Kozmo: Bubbles and Personality

When you see an article written about the late 90s bubble, chances are that an example rolled out will be Kozmo.  There is a good reason for that, including the hundreds of millions raised and the $150 million deal with Starbucks.  But it was an incredible service, probably one of my favorite dotcom companies.  It filled a real need, but some of the choices made it an unrealistic business.  Perhaps today, and managed better, this is a business model that would work after some adaptation.  Say with a minimum order (preventing someone like me from ordering a single Gatorade because he’s too lasy to walk downstairs) and a little more forgiving delivery window (not guaranteeing an hour).  In addition to the DVDs and Ben and Jerrys, it could also be a last mile service for internet retailers.  Perhaps also a partnership with Redbox.

One of the things that I loved about the site is that it wasn’t just a useful delivery service, it was stuffed with personality from the bike messengers to the orange jackets/messenger bags to the dropboxes.  Even if someone doesn’t try this again, it’s personality is something that every new business should aspire to to help forge that customer connection.  Here is a nice article from back in the day if you missed out on Kozmo.

Color and the Appetite For Making Big Bets On Social Graph Alternatives

To return to Color, the Sequoia $41 million prelaunch-funding social photo app, perhaps the reasoning of the investment is related to the Facebook inevitability thesis. Logic would go as follows:

1) Facebook has proved the importance of the “social graph” in Internet usage and as a business model, but it’s not necessarily going to remain the main social graph;

2) Photo sharing and tagging is one of the features driving Facebook usage;

3) One strategy for entrepreneurs is to make compelling apps around the social plus photo business model on the theory that ultimately such a product will be useful for someone else who wants to go social or Facebook itself.  These are perhaps smaller bets.

4) But if you also believe Facebook is not inevitable as the main social graph, you also make some big bets to dislodge it or create an alternative to it.  You do that by leading with one of the features (photos) that are driving it, to demonstrate larger ideas of how the social graph can be more useful, e.g., see Fred Wilson’s post and some of the comments in the discussion following his post about elastic and/or temporary and/or implicitly formed social graphs.

I have no idea if this is the logic behind the investment, and it’s probably not. One issue if you’re going for the Facebook replacement is how you place such a bet before the service is launched when it’s not clear people will take to it (perhaps there were compelling smaller focus group trials).  At least some of the comments I have read suggest that it’s not obvious to people what is the point, although in all fairness other social apps such as Twitter have taken a while to sprout as well. Whatever you think of Color specifically, I think you have to applaud the appetite to make big bets in overcoming the social networking Goliath.

As an aside, there has been an absurd amount of PR  at Color’s launch.   I saw a story in Forbes where a number of its editorial staff wandered through MOMA using the app, and wrote up short pieces in the magazine about the experience.  I didn’t find these pieces very helpful in “getting” the app.

Climbing New Career Hills

Brilliant metaphor for thinking of your career using an analogy of hill climbing by Chris Dixon.  Please read his actual post. 

It is particularly useful in thinking of changing career tracks.  Roughly, there is a pull in continuing to climb your current hill, but if you are looking for the higher hill to climb, you need to stop climbing the current one.  Continuing to climb the wrong hill is a waste of time.

Another application is the benefits of introducing randomness into your situation.  By wandering around a little, you may land at the base of a higher hill that is more worthy of climbing.  This is why putting yourself into situations where randomness can play out is important.  Otherwise you might never stumble on that higher hill.

The Link between Netflix, Broadcast Rights, and Professional Sports Riches

In my post on the cost of sports broadcast rights, I noted that one of the factors cited for the inflation in those rights is the willingness of cable and satellite subscribers to accept the increases in their bills.  The key thing to understand about the price of pay tv packages (called MVPD in industry and regulatory jargon) is that it is driven by the price of the sports networks such as ESPN, Fox Sports, and various regional sports networks (such as MSG and SNY in New York).  The price for these channels is orders of magnitude over a random non-sports channel such as Lifetime or even CNN, and they are increasing rapidly on an annual basis.  For example, there are some reports that some cable operators have been paying ESPN over $4 a subscriber/a month, while other channels could run in the range of $.25 – $.50.  Typically, these high prices have been bundled with contractual provisions that guarantee that a channel like ESPN are bundled into the most basic packages.  The result of this is that ESPN or a like sports channel gets a payment for virtually every cable subscriber, regardless of whether that cable subscriber likes or does not like sports, since subscribers for the most part cannot get the channels that they want on a la carte basis. 

This model is threatened by Netflix and other such models.  To the extent that you are not interested in live sports and are willing to endure a certain delay in watching other programs (for example, when a series is available on DVD).  Netflix gives you the option to cut the cord.  You can fill in news online.  If non-sports watchers stop handing money over to the cable systems and subsequently over to the sports networks to help pay for the inflated sports rights, one of the stool legs making those ever-increasing prices possible — namely the willingness of cable and satellite subscribers to also pay higher rates for their television subscription packages– will be weakened, threatening the system.

Pots, Pans, and Search

Amanda Hesser has a piece on Google recipe searches (approximately a billion searches a month) and the resulting impact of those Google results on how people are cooking today.  As discussed previously, users overwhelmingly stick to the first page of search results, and thus, for many users, what is returned on the first page of results is what matters. According to Hesser, the higher results in Google are those sites with a lot of metadata on ratings, calories, cooking times, and pictures. Hesser says this hurts the smaller cooking blogs and cooking sites, which may have the better recipes, in favor of larger sites or content factories that play the SEO game better.  Hesser suggests that the best approach would be seeing which recipes generate the most comments related to page views, have the most FB likes, and are shared the most.  This sounds right, although I am not quite sure how Hesser knows this is not incorporated into the search algorithm.

Hesser’s piece got my attention.  Recipes found on the Internet have been at the heart of my learning to cook and then expanding my recipe base over the last 12 or so years.  My process is as follows. Having a dish in mind that I would like to learn to cook, I will look at a number of recipes online, and by comparing and contrasting, along with my own knowledge of cooking and others’ comments, I will make a judgment on what looks like the best recipe. 

Sometimes this is on AllRecipes, Epicurus, or the Food Network; sometimes it is on a random blog.  My favorite go-to recipe is found on a decade old personal web page of apparently a former CS student at UVA that has nothing to do with food other than a couple of recipes.  Even if I search directly for a recipe for “pav bhaji,” it will not appear until the 3rd page of search results.  Given this, I doubt many people are finding this recipe, and there is probably virtually no chance that someone will stumble onto this recipe in a more serendipitous fashion (i.e. when just looking for something great to cook as you might when browsing one of the major recipe sites). 

The other thing I do a lot is tweaking recipes.  If I look at ten recipes, I may hone in on one recipe,  but I may find something interesting in a different recipe (particularly if I find the same ingredient in several recipes) that I may use to adjust the recipe that I have chosen.

My takeaway is that recipes are an example of where some other method than search may yield better results.  As Hesser says “the most relevant recipe is the best recipe” rather than having to do anything with associated metadata that may or may not appear on a site.  Given the number of searches for recipes, this seems like an area that is bound to be a target of the content mills compromising the efficiency of search.

In a better approach, I would love something that helps make the culling and sorting process more efficient, and perhaps does something similar in its algorithm to return better recipes, whether for a particular dish the better recipe is on a major web site or on a random personal page.  I also would love something that can suggest possible tweaks to a recipe that I could consider. I am sure there are a number of other such recipe-specific features that would be helpful.  Clearly a tasty opportunity here for someone!

Leading with Sports in Online Business Models?

Sports have a unique place as business rocket fuel at least in the offline world.  NFL football helped establish Fox as a legitimate fourth network.  Various league packages, in part, have helped satellite radio (along with Howard Stern) establish itself.  The Sunday Ticket package in the US and various soccer packages outside the US have been important for satellite TV.  Sports is the only reliable content that people will pay a premium to watch in real-time, despite the fact that it is easy to get almost immediate news coverage across many mediums as well as video highlights.  This is remarkable.

The FT has a nice piece on the always increasing costs for broadcast rights of sporting events.  One sports executive describes everything in the broadcast business as a “very shaky swamp” with sports rights as the “one rock on which you can build an edifice.”  The FT sees three factors as sustaining the inflation in these rights: networks accepting sports as a loss leader, advertisers willing to pay a premium for sports audiences, and cable and satellite subscribers accepting the continual increases in their bills.

The question I have is whether we have seen sports launch any online business models similar to in the offline world.  You have derivative things such as sports news sites and fantasy sports, but has there been anything bigger or is there a potential for anything bigger?  It does appear in the US that the leagues and the constituent teams have kept the online broadcast rights for themselves, e.g., MLB has long been praised for its online strategies.  Perhaps that is the reason.  But it has struck me as curious how important sports content has been in the offline world as a driving force to business models and the contrast with online.  Perhaps, I am missing examples in the US or there are better examples internationally?

I also wanted to comment in a later post on cable and satellite subscribers and their tolerance for increased rates and what that means for Netflix and online content models.

Randy Komisar: Bigger the Problem, Better the Opportunity

In working through a current business plan, I have been looking for some inspiration to organize my thoughts into a high-impact presentation. I ran into an interesting framework from Randy Komisar of Kleiner Perkins and a long list of startups prior to KPCB.  Here is a link to a Forbes article based on an interview with him and a link to a video interview.

The most important thing is identifying whether a problem is even worth solving.  This is how Komisar describes it:

“The way I think about the entrepreneurial or innovation process is from a ‘what’s the problem I am trying to solve’ standpoint. In my business, I look for the biggest problem because the amount of resources, time and money that go into solving a small problem is pretty comparable to the amount of resources that go into solving a big problem. Why not solve a big problem?”

I like his notion that you might as well work on the big problems, because they take about as much effort as smaller problems.  In the video interview, Komisar also describes needing a vision and passion of how the world is going to be better through your business vision in order to sustain yourself. This flows from believing that you have, in fact, identified a big and important problem that you are solving, i.e., big problem solved, ergo the world is better.

There is a little fraternal resemblance to Vinod Khosla’s “black swan” investing, which I have blogged about before, in determining whether a problem is even worth solving, although I think Khosla is talking about taking much greater risk, and is probably less interested in Komisar’s next steps in his current investment approach.  (Khosla, of course, was a long-time KPCB partner.)

After identifying a problem and a potential solution (which will change over time and thus the concept of the ever evolving Plan B), Komisar then offers a process to answer those critical questions to figure out whether there is actually a business opportunity. 

He says you should identify proxies out there including analogs, examples suggesting that the plan will work, and antilogs, examples suggesting it will not work.  In thinking through how one might have thought about the iPod and iTunes, he notes that an analog would have been the Sony Walkman, suggesting that people will walk around with headphones, and an antilog would have been Napster, suggesting that people would not pay for music.   Antilogs will tell you where you might have to approach a problem in a slightly different way.

What you are left with after this exercise is those unique, unanswered “life or death” and “leap of faith” questions about your business problem and solution.  He suggests using a “dashboard” tool to lay out those questions with proposals on how you will answer them empirically in a quick and inexpensive fashion.

Komisar’s method allows you to both demonstrate your “passion” by laying out the enormous problem and associated opportunity  and your “rational coolheadness” by breaking the opportunity into the important questions and associated testable propositions, some of which you may be able to answer using existing data out in the world, and some that you will have to generate the data for.

More Groupon

The Economist also has an overview of Groupon. One thing that jumped out at me, aside from the quickly growing revenues and profits, is the sheer administrative brilliance of scaling from 120 to 4000 employees, 2 million to 52 million subs, and 30 – 565 cities in the course of about a year. 

Another thing is that the article again cites Groupon’s own management for the proposition that entry barriers are low and network effects in the daily deals business are small.  Once again, not what you often hear from company management that is raising money at massive valuations and looking at an IPO.

Mark Suster: Punching Above Your Weight

A theme I have returned to from time to time is how our hiring systems screen out talent.  This has implications in one’s own hiring and potentially in one’s investments.  There also is an opportunity here for someone to reinvent the traditional resume as I have blogged before. 

Mark Suster, whose blog I have just started reading, has a nice piece on hiring for startups.  One of his tips is to find people who punch above their weight class.  I cannot agree with this more and I cut and paste a “must read” excerpt below:

“It means that many management teams I know feel the need to hire people who have “done it before” and frankly many VCs encourage this. It’s a mistake. When you hire somebody too early who has already “done it” you often find somebody that is less motivated in tough times, less willing to be scrappy (as many startups need to be), more “needy” and less mentally flexible / willing to change their way of thinking.

Importantly, you also find people who are too quick to undermine the authority of the founders. They “know more.” You don’t want sycophants – don’t get me wrong – you want people who challenge your thinking and a meritocracy of ideas. But you don’t want team members who openly question your judgment, your authority. At least not publicly.

So what do it mean to “punch above one’s weight class?” It’s a boxing analogy. It means a welter weight who wants to fight in the heavy-weight category. It means a “young Turk” who has something to prove. It means somebody who held the director of sales in their last company but in this company wants to be VP. Their last company said, “you don’t have enough years of experience.”

You said, “Eff experience. I want to know whether you can deliver. If you can, you’re golden. You’ll go a long way. If you can’t – you’re toast. Are you up for it?” It’s Tristan Walker of FourSquare. They hired him when he was an MBA. He had no right asking for a senior biz dev role at one of the hottest companies in the US. But he was ready to punch above his weight class. And he pushed for it.

And heavy-weight he has become. He is out innovating people with 10 years’ his experience. He is hungry. He is an A player. His innovation and execution are proving his worth.”

Castles and Moats: Commentary on Bill Gurley

Bill Gurley has a super-interesting post about how to view Google’s non-search ventures such as Android and Chrome.  His thesis is that the “castle” is search (and the related advertising) — the source of 95% or more of Google’s revenues.  Google has often been criticized in connection with its non-search ventures for not generating revenues.  Gurley’s take is that not generating revenues is part of Google’s plan as a way to protect the search business. 

Until this point, I basically agree.  But I take slight issue with the metaphor with which he compares these non-search businesses to “moats” and to a “scorched earth strategy” where google is scorching the earth for 250 miles trying to prevent anyone from approaching the search advertising castle.

I have several comments on these metaphors, which I think suggest Google’s position is more invulnerable over time than I think it is.

First, it’s perhaps subtle, but I think Google’s Android/Chrome/other strategies are about laying bridges across potential moats set up by others that otherwise might keep users from approaching Google’s castle rather than about building moats to keep competitors out (I see how the distinction can get blurred in terms of Apple and Microsoft).  Google is rightfully worried, as Gurley mentions, that without its own browser/mobile offering that it’s easier for a user to be steered away from Google’s search.  By providing its own competitive solution, Google builds a bridge to its castle over such moats for those who choose Chrome or Android.  I don’t think this is a revolutionary strategy.  Companies in other industries who find or believe themselves without adequate distribution to customers will build their own distribution outlets or channels.  In retail, this is how many brands operate by creating their own stores.  Google is essentially protecting its distribution opportunities through products that otherwise would be dominated by strong, not necessarily friendly companies (Apple in mobile, and Microsoft in browsers).

Second, in reading this, I thought of Microsoft with Internet Explorer and what the government alleged Microsoft did to Netscape.  There, the government claimed that Microsoft saw Netscape as a potential challenge to the operating system and thus it pursued its multi-pronged strategy around Internet Explorer. I don’t see that story here at all.  The Apple iOS and Internet Explorer are under no threat to be vanquished from Android and Chrome, in the same way that Netscape was, nor by creating these products does Google lock up search for itself.

Third, the search advertising “castle,” I would argue, is vulnerable despite Google’s “moats” or “bridges.”  If someone starts a better search engine, or perhaps more likely a non-search business that redefines how content is organized and found from the variety of “post-google search” projects that people are working on, users can and will move on at least some of the time.  Chrome or Android cannot stop that.  People’s choice to use Google and the resultant success has been incredible, but my belief is that Google’s position in search is more vulnerable than Microsoft’s position in operating software (or at least was back when the Netscape episodes were taking place).  It’s just that much easier to type another web address in your browser or download another app.  I don’t buy that there is a “unbreachable moat” or that Chrome or Android raise barriers to entry to competing with Google.  If there is a better product, it is more likely to find its way to users than a competitor to Windows OS could back in the day.

Fourth, Gurley says that this is “the greatest legal destruction of wealth in history,” because it devalues competing products.  I don’t really see it.  I’m still paying a premium for my iPhone and its associated iOS despite some cheaper Android phones in the market, so there is still money to be made in these markets despite Google “giving it” away.  In terms of browsers, the “free” price had been set long before Chrome entered.

This was a brilliant post that got me thinking and does shed light on why some of the criticisms of Google’s non-search ventures miss the point.