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Written on 27th October 2008
8 COMMENTS 
Guest blogger, sharing views on The Next Web
This is a guest post written by Scott Rafer, CEO of Lookery
Scott Rafer
Silicon Valley has been painfully instructive in the last month. It’s now clear that many bloggers are no better than the MSM in terms of “If it bleeds, it leads.” As a community, web startups need leadership, focus, and goals. To hear that message from one of the big names in venture capital, apparently one needs to fly to New York. Instead, the Valley is delivering grimy voyeurism from ‘A-list bloggers’ or transient opportunism from VCs seeking to negotiate better inside deals with their portfolio companies over the next six months.
We are certainly in a Buyers’ Market for startup equity right now, but it will end predictably. It will end so predictably that I’m going to the crazy thing and make a specific prediction in writing. To wit,
Without additional, catastrophic interference, early-stage startups will start to enjoy a Sellers’ Market with angel investors and VCs by the middle of Q4 2009. In other words, the combination of the natural maturation and consolidation of Web2 and the current banking crisis will only cause a one-year “winter.”
I’m clearly guessing — but not without basis.
Calling the Top
Starting in late 2004, I was running around telling people to be out of the markets and in cash by March 2008. My specific reasoning was “about six months before the Republican National Convention,” which was at least as wrong as it was right. I simply figured that the GOP would stop at nothing to stay in office [√], and the Republicans usually persecute bit-driven businesses like IT and Entertainment in favor of atom-driven businesses like Autos, Telecom services, and Petrochemical.
My more general reasoning was that IT boom-and-bust cycles have been between 8 to 11 years long since the early 1960s. March 2008 was exactly 8 years from the top of the last IT cycle, i.e. the DotCom boom. However, this cycle was marginally the shortest ever, and I called the Web2 Top w_a_y too close for my own comfort.
I don’t believe in exact market timing and was hoping my March 2008 deadline was a bit before the Top, but it was actually after. GOOG and NASDAQ both hit their highs around November 1, 2007, and the Bebo-AOL deal was announced on March 13, 2008. That deal felt late and overpriced at the time, and it probably still will with the passage of time.
Calling the Bottom
Nobody seems to remember it well, but the dotcom community was clearly climbing out of its Bust in Q3 2001, less than 18 months after the DotCom Top. Wi-Fi and blogging, the harbingers of Web2, were well into their early adopter phase. That quarter, Oren Michels and I launched WiFinder on stage at Demo. We got off to a great start PR-wise too, largely by pitching Glenn Fleischman and the bloggers who already owned the public discourse on Wi-Fi.
Of course, WiFinder launched September 5, 2001, six days before the world-beyond-tech shut down for a while. Even that extension into “nuclear winter” as people call it, was eighteen months or less. Friendster launched March 2002 and the first bulge of Web2 startups had been founded by spring 2003 and had little trouble finding angel investment. O’Reilly coined the term “Web2″ in Spring 2004 to describe what he saw as an existent, emerging sector.
Large shocks extend the tech down cycle, but not for very long. 9/11 extended the post-dotcom Buyers’ Market by eighteen months. I’m betting the banking-shock extension is twelve. The Top was almost exactly a year ago, and Sellers’ Market start to re-emerge around this time next year.
Separating the Cycles
Any number of credible people will make the above statements, but then they come to very different conclusions. In these panicky times, many experts are unnecessarily and unreasonably conflating unlike economic cycles. When you make that error, it looks like web startups will take as long to recover as global banking. That’s not the way it works.
IT startups don’t run on credit, and they don’t correlate directly the GDP. IT startup recovery leads GDP recovery significantly. We don’t behave like big tech companies such as GOOG, YHOO, ORCL, MSFT, etc. who need to care a lot about the state of the overall economy. Their revenue is driven by big corporate spending. Ours normally isn’t. That’s one of the reasons the big guys are late to the pick up the latest technologies. Two guys in a garage with a new way to share music, or even startups at Twitter’s scale, don’t care at all. Facebook and Automattic, where I have a few shares, are in an interesting middle-state from this point of view. If they manage the transition a tenth as well as Google did during the Dotcom Bust, they will be huge wins.
The Buyers’ Market for startup equity is never more than a quarter of the overall cycle, and it’s normally more like a sixth. Early-stage investors won’t wait for the economy or housing or banking to recover. A bunch of rich people are frantic right now because their personal portfolios are getting hit. However, pretty soon they’ll remember that those portfolios only exist because they paid a startup to give away web-based email, sold AKAM at $300/share or some other highly speculative IT-investing activity.
At that moment, they’ll move back from fear to greed and start competing with each other to speculate — on us.
Written on 26th October 2008
7 COMMENTS
Ernst-Jan Pfauth, editor in chief
Since February, I’ve regularly praised the marketing efforts of MySpace in Europe. Just like Facebook, Bebo, LinkedIn, and several other services, they desperately tried to get some of the ever growing European social network pie. Yesterday however, MySpace realized that they will never taste the sweetness of the Dutch cake.
All of the American giants face fierce competition of regional social networks like StudiVZ (Germany), Netlog (West-Europe and Turkey), Amiz (France), Hyves (Holland), and Bahu (Mediterranean countries). These networks were the first ones to lure folks into the online social world. People have gone through all the trouble of connecting to their friends. So why would they – all of a sudden – switch to an international version? (More on that here)
A Murdoch-owned company respecting cultural differences
Myspace NL launch
Facebook, LinkedIn, and MySpace all have different approaches, of which I like the MySpace one the best. Whenever Murdoch’s web 2.0 experiment launches a local version, MySpace installs a local team who knows what’s hot and what’s not in the country and throw a great party. In March I wrote:
I’d thought I would never say this about a company owned by Murdoch but here we go: It feels like MySpace respects the cultural differences more and really wants to make an effort. I hope it will pay off.
Hail Hyves
Well, in Holland it didn’t. Dutch news site Webwereld reports that MySpace Netherlands throws the towel. Country Manager Holland Derek Fehmers told Entertainment Business that when he entered the market in February, he realized Holland was tough. “We arrived pretty late and had a large competitor which was hard to fight”.
That large competitor would be Hyves. More then 33% percent of the Dutch have registered to this social network.
MySpace Holland made a connection between the offline and online world by organizing parties with local bands. Unfortunately this original and cool approach wasn’t profitable enough. The 650.000 registered Dutch users will now just have language support. The local content is history.
[Photo credit: Polle de Maagt]
Written on 1st September 2008
5 COMMENTS
Ernst-Jan Pfauth, editor in chief
Bebo represents AOL’s hope to have a successful social network, just like the other big guys. Truth be told, Bebo is quite a large player. It has 40 million users and may call itself no.1 in the UK, Ireland and New Zealand. In the US is has a respectable third place behind MySpace and Facebook.
But still, the service isn’t big in the rest of the Western web. No top positions in France, Spain, Italy, Germany, and Holland. Therefor, Bebo has hired former Google industry marketing head Nicole Vanderbilt to fulfill the new role of international VP.
According to the Guardian, Vanderbilt has to conquer exactly these countries I mentioned before. Not an easy task, as the European social network market seems to be pretty filled out. It’s basically divided in three parts:
- National giants: StudiVZ (12.2 million users in Germany) and Hyves (5 million users in Holland)
- Networks that spread out over several countries: Bahu (popular in Mediterranean region) and Netlog (35 million users in June)
- Facebook and Myspace: the higher educated folks who’ve worked or traveled abroad join Facebook, the creative people Myspace. Most Europeans use these networks on the side.
It will be a tough challenge for Vanderbilt to find a place in this market. How will she be able to convince us Europeans to join ANOTHER social network? Focusing on a niche or certain target group, hoping the Bebo virus will catch on or rolling out a massive ad campaign seem to be the only two ways. Good luck.
Written on 23rd July 2008
6 COMMENTS
Robin Wauters, Next web enthusiast & Plugg organizer
Cubics was the one of the first advertising networks designed specifically for social networks, and currently boasts support for most major social networks including Facebook, MySpace, Friendster, Bebo and others. The company prides itself on displaying highly targeted ads, based upon detailed demographic, interest, and behavioral data, a strategy that led to its acquisition by online targeted advertising house Adknowledge in December of last year.
Cubics sent out a press release today about the fact that they now apparently serve more than 10 billion ad impressions per month on social networks (hat tip to MarketingVox). The company claims this number far exceeds those of Social Media, citing a volume five times as large. The release also correctly states that more and more time is spent on social networks, and that the engagement of people with social applications is very high.
While this may be true, social networking sites are notoriously hard to monetize, and the company remains dead silent on the actual return the ads they serve yield for their customers. For reference, TechCrunch yesterday wrote about Lookery lowering its guarantee on Facebook ads to a mere 7.5-cent CPM.
It’s unfortunate that Cubics didn’t talk about their current numbers, challenges and opportunities. We could have a learned a lot more than the fact that they serve billions of ad impressions on social networks that everyone else says rarely get noticed or clicked on.
Update: Cubics’s general manager and PR manager responded in the comments with some context, so scroll down for their perspective.
Written on 7th June 2008
0 COMMENTS
Ernst-Jan Pfauth, editor in chief
AOL used to be world’s largest walled garden. Yet shortly after they were incorporated by Times Warner, the walls collapsed and the majority of garden visitors left. But during the past few years, the gardener has acquired quite a number of companies – like Bebo, Buy.at and Goowy media. All these web services have thing in common: they’re focused on advertising. Within a very short while, AOL has become an important advertising company. Now it’s time for the former Internet giant to bring structure into the company.
AOL Mountain View Office
The AOL executives started Platform-A for that task last September. This division houses ad sales for all its sites, ad network properties and supporting technologies. Platform-A has integrated sales for Advertising.com, AOL-run sites, Tacoda, Third Screen Media and AdTech. After cleaning up the house in the U.S., Platform-A now continues in Europe.
AOL will merge its existing European advertising subsidies – Advertising.com, Adtech, and buy.at – into Platform-A’s international operations. The European HQ is based in London and former Advertising.com international head Brendan Condon will be in charge. He can offer its American customers a more global appeal by placing their ads on European websites. With more social networks becoming global entities, advertisers will surely welcome this move by AOL.
Written on 13th March 2008
4 COMMENTS
Ernst-Jan Pfauth, editor in chief
AOL is continuing its buying spree by acquiring Bebo. Reuters reports that Time Warner’s Internet division bought the social network for 850 million US dollars, in cash.
Bebo has 40 million users and may call itself no.1 in the UK, Ireland and New Zealand. In the US is has a respectable third place behind MySpace and Facebook.
“Bebo’s dynamic management team recognizes that the Internet is less about destination and more about connecting people, culture and lifestyles,” AOL President Ron Grant said in a statement. I’ll translate it for you: Now we can target the adds of recently bought online affiliate marketing network Buy.at and the widgets of Goowy Media even better! Moreover, we’re catching up with Microsoft again!
One thing is for sure though, thanks to mother company Time Warner, AOL is making a remarkable comeback as an Internet giant.
[WebTipr: David Petherick, United Kingdom]
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