[HTML2][Editor: The following is a guest post by Mike Berkley, who served as the CEO of Portland-based SplashCast until its recent demise. Mike and I have had any number of conversations about the startup scene here in town. And I asked him if we wouldn’t mind putting his thoughts into a post. The first post—of hopefully many—follows.]
Preparing for the Next Web Boom
Since putting SplashCast to rest a few months ago, I’ve finally had time to reconnect with the entrepreneur community here in Portland, as well as in the Bay Area and NYC. I’ve packed my days full of coffee, apricot scones, phone calls, and meetings… lots of meetings. I’ve talked to dozens of entrepreneurs and investors.
Two themes have surfaced in this process.
First, we are in front of a new wave of web innovation. It’s fuelled by the simultaneous emergence of location-aware mobile devices (GPS on iPhones, etc) and real-time, one-to-many communication tools (Twitter, etc). For the first time, information about your life in the physical world (where you live, work, workout, eat, shop, drink, etc) can be readily known and indexed in the virtual world. Mix that with real-time, always-on communication among friends, colleagues, local retailers and businesses, and we’ve got some amazing opportunities to chew on. A few start-ups getting early traction here are Foursquare, redbeacon, and Portland’s ForkFly.
I think we’ve entered the next chapter in the evolution of the Internet. On the heels of the now-passé “Web 2.0” era, we’ve embarked on what esteemed VC Fred Wilson calls the “Now Media” era. FWIW, I don’t like the “Now Media” moniker because it captures only the time dimension, leaving out the geographic dimension. I’d prefer something like “Here & Now Media”, which of course is too long and clunky to ever stick… but you get the point: for the first time, the Internet is reaching beyond pixels on a screen and into the real, physical world.
Second, I am observing that most entrepreneurs aren’t seeing the “forest through the trees.” They are so focused on the content of their business—their product, web site, iPhone app, user experience, etc—that they aren’t paying attention to the business itself. Perhaps this is a timeless issue, one that has always challenged entrepreneurs. But my theory is that a disastrous economy reinforces this tendency, since ramping revenue is so much harder now than it was just a few years ago.
Dear Web Entrepreneurs:
Call me a curmudgeon, but just because your product is FREE doesn’t excuse you from the hard work of making money. You should be spending at least 50% of your time thinking about how to build a large and liquid audience. By liquid, I mean easily milked, as in cash-cow. And please do not utter the word “viral”… at least not until your product’s been in the market for 3 months. Then we can review your viral record.
I think we need to get back to some basics of media. First, are you operating your business like a media company? Below is a simple structure for thinking about your business, in both concept and practice:
- Content: Content is your product, your service, your iPhone app, your web site, your blog, etc. It also includes all the ancillary features of your business, such as support, account management, community outreach, etc. Content is almost always a loss-leader in media: it is usually provided to consumers for free (or below cost) in exchange for the consumer’s attention, which can then be sold to a marketer. Content is where most entrepreneurs spend 90% of their time, but it is only 1/3 of their business.[HTML1]
- Audience: Audience is the people who consume your content. Building a large, high-quality audience is the most difficult component of media, I believe. The quality of audience can be defined in several ways: its value to advertisers, its propensity to buy your content, its ability to attract more audience and content, etc. The smartest time investment you can make when starting a company based on free content is:
- Clearly define the audience you want to build: “soccer moms”, “teenage boys”, “foodies in NYC”, “car enthusiasts”, etc…[HTML1]
- Validate that marketers will pay a premium to engage that audience.
Audience should guide or at least heavily influence your content and monetization strategies. The unique qualities of your target audience should impact how you design your product.
- Monetization: Monetization is how you get paid for the content and audience you build. This usually means some form of advertising. If your content collects unique information about your clearly-defined audience, market researchers may pay an arm and a leg to access it. Or perhaps you are able to convert your audience into paying customers, via a paid upgrade, freemium model. Whatever the model, it’s critical to identify upfront who your paying customer is. Otherwise you are blind, not knowing whether the audience you’re building will ever be worth anything.
This Content – Audience – Monetization framework is a 3-legged chair: take any one leg away and the business will fall over. At SplashCast, we were ultimately 2 for 3. Our Social TV business had great content (primetime TV shows via Hulu.com), a strong monetization model (Nissan, Honda, Right Guard, and Jack In the Box were among top advertisers buying directly from us), but weak audience growth (we couldn’t get consumers to sign up as fast as advertisers). In the end, we ran out of cash before finding the right balance. Lessons learned.
The next Internet boom is coming; stay in front of it by staying focused on fundamentals. When the economy swings back in 2010 you will be well positioned to ride the big waves of recovery.
(Image courtesy Aaron Hockley. Used under Creative Commons.)