Big Ideas

Silicon Valley vs. the World? Is it really that simple??

Yesterday, Michael Arrington wrote "An Outsider's Flawed View of Silicon Valley in response to Redfin CEO Glenn Kelman's blog post, How Green Was My Valley.

 

I'm shocked at his reaction. I'd say appalled, but Michael, really, I can't say that I'm ever appalled by anything that a CMC alum does :-) (I went to Pomona, for the record).

 

Why all the venom Michael?

First of all, it seems to me that Michael's characterization of Glenn's post is off-base. He says that Glenn compares Silicon Valley unfavorably with Seattle. I don't see that in Glenn's post - what I see is a comparison of the pros and cons of the two areas.

Must everything be a conflict with a clear winner and a clear loser?

Perhaps this is the huge difference between the Silicon Valley and all other "also-ran" cities. The competitive spirit is such that in Silicon Valley you can't sniff in the area's general direction without raising the hackles of one of its cheerleaders.

Let's be clear - I don't mind the competitive spirit, I really enjoy and thrive upon it. Competition is great and it creates stronger, more resilient organizations and people. But aggressive competition has its costs as well. To steal a tactic that Michael uses, "Don't delude yourself" into thinking that choosing to be aggressively competitive is anything but a tradeoff. You're choosing to alienate and motivate those that might have been your best allies.

 

Which brings me to the 2nd of my reactions to Michael's post:

Being collaborative, cooperative and friendly is NOT a bad thing and it just might be the ONLY thing in the future

Glenn Kelman's post is about how he, Hadi Partovi and Rich Barton all think that Seattle is never going to be much like Silicon Valley. It's illustrative of his very point that he chooses to collaborate with both of those executives in crafting his post while Arrington goes off on his own about the perceived attack the Valley has suffered at their hands.

As someone who grew up in Redmond, WA and currently calls San Francisco home, my observation has been that the cutthroat nature of the Valley makes it much harder to feel like you can ask for help. Of course, this is just my perception, but I'd like to extend this point to something a bit more relevant:

It appears to me that "Web 2.0" (or whatever name you want to use for the networked technologies of today) is about collaboration, openness and most importantly, the understanding that if the other guy wins, it doesn't necessarily mean that YOU LOSE.

It is my belief that we're all seeing the most open, collaborative, cooperative companies make a name for themselves because they understand that competition isn't really about crushing the other guy, it's about competing to provide your customers with the best, most useful products and services.

Furthermore, the approach taken by many of the Seattle companies that I've been watching has been all about following a strategy of open collaboration. Amazon, Redfin, iLike, Zillow, Picnik and many others are leading the way to a more collaborative, hopeful, helpful business climate. This is where the bomb-throwers among you probably think, "Wait, you're from Redmond and Microsoft is all about crushing the other guy!"

Well, no, that's not right at all. If you look at the companies that many of us watch and are most interested in at the moment (Google, Yahoo!, eBay, Facebook, Amazon, MySpace) you'll recognize that many of them are looking to copy the playbook of Microsoft (and some are even beating them at it..). For decades now, the company has competed fiercely but reached out even more stridently to cooperate with those who could help them (don't make me post the infamous developers speech again). There is no company out there today that has been more responsible for supporting software development than Microsoft. There are literally hundreds of thousands of small businesses that make money by taking Microsoft software and extending it and servicing it. The very idea of a software platform begins with Microsoft and while you might argue that they haven't done enough you certainly would sound ignorant by suggesting that their collaboration and cooperation hasn't been hugely valuable to the company and the industry.

If companies in Seattle or New York or Mumbai or Sao Paulo are learning that it's better to work with one another and that means they "don't have what it takes to make it in Silicon Valley" I say Silicon Valley better start looking into the mirror a lot harder. But somehow, I don't think that Michael speaks for everyone in the Valley on this issue..

Finally, I have one last thing to take issue with, given that Michael was willing to nitpick every part of Glenn's post:

Ideas don't matter worth a damn. EXECUTION matters. PRODUCTS matter. Ideas? Everyone's got them.

Michael writes:

The truth about Silicon Valley is that ideas matter more than anything. A Stanford (or even the occasional Berkeley) student with an idea can turn it into a Yahoo. Or a Google. Or countless other success stories. They are surrounded by people who want them to succeed, who are willing to give them money to support their ideas, and then help them grow it. There is no where else in the world quite like this place.

If anything, the sheer number of successful companies in Silicon Valley proves that it's the execution that matter. The support system that Michael references helps in EXECUTING. Ideas are everywhere. As someone who has spent his time in the halls of Yahoo!, WebEx, RealNetworks and other co's I assure you - there's NO shortage of ideas. If Michael wants to argue that the Valley is better at hearing ideas and supporting their execution, great. But don't tell me that ideas matter more than anything. ESPECIALLY not in Silicon Valley.

 

Technorati Tags: Seattle & Silicon Valley, Glenn Kelman, Michael Arrington, The New Silicon Valley

Facebook thinks it's big enough...

So now it's joining the DataPortability Workgroup:

Facebook, Google And Plaxo Join The DataPortability Workgroup

 

While Duncan would tell you that this is a huge step forward for Facebook's strategy and that they're changing their tune, I would have to amend that statement a bit. I think that the fact that Facebook is willing to join the workgroup says three things:

1) They believe that they have enough momentum to continue growing their user base. At a size of ~60mm today, I bet that they're of the opinion that the chances of any network smaller than them catching up any time soon due to DataPortability is slim to none.

2) Moreover, they probably believe that given the traction that their application strategy has provided them with developers, dataportability will actually allow them to further eat into MySpace's lead

3) As a member of the workgroup, they can slow down the process as they see fit from the inside, putting up meaningful barriers to any suggestions around portability (say, the ability for a user to truly shift their data to a new network that might supplant Facebook as their primary network) that could negatively impact Facebook.

 

Call me a skeptic, but I think that Facebook's proven to be a savvy innovator with a pretty solid grasp of timing and damage control/PR communications.

 

For those of you who don't understand WTF this post about, shoot me a note in the comments and I'll reach out to you individually. It'll help me create a better post about this topic in the near future.

 

Technorati Tags: data portability, facebook, communications, Open Web, WebMe, Indipity

Communicating with your customers takes on many many forms

This piece in the New York Times is a great story about the steps which Apple takes to make sure that it's setting a different expectation with many of its customers, both current and potential:

Inside Apple Stores, a Certain Aura Enchants the Faithful - New York Times

Many companies don't think about the fact that the promises that they make and the messages that they send to customers take on many different forms. Let's look at the examples illustrated in this article alone:

• The ways in which a company treats you when you're not spending money are highly important. The fact that Ms. Jade was dealt with respectfully and supportively communicates to her and to us, reading this story, that Apple is pretty easy going and accepting of the fact that they don't have to make money from everyone who benefits from Apple's offerings.
• The messages a company sends when you want to buy, but need help are highly important. Apple tries to make sure there are enough knowledgeable people around to answer your questions and not make you feel like you're wasting their time - that the CUSTOMER is the focus. Look around at many stores you go to - that doesn't often feel like it's the case.
• The way the company answers your request to buy is very important. When I'm ready to give you my money I don't want to wait. I don't want to deal with someone who doesn't know how to work the cash register. In this day and age, shouldn't more stores be able to just swipe my card and let me go.. fast?

All of these messages are communicated in a company's interactions with its customers. Whether they're in person, online, over the phone, via mailed correspondence, via their advertising campaigns, through the actual products and services etc.., every company interacts with its customers in a myriad of ways and they shape the consumer's view of the company. For the past few years, the communications coming from Apple have been massively aligned and extraordinarily strong. Apple is cool, it's easy, it's fun, it's well-designed and it's never a mistake to buy it. These are the messages I'm seeing coming from almost everything that the company is doing. It's also why I've been an investor in the company for a while.

How does your company communicate with its customers (current and potential)? Even better: how could we think about making companies more effective and intelligent at it?

 

Technorati Tags: customer communication, messaging, branding, customer experience

Proof that media is culture-specific

Check out this Indian PSA promoting safe sex.... not only is it bizarre and hilarious at the same time for us Americans, it's also highly demonstrative that media and really, communication, is much more culture-specific than most give thought to on a regular basis. This is, given the Indian media that I've seen, pretty normal in some important ways. Feel free to go rent a Hindi movie if you don't believe me :) 

(Hat tip to my media guru sister, who passed this on to me).

 

But wait a second... are you sure that I'm not just doing the ignorant thing and taking some piece of media that's meant mockingly (say, like the Colbert Report) and ascribing serious attributes to it? What if this was an ad from a popular comedy show (SNL India perhaps?) and now I'm telling you all that this is a real ad? The credits at the end make it a little odd, don't they?

So let's see.. what else is out there in the way of condom ads from India?

It turns out, according to this news item that another condom ad won an award from the UN this year. Much shorter, more serious but the point of the ad is that condom is an ok word to say - now that might be kind of different from what we'd see in America, but not as shocking as the above video. Check it out:

But wait, there's more...

You should then remember that this is an ad that was judged to be good by the UN. While the story does mention quite a bit of activity done in order to promote the campaign, it doesn't mean that this campaign was particularly effective. What it might actually speak to is the subjective judgements of largely Westernized citizens on the UN panel of judges. Oh, that and the fact that according to that article, it sounds like the campaign was only competing against 2 other campaigns for this award... Minor detail, no?

 

So, what's my point here, now that I've tied your head in knots?

Won't it be a great world when advertising and marketing messages are much better translated to the cultures that they're targeting?

Which of the above campaigns really gets people in India to use condoms and practice safe sex?

Remember, that's the goal here - to get the message across and impact people's behavior.. that's what this stuff is all about. It's not about winning awards or having something that is so funny and odd that people on the other side of the world are looking at it and passing it around to one another as a joke. This campaign is about promoting safe sex and hopefully slowing the growth of AIDS in India, the country with the most reported AIDS cases of any country in the world.

*Wow, that's a very serious goal, isn't it?*

Yes, advertising and marketing messages can be unwanted and annoying. They can be offensive or deceitful. They can even be culturally damaging.

So can any type of communication.

But when it has such a high ceiling, we should really be focusing on making it better, not arguing about exactly what is and isn't ok. And when I see media like this, I think to myself, "Damn it, we need to be making ads that communicate better to the cultures they're hoping to connect with!"

What U.S. company can effectively advertise in India? It's damn hard, isn't it?

We need people to take much more seriously the fact that in order to communicate our ideas globally, we have to be able to tailor those messages: not just language, not just images, but real cultural tailoring. Understanding, experimenting and continuing to revise those messages so that they hit home with the target audience most effectively. 

It's happening now in small ways (think about McDonald's "I'm lovin' it" or the massive growth in Spanish language media), but it's very very slow for society as a whole and this should really be changing dramatically with the Internet.

Anyone want to help speed that change up? I bet there'd be some money in there for ya :)

 

Technorati Tags: Advertising, Culture targeting, Cultural communications, media and culture

Just an awesome, awesome interview

Valeria Maltoni, over on her Conversation Agent blog, conducts an awesome interview with the Editor-in-Chief of BusinessWeek.com over here:

"Meet the (New Media) Editor -- John Byrne, BusinessWeek"

Excellent questions, as usual, from Valeria, but I was really impressed by John's answers. The guy is thoughtful and he gets it - he understands the importance of the conversation that goes on around journalism. He also really understands the importance of the permanence that the digital medium provides and says:

The aha for me is that the most permanent and influential of all journalism today is, in fact, digital. Unlike the journalism in a magazine or newspaper that gets thrown away, digital journalism is a permanent searchable record. You can access it anywhere around the globe at anytime, whether you are at home or work, in an airport lounge in Warsaw or a cafe in Bangalore. Unlike print, it doesn’t disappear with the garbage. You can’t line a bird cage with it. Instead, digital journalism lives on forever.

Wow. Sometimes I take this progress for granted. But it wasn't that long ago that I was hearing that the online medium cheapened journalism and content. I LOVE how much people's perceptions are changing.

Technorati Tags: Business Week, Online journalism

The best advertising sometimes isn't advertising at all..

While surfing around the Yahoo! Music website, I came across this video, from the soundtrack of the movie "Into the Wild". It turns out that Eddie Vedder did most of the music for the movie (for his pal Sean Penn, who directed it) and this is the video. Being a Pearl Jam fan, I clicked play and 5 minutes later, I'm searching around the 'Net to find out more about the movie, the story behind it and when/where it's playing.

Now, while you could argue that this video is meant to be marketing for the movie, I would suggest that this is much more compelling and useful than some 30-second snippet that's edited for TV. It's also interesting to note that despite being a song done by a famous musician, he doesn't really appear in the video at all.

 

Technorati Tags: Into the Wild, Eddie Vedder, Marketing and Advertising

How to Get a Good Night's Sleep - Mahalo

I've been listening to Calacanis talk about his new project, Mahalo, quite a bit but haven't checked it out until a recent blog post of his talked about getting a good night's sleep. As many of you know, I'm not particularly focused on sleeping a lot, so this one caught my eye. I decided to check it out and think that you should too:

How to Get a Good Night's Sleep - Mahalo

I'm curious as to what your impressions are. I have to say, I like it quite a bit, but I haven't exactly grokked what is really different about it from Wikipedia. I'll play around some more, but I definitely think that for something like this topic, Mahalo looks to be much more useful than Yahoo!, Google, Live Search etc for my needs.

 

Technorati Tags: Mahalo, Sleeping, Search vs. Guides

Definitely a wonderful digital world

Well, the good news is that I'm making more decisions these days and pushing forward several important things. The bad news is, I'm not having as much time to sit, think and write as I would like. But, between 16 hours of travel time this upcoming weekend (heading to a conference in Miami), and some newfound mobility in my computing life, that should change soon.

In the meantime, check this out. It's freaking cool, of course, but, the fact that my friend Sarah could send this on to me in email and then I can go find it on YouTube to share with all of you is the really cool part.

 

 

Technorati tags: cool videos, digital world, sharing of media, influence economy

Digging into the details of a company #1: Viagogo

Question: What happens when a startup receives funding from an executive who is on the payroll of its chief competitor?

Read on to find out.

 

Continuing on my last post, "Digging into the details: understanding companies from the outside", I'd like to explore a bit of a discussion on a startup that seems to be a no-brainer. Not only does it have serious exit options available, but it's being built to capitalize on a large and proven opportunity over the long run.

Interestingly, there's quite a bit of public information about the company and yet it's not getting a large amount of discussion, nor are key details being brought to light. This is why blogs are terrific; I can attempt to address the shortcomings in the marketplace for information. Today, I'll be bringing you Chapter 1 in my occasional "Digging into the details" series:

"The Viagogo story"

Last week, Viagogo got a significant amount of press because it announced a U.S.-based deal with the Cleveland Browns (Techcrunch coverage, Venture Beat coverage and Paid Content coverage) along with a $30mm funding round. Now, I'd been aware of the company for a little while but I found that the coverage smacked of "PR regurgitation" and decided to do some more digging for myself. After having done so, it's become pretty clear to me that those involved in the company right now have a very real chance of making a killing.

Let's start with the basics:

What's the company do?

If you've ever heard of StubHub, you know what Viagogo does. Basically, the markets around tickets for events are pretty inefficient and both Stubhub and Viagogo attempt to make them more liquid, better matching up sellers and buyers of tickets for concerts, sporting events etc. If you recall, Stubhub sold to eBay in January for $310 million. Viagogo's focused on the European market and has secured numerous exclusive relationships there, which is why their entry into the U.S. made some headlines.

How do they make money?  

They match up buyers and sellers of event tickets and charge them both. Their info page appears to be deliberately vague but my understanding is that they charge sellers as much as 15% and buyers as much as 10%. So, that'd add up to 25% on each transaction. Compare that to the typical fees on eBay and I think you'll quickly come to the conclusion that they're either crazy or in an insanely good market.

Is this sustainable?

Given Stubhub's success in the U.S. (conducting hundreds of millions of dollars worth of transactions) , their eventual sale to eBay, and claims that the secondary ticket market might be worth around $10 billion in the US alone, I think it's safe to say that, at the very least, there's clearly some money here.

 

But let's dig a bit deeper, shall we?

While the Browns deal was the company's first in the U.S., they've got substantial traction in Europe. In fact, they have exclusive relationships with the top football clubs in Europe (like Manchester United) and are, I'm sure, working to secure more. This is important because in the U.S., Ticketmaster has typically had exclusive relationships but has been under attack by the event constituents, as they've realized that Ticketmaster is under-monetizing the opportunity.

Let me stop for a second and explain: a core principle of economics is the concept of supply and demand. Basically, the price at which supply meets demand is where the optimal price lies. This is a simplification, but good enough for our purposes. For many years, Ticketmaster and traditional ticket sellers have insisted on selling tickets at tiered rates, without taking into account the ability to upgrade the purchasing dynamics, using the Internet, to determine the accurate prices for tickets. For the most part, this is why scalpers exist. Yes, there are some last minute sales that occur, but really, scalpers are people who have figured out that the ticket price for an event is below the price that rabid, devoted fans will pay. Slowly, sports teams, bands and others have realized this is the case and determined that ideally, they'd prefer to charge the correct prices for their product.

So, back to the narrative. Stubhub and some other competitors have come in and not displaced Ticketmaster, but rather, have layered themselves on top of Ticketmaster, by addressing the secondary market - the reselling of event tickets. In making that marketplace more efficient, they've realized significant economic benefits while pleasing many a happy consumer. Viagogo, however, has managed to successfully replicate that market in Europe and then, taken it one step further by negotiating exclusive relationships with some of these organizations, blocking out competition in a way that hasn't been seen in the U.S.

This is, in a word, genius.

Now, mind you, I suspect that they're being dumb about the long term pricing of the business. I don't think that making 25% on each of these transactions is any more defensible than my $10 service charge with Ticketmaster is (in an efficient market), but then again, business is war and some businesses wage war with consumers...

So, those are the core pieces to understand I think.

But there are a few unique twists here that make this more of a big deal:

1. As is discussed in these articles, Eric Baker, started Viagogo. He co-founded Stubhub and left in 2004, due to some disagreements. So, he already knows how to do this.

2. If you don't think that he's motivated to beat Stubhub, you're kidding yourself. Surprisingly, none of the articles I saw on this topic touched on a very real point: personal motivation. Baker clearly had strategic disagreements at Stubhub and continues to believe that he could have built a better business. He even cashed out during the eBay transaction (for ~$31 million, if the ownership stakes in this post were right), so he's not doing this just because he made no money. No, he's convinced that the real opportunity has been missed and he's going after it. That is a compelling story and speaks to a fanatical desire, the likes of which often makes for extraordinary success.

3. Techcrunch makes this point: "The company claims to be generating more revenue in June, its tenth month in operation, than StubHub did in its first 15 months combined." Ok, so the data says that they're killing it on the execution and revenue front. I'm willing to bet that not only was Baker right about some of his strategic disagreements but that there's a secret embedded there: the exclusive relationships with the sports teams are paying off.

4. If some of the clubs aren't starting to allocate a certain portion of their tickets to the Viagogo ticket exchange, they're missing out. Here’s why… The football club makes all of the revenue associated with primary ticket sales. Then, there's a secondary market, totally endorsed by the club and powered by Viagogo. Now, typically, when a good is sold the first time, the manufacturer makes money but when it's sold a second time, the manufacturer doesn't see a penny. In this situation, however, the club in question is making money on the first transaction and probably again on the second transaction, via a rev share from Viagogo. If this is what's happening, the revenue from Viagogo is purely incremental, which is music to a CFO's ears. Why wouldn’t a team offer this, both for their fans and for their own bottom line?

5. eBay is an acquisitive company that has bought many similar companies over the years to expand its global footprint. At the very least, if Viagogo successfully rounds up the European market, eBay would want to own it in order to add to its existing capabilities and presence in markets (like the secondary market for events). Additionally, it would appear that eBay sees the opportunity to connect these marketplaces with their Skype acquisition (touched on in the above mashable post) and my guess is that the company thinks that secondary markets can be enhanced using voice/video interactions.

6. Which brings me to my most important point, which I've saved for last...
   Niklas Zennstrom is an investor.
   Now, you might not recognize that name offhand, but he's one of the co-founders of Kazaa and then Skype. In addition to running Skype (according to eBay at least), he also maintains a venture capital fund, Atomico Investments. If you look at their portfolio, you can see rather easily that they've put money into Viagogo. This is important because: a) Niklas continues to run Skype b) eBay owns Skype, after acquiring it a few years ago c) eBay owns Stubhub, a clear competitor of Viagogo.
   
   Let me put this another way: Zennstrom is putting his own money into one of his employer’s competitors. I wonder if eBay knows about this.

So, looking at that overall picture, it looks to me like the WORST case scenario for Viagogo at this point is that it sells to eBay. Not bad for a company that’s only been around since last summer. Seems like a no-brainer to me, how about you?

 

Technorati Tags: Viagogo, Skype, Stubhub, eBay, evaluating companies, research and investing, Niklas Zennstrom, Atomico Investments

Digging into the details: understanding companies from the outside

Over the past several years, I'd like to think, I've become an increasingly savvy investor. As a result of the focus that I put on better understanding what really drives corporate results and how that gets valued in the markets over the long run, I've begun to achieve a pretty satisfying success rate. (Of course, recognizing that the market's done pretty well the past few years, I continue to evaluate this..)

One of the ways that I hone these skills is that as I'm reading about various companies I try to dig into the ones that play to areas I'm interested in and know something about. I find that over time, as I do this, I see a larger picture, an evolving story that tells me more about the company than what I could find from the conventional public reports and press coverage. This has led me to uncover companies from WebEx to Google. From Starbucks to In 'N Out. 

Every once in a while, this process uncovers a private company that I think is doing something pretty well and definitely has a no-brainer opportunity in front of them. When a company is private, you don't get very much detail and I like testing my ability to piece together the story on private companies with minimal data. Call it a mental exercise, but I find that it's really helpful to push my brain to think through the various scenarios that could be playing out behind the scenes. When the companies actually grow and go public (as I watched with Google) you get the satisfying, "nice, I was right" feeling, to boot.  As I learn to do this more successfully, I get to really apply these analytical techniques to the public marketplace, where I can actually take positions in companies that I discover. 

I've decided that because I do this relatively often and because I'm finding that blogging makes me be a bit more rigorous when sharing thoughts, I'm going to start talking through some of my ideas on this blog. Perhaps I'll turn up some promising public companies and maybe I'll alert you to some interesting private companies.  Hopefully, I'll occasionally really hit the nail on the head like I did when talking about the Blackberry Pearl last fall in a post titled, "Evolving the Mobile Interface". In case you haven't been watching, RIM's been on a tear, in large part due to the massive success of the Pearl and the subsequent releases of devices utilizing the trackball interface :)

So, tune in for my next post, where I'll discuss a private company that I've recently come across that I think has a pretty strong future ahead of it.

Technorati Tags: evaluating companies, business analysis, private companies, research and investing