Web X.0

An alternative Plan B for Microsoft

Yahoo remind me of the famous saying about the Palestinians:

"They never miss an opportunity to miss an opportunity"

After playing a hand of cards they didn't have with Microsoft, they have now essentially committed harkiri by becoming a node within Google's business. Why would any advertiser now bid on Yahoo's platform? I can't find a single reason, and I doubt advertisers will either (not that they had many reasons before...). I agree with Michael Arrington - Yahoo totally screwed this up, and their search business is pretty much dead.

Now everyone seems obsessed with Microsoft's next acquisition target. I'd like to offer Ballmer my 2c on a potential alternative to the $50B acquisitions they're looking to make. It's called the 200% rev-share program.

But first, a little background:
Online advertising is a strange business. While the advertisers are the ones paying for everything, acquiring advertisers is a secondary concern for an ad network. A distant second. The #1 key to making an ad network work is the publisher side. Even though the publishers are being paid, it's much more difficult to win publishers than it is to win paying advertisers. The reason is pretty simple: Ad space is binary, while advertising budgets are not. A publisher has to make a binary decision on who gets to sell certain ad space. Whoever they choose becomes the de-facto exclusive "owner" of that ad space. Publishers cannot take risks on that kind of exclusive deal, and therefore they all choose the leader who has proven to monetize best - Google in the case of text/search ads.

Advertisers, even though they are the ones paying the bills, are much easier to obtain because their choice on how to distribute their budget is not binary by nature. They can put some money on Google, some on MSN, some on Quigo, etc. Advertisers will generally follow the distribution. He who has publisher real estate will eventually get the advertisers. The other direction is far from guaranteed (see Miva, LookSmart, etc, etc).

A much better plan B for spending those $50B is by seriously upping the rev-share paid out to publishers. And I'm not talking about upping it from 60/40 (about what Google pays out), to 70/30. My suggestion would be to go for a 200 / -100 rev-share with publishers. Take those $50B and use them subsidize the publisher earn-outs for the next couple of years. 

Publishers are dying to have an alternative to Google for monetization. The trouble is that no one has been able to naturally monetize better than Google. And that gap is widening by the minute. This game cannot be won in a dog chase.

The only way to get back into the game is by locking publisher distribution, and the only way to do that is by out-paying Google, even if that means doing it artificially via subsidizing the rev-share and not though higher yield.

Microsoft should offer a 200% rev-share to all publishers (and search sites, etc) for next couple of years until every publisher in the world is talking about how much better monetization is with MSN than it is with Google. When that happens, critical mass of distribution will occur, attracting massive advertising $$'s, allowing Microsoft to *slowly* throttle down the revenue split to under the 100% mark.

This isn't too crazy... If anything, I'd go for a 300% or 400% rev-share and completely nail this down. Google can obviously react to this and raise rev-share splits as well. But for Google this is the *only* revenue source and it would be awfully painful to turn that into a money loser. Microsot can still afford to do this while Windows and Office are still the cash cows that they are. In addition, some of these publisher subsidies will be offset by the improved monetization of MSN's own properties.

This is one of those unique moments where it can really be said that it's now or never.

HopStop.com

This morning HopStop.com announced an angel investment by a group that I am part of. I am joining HopStop's board of directors. Allen Stern over at CenterNetworks broke the news here.

A couple of months ago, waaay before the investment opportunity even came up, I was interviewed by Eze over at VC Cafe. His last question was "What are 5 sites you can't do without?", and HopStop was on my short list. HopStop is my car replacement in the past couple of years. I use it on average 3-4 times per day and cannot imagine how I got around the city without it. If you live in NY, or plan to come for a visit, you should absolutely head over to HopStop and start planning your public commutes from place to place. (BTW - if you're even considering using Google Transit, take my word on this one - HopStop is 10x better and much more accurate and useful).

HopStop has done a great job of building a wonderful service on a shoestring. It has been integrated on sites like TimeOut, Corcoran, and Halstead. Now were looking to add many more partners to use HopStop for powering their "How to get here?" directions/mapping pages. HopStop's free API is available here for any site to embed. If you are a local site in one of these metro areas - NY/NJ, San Francisco, Washington DC, Boston or Chicago - HopStop is the *best* directions service for your users, and it is absolutely free for you.

I can go on and on about how much I like the site, but I'm not objective... head over to NBC's local NY channel to watch a great item about HopStop from a couple of days ago.

Looking for the best product person in NYC

We're looking for a great product person to head product management over at outbrain. The timing for joining us couldn't be any better - We have a huge and growing distribution network, we've recently closed a $5M A-round with top-tier VC's, and we have a great little team in which each person has a huge impact.

I'm looking for someone for our NY office who can be hands-on in spec'ing a web product and can work with our engineers in Israel to create the best blog ratings & recommendations service out there. In the long term, I'd like this person to be able to hire and manage our PM team. The title would be Director or VP of PM. Any experience with online advertising products is more than welcome.

If you're a *great* product person at any of the following companies, the timing now is PERFECT to switch over to a well-funded startup with lots of upside... (note: the folks that joined us at a similar stage at my previous company - Quigo - did fairly well... ;-)

• Are you at Google watching the value of your stock dropping ~40% in the past few months?
• Are you (or - were you...) with DoubleClick pissed at how Google is treating you?
• Are you at Microsoft fed up with all the committees you need to get through to launch every small feature? 
• Are you at Yahoo? (enough said... ;-)

If you're at any of these companies, now is the time to jump ship. Drop me a note to: galai [at] outbrain [dot] com

Aniboom & Radiohead

Aniboom (disclosure: I'm a board member) has recently partnered with Radiohead for an animated music video contest. If you're an animator, you can (and should!) submit a storyboard for an animated video clip of a song of your choice from Radiohead's newest album - inRainbows. The deadline for submissions is April 27th.

The Aniboom community will vote and choose the 10 best storyboards (you can watch the storyboards and vote here). Radiohead will pick its favorite clip which will then be produced to a full music video clip (full T&C's here).

The music industry is made up of a bunch of dinosaurs that will soon be extinct. Radiohead are pioneering the future of music both in pricing/formats and now in embracing the animator community (or - UGC) to develop video clips. Cool!

New outbrain functionality released

We've finished a major product release earlier today, mostly around the website. Bloggers can now register with us (registration is optional), or claim their blog to get access to reporting, etc. We'll be covering some of the new features released in our company blog over the next few days.

CenterNetworks and Mashable have coverage of this release.

Breaching Google's 'moat'

Fascinating analysis of the Quigo-AOL deal by Avner Mandelman over at The Globe & Mail.

I wasn't tracking the data, but Avner points out some interesting numbers:

• November 5th, 2007 - the Quigo/AOL deal was first announced
• November 6th, 2007 - Google shares hit their all-time high - $741
• Since then Google shares are down ~37% to $471

Coincidince? Probably for the most part yes.... there are so many big factors in play here and I doubt Quigo is the most significant one. But it's still a pretty cool coincidince nevertheless...

The chess game continues...

So it looks like the predicted Microsoft-Yahoo deal will happen finally. This is waaaaay overdue - it should have happened back when MSN decided to leave Overture and pursue its own performance-based ad platform. The day that happened (sometime in 2003 as far as I remember) created 2 losing platforms.

I love the timing of this announcement. Looks like Microsoft were sitting on this waiting for Google's stock to dissapoint, and then hand it a beautifully timed 1-2 blow. Cool.
(on a side note - it's really great to see Google's stock crash from $750 to $525 within 3 months... healthy reminder that Google does not have exclusive rights to the world's wisdom and shareholder value)

Seems like the next natural move will be for Time-Warner to spin off AOL (disclosure: I co-founded Quigo which is now part of AOL), and sell it to Google (~$25B?...). The game is advertising, and the key is distribution. There are more ad $'s flowing to the internet every day, and not enough high quality distribution to meet that demand. With Yahoo out of the game, AOL will now be the #1 biggest player with available ad inventory (both on its own properties as well as on its huge platform-A). In a 2-player race, Google will not be able to afford losing AOL to the MS/Yahoo combo and will have to make this move (not to mention that it already owns ~5% of the company). Interesting days...

Plaxo... Ugh...

Plaxo is one of my favorite online services (I know I'm pretty lonely at that...) [1]. If you peel away the spam issues they had, etc - the core idea is pretty powerful:

If historically I had to maintain and keep up-to-date the contact info of 100's of people in my address book, with Plaxo I could instead worry about the contact info of just a single person - myself.
Plaxo would do the rest keeping my friends up-to-date on my contact info automatically, and vice versa.

The only real issue was how to bring enough people onto the platform to make it meaningful for everyone. But as this service is extremely viral (the more friends I bring into Plaxo, the easier it gets to maintain *my* address book) - that took care of itself and millions of people now use Plaxo.

Being THE address book synchronizer of the world is a very powerful position to be in, but it seems like that's the point where Plaxo started fumbling on its strategy (of course now that I say that, Microsoft will probably acquire them next week for $1B and I will look totally stupid... whatever...).

Instead of focusing on its core strategy - being the world's address book sync'er -  they started copying and dog-chasing the flavor-of-the-day companies and tried to become Facebook. I don't get the whole Plaxo Pulse thing... why do I need to 'friend' again the people that I already 'friended' within Plaxo when we exchanged our business cards? And once I do that 2nd friending process - what value am I supposed to get?! It's clear that Plaxo got valuation-envy from Facebook and decided to go in its footsteps. The trouble with that, is that you can only copy what's already out in the open... if the strategy is not genuinely *your own* strategy, then you have no idea what to do next and why to do it. Which means that almost by definition, if you're copying someone else's successful strategy you're almost doomed to fail. The proof - Pulse is a pathetic copycat of Facebook that adds absolutely zero value (to the user at least... who knows - if they can spin this to some stupid acquirer it might end up adding a lot of value to them...). Last week they even tried to start scraping data out of Facebook (violating FB's T&C's...) and use it within Pulse. Ugh...

Now it seems like they're shopping themselves for $100M. It's sad to see because this is one rare example of a product that made total sense, which could have made a ton of $$'s by sticking to its core strategy and not trying to copy others. Here's what I think Plaxo should have done. I offered these ideas to Todd, their co-founder, a couple of years back. But since they obviously chose to become Facebook2, I'll publish it here. Feel free to take it and build a $1B company out of it:

Plaxo pretty much perfected the product for syncing contact info between me and *my friends*. The next step, and where the honey pot lies, is to let me sync my contact info between me and *businesses* I have a relationship with.

Think about the simple case of moving to a new apartment. It's a huge headache for me to update all the banks I use, magazines I subscribe to, insurance companies, etc, etc. It takes months to get all of them updated. It's a similar, or even bigger, nightmare for all those businesses that need to stay in touch with me. They need to put systems and people in place to manage their contact databases, they need to hunt down people after mail is returned or calls aren't answered, etc, etc.

Introduce "Plaxo for Businesses", and let me share my Plaxo info with businesses the way I do with friends. A business would have to be insane not to pay say $5-per-year-per-client to automatically and permanently maintain a perfect contact record of each of its clients. A magazine that's printed, shipped and returned probably costs more than $5... If it makes sense for a magazine, it would make sense for pretty much any other business.

It's rare to have a product that would make so useful for the end user, and would also be so attractive for businesses to pay for [2]. And as this is one of those winner-take-all type of platforms, there ain't going to be much space for more than 1-2 major players. Plaxo was (and still is, if it wakes up) in a great position to become the world's address book syncronizer. It might be less sexy than being 17th Facebook, but I think it's a MUCH better business to be in as the leader. If Plaxo lets this opportunity slip, it'll be Microsoft (or maybe Yahoo Mail or Gmail/OpenSocial) that takes this. Again. I'd hate to see that happen... :-(

===
[1] Actually - to get this absolutely correct - the app I really loved was Contact.com which was released way before Plaxo even existed ('98 or '99 I think). Contact.com was founded by Eyal Herzog, one of the smartest Israeli web entrepreneurs who went on to start MetaCafe later.  Contact.com was one of the best internet apps ever, and unfortunately it was waaay ahead of its time.

[2] Is this what Doc Searls refers to as VRM?

New languages supported in outbrain

We've just launched the outbrain rating widget in 14 new languages (bringing us to a total of 20 supported languages). All translated and verified by the community of bloggers. Cool!

If you have a blog in any of the following languages, head to our 'get widgets' page and install it:

• Arabic
• Catalan
• Chinese (Traditional)
• Dutch
• English
• Farsi / Persian
• French
• German
• Greek
• Hebrew
• Hindi
• Italian
• Malayalam
• Polish 
• Romanian
• Russian
• Serbian
• Spanish
• Turkish
• Ukranian

(note: You may have noticed a slightly strange image at the top of this post... It's from a cool new service called PicApp that allows bloggers to post high-quality, copyrighted stock images for free (full disclosure: I'm an advisor to the company). If you have any feedback on that image - please submit it in the comments. Thanks!)

Exit strategies

Hey - back to blogging...

In nearly all the business plans I review for Tevel (the non-profit angel club I volunteer at), the last section outlines the company's "exit strategy". I was wondering if that's some sort of requirement in writing business plans for investors? I don't remember ever writing anything like this in any of my biz plans.

As I wrote a while back, I think it's alarming when a company that has not even been funded yet is talking (or even thinking!) about exit strategies. In my book, a startup can only have a single strategy and that's about how to grow it's business. If "exit" is your strategy, it is almost guaranteed that you're building for something small that will be easily swallowed (or worse - crushed) by the acquirers you're aiming for. That's a terrible strategy (unless your plan is to get hired to a company via an acquisition), and not one I ever want to invest in.

I've learned that exits have 2 inherit properties:

1. They hardly ever present themselves the way or at the time you'd expect in advance.
2. Real exit opportunities emerge only when you're focusing on building a great business, not on exiting.

So my advice to entrepreneurs (especially those applying for Tevel) - drop the silly nonsense 'exit strategy' section from your biz plan, and focus on the 'company strategy' instead...

{image CC by tracer.ca. Thanks!}