.

The last question from an employer’s standpoint is “How do you build a culture that compensates people for good work?”  In a small firm this is easy – spot bonuses, gifts, trips, etc.  It becomes more challenging as companies get larger, and managers are restricted to end-of-year bonuses and reviews.  Of course this assumes that managers are even aware when good work is being done, which is so often not the case.  This is why turnover is higher at big companies than small companies.  And when you have high turnover you need to hire more employees, which takes us back to the beginning.

In the future software will help with all of these issues.  It is unclear to me whether this will be one tool, or a series of tools.  It might be a platform like Salesforce that innovates in this direction, or it could be a new company that starts fresh.  Either way there is a multi-billion dollar opportunity out there waiting for someone to capture it.

According to Comscore, there were approximately 40bn online video views in the US last month.  13bn of those views were on YouTube.  Hulu, Facebook, VEVO, Yahoo, and the rest of the major media sites accounted for another 4bn or so.  And the remaining 23bn views – 58% of the entire online video audience – were scattered across millions of websites, forming the proverbial long tail.

The long tail is even more important than these stats suggest.  First off, while the long tail represents 58% of the video views, it represents nearly 70% of the time spent watching online video.  Facebook and Youtube have large audiences, but the average video on these sites is just over 3 minutes long.  In the long tail, the average view clocks in at 7.6 minutes, the longest duration of any market segment.  Second, the long tail is growing at a much faster rate than the rest of the market.  Viewership in the long tail is up over 33% since September 2011, compared to overall flat market growth according to Comscore.

As the company’s name suggests, Longtail Video is very strong in the tail-end of the market.  The JW Player is used by millions of websites, accounting for over 3bn video views every month.  By our count, somewhere between 7% and 8% of all video watched in the United States is shown on the JW Player.  We were impressed that a 20 person start-up company could command such significant market share, particularly in an industry with well-funded companies like Brightcove and Ooyala.  And even more impressive is the rate of growth.  Millions of people come to the Longtail Video website every month just to download the company’s software, and as a result the JW Player has nearly doubled its market share in the last year.

While the scale of the JW Player captured our attention, it is also important to understand where the video market is heading.  This may surprise you, but over the last year YouTube has declined in both unique viewers (-7%) and videos watched (-30%).  Where YouTube shines is the amount of time spent on site, which is up in spite of declining traffic. This is the result of YouTube’s efforts to reign in content quality, as well as the emergence of content companies like Maker Studios, that have amassed millions of passionate followers on the YouTube platform.  Over time YouTube is becoming more like a cable operator, with dedicated content supported by the YouTube sales team.  There is an opportunity for other companies to follow in YouTube’s footsteps because the network effects on YouTube are not strong enough to consolidate the world’s video traffic to a single domain.

Our thesis is that the JW Player will be the platform of choice for the next generation of online video sites, just as it was for YouTube when they first launched.  The team at Longtail Video today is working hard on four things: 1.) simplifying its technology to the point where anyone can use it, 2.) pricing the service at a comparable level to web hosting, not the six-figure deals required by Brightcove, 3.) building the best cross platform video experience in market, and 4.) enabling advertising for users who want an ad-supported product.  The last point is important because the value of advertising inventory increases with scale, creating a major competitive advantage of the JW Player.  Over time we believe this combination will provide an unbeatable value proposition for the vast majority of the market.

]]> http://www.sigalow.com/2012/12/the-future-of-video/feed/ 2 http://www.sigalow.com/2012/12/the-future-of-video/ http://feedproxy.google.com/~r/sigalow/~3/sWRxf_vX7aI/ http://www.sigalow.com/2012/11/scaling-teams/#comments Sat, 24 Nov 2012 22:54:51 +0000 Ian Sigalow http://www.sigalow.com/?p=1050 Continue reading →]]> The hardest part of building a start-up is hiring good people.  I realize this may not be intuitive with high unemployment nationally, but there is a shortage of talent when it comes to software development, sales leadership, marketing, web design, and finance positions that are the building blocks of Internet companies.

Companies typically come through my office looking to finance growth, which inevitably means hiring a lot of people, so I deal with this on a daily basis.  A common story is that a company has 10 or 15 employees at the time we invest, with a budget calling for 20 or 30 new employees in the first year.  Looking back I have found that companies almost always fall short of this hiring plan, and it gets worse as time goes on.  As a result I have developed a few rules and tips when it comes to hiring:

1.) Start with an attainable goal of doubling your workforce in the first 12 months.  It is hard to grow headcount faster than 100% per year.  There are many practical reasons for this, but it usually takes an in-house recruiter to grow more than 100% per year unless you really lower your standards.

2.) Location matters.  It is hard to grow an employee base unless your city has 3 or 4 large technology companies to recruit from.  And by “large technology companies”, I mean businesses with 2,000+ employees, where you can recruit 25 people per year without getting a cease and desist.  If your city does not fit this criteria, then you probably need to open a satellite office in a city like NY or SF in the first two years.  Managing multiple offices is not easy to do, so you have to ask yourself if it is better to move headquarters early or to juggle hiring issues later.

3.) Plan for employee turnover.  If your budget calls for a “net” increase of 20 people, you probably need to hire 24 people.  If you have a business with 400 employees, you need to hire 50 or 60 people per year just to stay flat.

There are a lot more pitfalls when it comes to scaling teams.  In reflection it seems like the #1 pattern for success in my business is investing behind a CEO who has successfully built and sold a company, and then recruits his former team into a new venture.  This makes it much faster to scale and execute, with much less risk.  We have been successful with this formula a number of times, and whenever we have passed on this pattern it has come back to haunt us.

]]> http://www.sigalow.com/2012/11/scaling-teams/feed/ 1 http://www.sigalow.com/2012/11/scaling-teams/ http://feedproxy.google.com/~r/sigalow/~3/-4I7lj2Xvb4/ http://www.sigalow.com/2012/11/the-downside-of-social-media/#comments Mon, 05 Nov 2012 02:46:47 +0000 Ian Sigalow http://www.sigalow.com/?p=1018 Continue reading →]]> Today is November 4, 2012.  It has been five days since Sandy swept through New York City. Electricity is back in  Manhattan, although it will be a few more days before ConEd fixes every building.  The subway system has made a remarkable recovery.  The parks are open.  The streets are cleared of trash.  From my apartment on 63rd street I can see First Avenue where bright orange “Marathon Route” flags are flying.  Normally the sidewalks would be packed ten deep, with cowbells clanging as runners pour over the 59th Street Bridge and into Manhattan.   However it is quiet this year.  The marathon was cancelled.

Opposition to the marathon began in earnest on Friday morning.  The New York Post ran a story showing two generators in Central Park, in stark contrast to people who still had no power in the city.  Petitions to cancel the marathon were quickly circulated on Facebook.  Entreaties were made to Mayor Bloomberg over Twitter to cancel the event.  Mary Wittenberg, the President of the NY Road Runners, received death threats.  The marathon had become a lightening rod of criticism.  By early afternoon, news broke that the marathon had been cancelled for the first time in over 40 years.  Social media erupted as people congratulated themselves on the victory.  It was another moment where voices in unison changed the will of politicians and planners.

Last night I received the following email from New York Road Runners, the non-profit organization that plans the marathon:

“It is with heavy hearts that we share the news that the 2012 ING New York City Marathon has been canceled… The growing media coverage antagonistic to the marathon and its participants created conditions that raised concern for the safety of both those working to produce the event and its participants.  While holding the race would not have required diverting resources from the recovery effort, it became clear that the apparent widespread perception to the contrary had become the source of controversy and division.”

The New York Times wrote a story yesterday that outlined the immense cost of cancelling the event:  $340MM in lost retail revenue and $17.3MM in lost tax revenue.  That means fewer jobs next year for NYC firefighters, police officers, and teachers.

In the end, the marathon hurts no one, and it had the potential to help many people.  I went to Central Park today and saw runners from all over the world wandering the race course.  NY Marathoners had collectively raised millions for charity.  On their shirts were motivating words like “Running for my dad” and “Running to cure breast cancer”.  It is a reminder that people run marathons for a variety of reasons.

The NY Marathon is just one example of how powerful Facebook and Twitter have become over the past few years.  Its hard to convey much in 140 characters, but its easy to complain about long lines, power outages, or bad service.  And the extent to which ideas travel on Facebook has nothing to do with their veracity; it has only to do with how they harmonize with large groups.  This phenomenon has a definition:  Groupthink.

If used correctly social media has the potential to do immense good.  However, it also has the potential to cause harm.  Like many people, I rely on social media for access to news and information.  The marathon was a reminder that I have to be mindful of this source because it is an imperfect medium.

I have a confession.  I still use a Blackberry.  And not only do I use a Blackberry, but I recently traded in a Blackberry and… wait for it… got another Blackberry!  The horror!

I went to the Verizon store for a Blackberry replacement, and here is an exact transcript of my conversation with the sales associate:

Me:  “I would like a new phone to replace this Blackberry.”

Sales Rep:  “Do you have any preference?”

Me:  “I was just thinking of getting another Blackberry.”

Sales Rep:  “Are you sure?  Most people upgrade to one of the new Android phones.  Have you seen the Motorola Razr?”

Me:  “Will it work with my email at the office?”

Sales Rep:  “Sure.  It is also a 4G phone, 8 megapixel camera, fast processor.”

Me:  ”Don’t people have a hard time typing without a keyboard?”

Sales Rep:  “You get used to it.  It also has ‘swype’, which is a new way of typing, and good speech to text.  If you want a keyboard you can try this other Android phone, but it is thicker.”

(I stew on it for a few minutes and the sales rep returns)

Sales Rep:  ”Look – you have one free return within 2 weeks of purchase.  Don’t make a mistake.  Give this Android phone a shot and if you don’t like it bring it back.  The Blackberry will still be here.”

So, I caved and bought a Motorola RAZR 4.  It had a great camera, took HD video, had a big screen, came with Dropbox, and had all my apps on it.  It did not have a keyboard.

I tried the phone for ten days.  I thought it would get better, but I just couldn’t deal with how much slower I was on email without the keyboard.  Like many people I can type without looking on a Blackberry, and I took for advantage how the Blackberry is designed for professionals like me.  In spite of what people say about an iPhone or Android, I think that a Blackberry is a necessity for anyone who spends their day working in email.  After 10 days I went back to the store to switch back.

When I went to return the Android phone I had the following conversation with the sales rep, which I think underlies Blackberry’s main problem in the US market:

Me:  ”Hi again.  I don’t think this Android is for me.  I would like to make the switch back to a Blackberry.”

Sales Rep:  ”I hear you.  But keep in mind you only get one free return.  I don’t want you to be unhappy and stuck with a phone from a company that is going out of business.  Wouldn’t you rather switch to an iPhone?”

I wonder if every Blackberry user in the US has to go through a gauntlet like this.  Out of curiosity I asked one more question:

Me:  “For every 100 people like me who come in with an old Blackberry and ask for a replacement, how many people get another Blackberry?”

Sales Rep:  “About 5.”

Me:  “So, 95 out of 100 Blackberry users switch to a different phone?!”

Sales Rep: (chuckles) “Yeah.  It is about that.”

Call me old fashioned, but I plan to be a holdout.  I hope this new phone doesn’t die for a long time because it may be the last Blackberry sold in America.

A = Monthly revenue per customer, B = Monthly customer churn, and C = Customer acquisition cost

Here is a quick example to show what I mean:

Verizon charges $50/month for cell service (A). 1.5% of Verizon’s users cancel their cell contract every month (B). Verizon’s sales and marketing costs are a few hundred dollars for every new user (C).

With this info you can figure out Verizon’s “customer lifetime value” ($50 divided by .015 = $3,333).  This is how much money Verizon makes from an average customer over time.  This is offset by “customer acquisition cost” of a few hundred dollars of sales and marketing expense.

As long as the left side of the equation (customer lifetime value) exceeds the right side of the equation (customer acquisition cost) you have a good business on paper.  There are improvements to this formula that account for other factors (gross margin, cost of capital, etc), but VCs make big investments all the time based on 8th grade algebra.

But there is a problem.

Take a look at Zynga, Groupon, and ReachLocal.  For many years these businesses performed well, even well enough to go public, but recently they have hit the skids.  As of their stock prices last Friday, each company is valued at less than the amount of invested capital.  I traced this back and noticed a striking trend: there has never been a successful public company with 5% (or greater) monthly churn.

The problem is that companies with 5% monthly churn must grow their user base by over 5%, every month, forever, just to avoid shrinking.  There are only so many people and companies on the planet, so a business like this eventually fails.  It is not an exact science about when a business like this will fail, but after four or five years there are many more “former” customers than “current” customers.  I imagine it becomes very hard to convince new people to sign up for the service at that point.

It is important to add that not all churn is created equal.  Technically, if you can re-acquire users that churned, then churn doesn’t matter as much.  Verizon does this all the time because people switch back from AT&T.  Diapers.com was particularly successful in doing this as customers had more kids.  Groupon, Zynga, and Reach Local?  Not so much.

This doesn’t mean that high churn businesses can’t be good in the near term.  I only point out that investors in these companies should understand the bet they are making, which is that someone (and probably someone who doesn’t read my blog) will acquire the company before it fails.