Tuesday, August 08, 2006

 

New URL - It's all over on blogger

It's been great here but I wanted to have my own URL so from now on you can find me at The Equity Kicker.

I've imported all the history from Blogger (thanks for being co-operative guys) and my first new post on "social networks - was I wroing to question their value?" is there.

Monday, August 07, 2006

 

T-Mobile doesn't get it

Mobile operators are so off the pace sometimes it is funny. Thanks to Sam Sethi for this critique on their theoretically £1 per day all you can eat service:

The downside of this service is that it's curently only available on the Motorola V3 RAZR and Nokia 6131, but T-Mobile promise it will be available on more handsets before Christmas. Oh, and you can't use VoIP, streaming video, or your laptop with it. So all the things I would really want to use cheap/free wifi for T-Mobile says I cannot!

 

Lego Gallery opening in Second Life


See Chris Garella of the Daily Graze.




The news just keeps on coming. It might all happen sooner than I expected.

 

Second Life - more real/alternate world convergence

See this post from Christian of Electric Sheep Company which describes a Second Life object which plays real world audio and hence raises a WHOLE WORLD (geddit?!?) of copyright issues.
So, you can access real world audio inside Second Life. How long before your Rhapsody subscription is extendable there?

I'm interested in Second Life because it has the potential to profoundly change the (aspects of) society. At the obvious end it offers a new way of spending leisure time. At the less obvious (and more radical) end it offers us the potential to re-organise the way we work and do chores (like shopping - Amazon store opens in Second Life). So far this is of more interest to the sociologist
than the venture capitalist in me as it feels kinda early to be funding companies that live off of Second Life (although Electric Sheep Company is leading the charge).

The other interesting thing about Chritian's post is the scale he is getting at SLBoutique - a virtual shop run by the Electric Sheep Company that sells artefacts for Second Life. They now 'stock' 100,000 items. They will be needing a recommendation engine!

Wednesday, August 02, 2006

 

Web2.0 in the enterprise - social bookmarking and tag clouds

I've been reading a lot about this lately - including http://stream.framfab.com/index.php?/trackback/1287/ (Framfab blog/discussion page) and http://jeffnolan.com/wp/2006/08/01/connectbeam-enterprise-social-bookmarking/ (Jeff Nolan) and I'm seeing a few start-ups in this space in the UK.

Cool stuff, and I think there might be a software opportunity here. The idea is that enterprises empower employees to create their own tags for documents which are shared with colleagues to make stuff easier to find. E.g. the finance department can have their own tags that they share and understand which can be different to the tags that the sales department uses, or marketing uses, etc. This has the twin advantages of being cheap to implement and better than a one size fits all taxonomy.

Technically the challenges are in usability and linguistic problems (dealing with synonyms and words with more than one meaning - extreme e.g. one man's 'bad' is another man's 'good'). This is where the software opportunity lies - although delivery will be best as a service.

From an investment perspective the challenge is predicting take up rates, ie. how quickly the market will grow.

Tuesday, August 01, 2006

 

Now power users are trying to leak out the top of MySpace

Dolce (aka the Queen Bitch of MySpace has nearly 1,000,000 MySpace friends) is trying to make an exclusive area within the site with extra functionality just for her network. Unsurprisingly they have told her no. As therubofclubs points out, "sking persmission to mashup MySpace is like asking your girlfriend's dad to spot you a condom" http://therubofclubs.com/blog/2006/08/01/myspace-to-dolce-you-are-forbidden-part-one/trackback/

So in addition to all the problems with the business model I've posted on before their biggest users might start to think they have grown out of MySpace.

 

"YouTube poster child for Bubble2.0?"

They pass 100m videos per day and TechCrunch want to know if they are going to make it. As with MySpace et al they need to monetise their traffic - only more so as streaming video ain't cheap. According to TechCrunch on the link below their single banner ads won't cut it.

http://www.techcrunch.com/2006/07/17/youtube-serves-100m-videos-each-day/trackback/

Monday, July 31, 2006

 

Second Life

I haven't talked about this yet but I love Second Life and the way the edges between virtual worlds and real worlds are blurring.

Now Amazon have opened a store there - see http://www.typepad.com/t/trackback/5523140

And this weekend Dell opened a real store in Dallas!!!

 

More on Social Networks business models

Since my last post I have learned a few things:

1) MySpace is flying - traffic wise - and has passed Yahoo! and Google in terms of page views. See Jeff Clavier at http://www.typepad.com/t/trackback/5297436 for all the good news there. Although some claim that MySpace's design produces a large number of extra page views - maybe 2-3 times as many as are required

2) There is a lot of uncertainty about how much revenue they are making. Information in press releases from Fox Interactive Media (FIM - the division of News that owns Myspace) is confusing in that it talks about Myspace but then seems to give figures for the whole of FIM.

3) Nonetheless they are making big claims - $1bn in revenue by the end of the decade

4) CPMs are VERY low - reported as 10c average - adserving technology costs on their own are likely to be 1/3 to 1/2 of that (note the extra page views point above which should, in theory at least, have the effect of reducing CPMs by 50-67%)

5) One reason advertising may not work (or CPMs will be low) is that people come to MySpace to visit each other, not to access content

6) On the other hand some rumoured numbers I have heard for Facebook penetration of their vertical and average time spent per day on the site are staggering and lead me to question my whole thesis here that the traffic may not be monetisable

7) People are starting to talk about the business model for MySpace not being traditional advertising but instead a recommendation or collaborative filtering tool

It is easy to see why opinion is sharply divided on whether MySpace was worth the $580m or not. I'm still of the opinion that on a pure DCF basis it will turn out not to have been worth that much. For NewsCorp it may have been worth that much to get a foothold in the new world and start learning. It is only 2.5% of their market cap and I can't shake the suspicion that part of their justification was that being associated with the hype around MySpace will do more than that for their share price over the short to medium term.

Thursday, July 27, 2006

 

Social network business models and value - Bebo and Myspace

In the wake of the Benchmark Bebo deal and Myspace NewsCorp sometime before that I have been thinking about what these companies are worth.

On the one hand they have A WHOLE LOT OF TRAFFIC - so there is unquestionably some value there. The question, is how much?

Now I'm an old fashioned guy when it comes to corporate finance but to me profits and cash flow are important. To really be worth a lot of money you need to have cash. At the risk of being boring; a company is worth the discounted value of its future cash flows.

Sometimes it seems like there are two investment philosophies out there in the London market. 'Follow the hype curve' and 'invest on fundamentals'. I would be a fool if I never sought to capitalise on hype round a hot sector, but my leaning is towards investing on fundamentals. So before I can put a big value on a company I need to understand how it could make a lot of money, even if it isn't doing it yet.

So to Bebo and Myspace. They have traffic in abundance, but how are they monetising that?

My understanding is that they are pursuing advertising models. Fair enough. The two issues they face are that advertisers are wary of advertising next to unknown and potentially offensive content (e.g. soft porn) and that users might find advertising intrusive and leave.

The response is to make "safe areas" where the content on the pages is understood. So they almost become traditional content businesses with a radical new method of sourcing traffic. Both Myspace and Bebo are doing this around music, in the first instance.

They have traffic and a clear way to build content so they can generate revenues (in addition there is the not insubstantial home page advertising revenues).

That leaves the questions of how much? and for how long?

To me there is a lot of uncertainty on both fronts.

The "safe areas" strategy sounds like a good one, but it is unproven. There is no way of knowing how much of these sites' traffic can be monetised in this fashion so there is no way of knowing the quantum of revenues that can be generated.

There is also no way of knowing if the current popularity of these sites will be maintained. They are new, there is no history we can look at to inform us. There are reasons to think it could be sustained - mostly based on the argument that people have invested a lot of time and effort into building their profiles, so they won't leave. There are reasons to think it might not be - the current crop of 18-24 year olds may not need this form of social interaction when they go to college, or grow old and get married, and the next crop who are currently say 12-18 are currently using other social networking sites targeted at their age group (e.g. Stardoll and Sulake) who are presumably planning to hold on to them.

So these sites could generate a lot of revenue for a long time but they might generate a lot for a short time, or a little amount for a long time, or worst of all not very much for not very long.

To my mind it is hard to put a big value on that. Far too much uncertainty.

Valuation is an art though, not a science, and people have different ideas. NewsCorp paid handsomely for MySpace, and good luck to them. But you can't bet on people paying more for your companies than you think they are worth, it happens, but you can't make that your investment thesis.

Wednesday, July 12, 2006

 

Trust and certificates

The promised post on trust awaits your perusal below.

In what is starting to be a tradition in this blog lets start by postulating what trust might be (and I'm talking in the very specific context of web trust systems - there is a very interesting wider debate on trust in society which I've blogged about before).

Forms of trust on the web:
  1. Certificates that say you can trust a site to be something - e.g. VeriSign for security against theft of your credit card information
  2. Trust systems that let you trust an individual in a given community - e.g. EBay's rating system

I'm trying to answer the question of whether there is an infrastructure play in trust on the web.

In the first category VeriSign has built a business based on a single very specific area of trust but I think security of credit card information is probably the only area where trust is missing on such a broad scale. Other areas where certificates are prominent are child safety (ICRA), accessibility (RNIB and others) and more recently readiness for mobile. There will be a lot of certificates required (at least in the first two areas) which tells me there is a volume of business in administering them, although I'm not sure how profitable it would be. There is an element of natural monopoly though, which might be helpful. The million dollar question (and maybe that should be billion) is whether the list of three certificate areas I gave above is (or soon will be) much shorter than it should be. If it is much too short then there ought to be a play in "trust certificate infrastructure".

In the second category I don't think there is an infrastructure play - the technology to administer an eBay style trust system will be coded on a site by site basis and it doesn't strike me that there is much of a software product opportunity here. Instead, everyone is talking about a service play which allows people to export their rating from e.g. eBay and use it elsewhere. This would be great but it strikes me that implementation will be challenging. There is little in it for e.g. eBay to let this happen, indeed people could use their eBay rating on competing auction sites, and there is the hazard that eBay will not be able to police abuses of eBay ratings outside of their site. The play then morphs to some kind of meta rating system which is probably tied in with the holy grail of detailed individual profiles. It'll come, but it will take a while.

(An aside - I've been saying for a long time now that one day we will all have profiles on the web that we love, nurture and cherish like people used to love nurture and cherish their cars. )


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