Archive for July, 2008|Monthly archive page

The classified puzzle

It’s a funny coincidence that Microsoft will be pulling the plug on their little known Live Expo classified service just three days after MySpace announced that they will be ramping theirs up with Oodle. These changes are indicative of the larger trend: the classified game remains elusive for large major new entrants. Facebook‘s classified service has been less than stellar (I can’t even find a link to it right now) and Edgeio has been shuttered while Craigslist and eBay continue to dominate the all-in-one classified scene. Read more »

Glance

In my post a while back about my picks for the best service providers for startups, I included my favorite desktop sharing software, Glance, which I use religiously. Glance was recommended to me by a friend and I use it for all my demos also for some internal stuff when sharing a screen is needed.

Last night I ran into a friend I see every couple of years and talk turned to startups. I was amazed to discover that my friend’s cousin Taylor Kew is one of the founders of Glance.  My friend was happy to learn that I use Glance ~5 times a week. I was then saddened to hear that Taylor passed away in August ’07 of lymphoma. If anyone at Glance sees this, thanks again for delivering a great service.  I can’t imagine how tough it must be to work through losing a founding member of your team.

The power of defaults

The snack machine in my office building gets a steady flow of patronage throughout the day. Last week I used a dollar bill to buy a 50 cent pack of gum and noticed that the 50 cents I was owed wasn’t returned automagically. I then hit the coin return button and the machine coughed up my change. Somewhere out there, there’s a genius that revolutionized the vending machine industry by changing this default. I’ve left at least an extra dollar in the machine since I first noticed this change last week. Brilliant.

Edit:  So it turns out I was totally wrong about this.  My dreams of a revolutionized snack vending machine industry have been shattered.  Thanks to bostonwolf’s comment I realized had assumed the machine retained change.  I was wrong.  If there is change owed after a transaction, the machine spits up the change in the coin slot ~2 minutes after the purchase.  Too bad.

User Value = Demographics + Tolerance

A subject often mulled over by startup founders and investors alike is the value of a user. Web services, just like brick and mortar service providers, try to make money from of those that use a service. Some sites charge users directly, but most rely on selling some form of access to their user base to others. Display advertisements, job postings, and direct messages are the three predominant monetization strategies used today. In the past several months, web services have begun to offer more and more targeted and focused access to their users, a trend that will certainly continue in the social network space in particular as companies begin to focus on monetization.
As this is a popular topic, Arrington recently ran an article entitled “Modeling the Real Market Value of Social Networks“. Ironically, he ignored a large amount of relevant data and instead posited a new way to value social networks…completely disconnected from any and all real market valuations (he missed a few major social networks as well). His end analysis is that demographics are the key factor in determining the value of a user base. I’ve been analyzing valuations, user bases, and user access recently and disagree with this analysis.
In order to examine the true drivers of user value, I aggregated below all of the recent available real market valuations for companies that monetize user profiles. I used a combination of enterprise values, acquisition prices, and pre-money valuations, all of which represent real market valuations. Dividing the number of profiles each company had at valuation by the valuation amount delivers the value the market put on one of that service’s users.
The numbers show that demographics are just part of user profile value. The other driver of user profile value is user tolerance, or what level of access a typical users is willing to endure. Gerson Lehrman (#1) has an extremely small user base in relative terms, but it is a group of professionals (high-end demographics) and, by definition, every user is willing to receive cold calls from Gerson Lehrman clients (perhaps the highest level of access there is). Dice (#3) has only 2M users but all are technology professionals interested in job opportunities (valuable demographics) and all are willing to receive messages or alerts about potential employers (high tolerance to access). In fact, five of the top six on the list allow for direct access to their user bases, while almost all of the bottom half of the group relies entirely on generic, unfocused display advertisements and will likely face much resistance to increased profile access (see: Wikipedia).
Going forward, it’s going to be important for web services to not only enable targeted access, but to also cultivate users that will stick around to receive it.

Company Valuation Derived from… Profiles Value Year

GLG $875M Investment 200,000 $4,375 2007

Facebook $15B Investment 50,000,000 $300 2007

Dice $500M Enterprise Value 2,200,000 $227 2008

CareerBuilder $1.55B Investment 24,000,000 $65 2006

Affinity Labs $61M Acquisition 1,000,000 $61 2008

LinkedIn $1B Investment 22,000,000 $45 2008

Geni.com $90M Investment 2,000,000 $45 2007

Twitter $80M Investment 2,100,000 $38 2008

Badoo $300M Investment 10,000,000 $30 2008

Monster $1.88B Enterprise Value 80,000,000 $24 2008

Bebo $850M Acquisition 40,000,000 $21 2008

MySpace $580M Investment 22,000,000 $26 2005

Friends Reunited $208M Acquisition 15,000,000 $14 2005

Fotolog $90M Acquisition 10,000,000 $9 2007

Photobucket $300M Acquisition 40,000,000 $8 2007

Plaxo $150M Acquisition 50,000,000 $3 2008

Tagged $102M Investment 30,000,000 $3 2007

Various $50M Acquisition 18,000,000 $3 2007

BlackPlanet $38M Acquisition 16,500,000 $2 2008

Buzznet $15M Investment 7,000,000 $2 2007

If anyone has hard valuation/user profile data for yelp, myyearbook, orkut, HI5, Ning, classmates.com, friendster, reunion.com, habbo.com, hyves.com, imeem, live-journal, mixi, multiply, netlog, perfspot, skyrock, sonico, stidivz, V Kontakte, wayn, windows live spaces, xanga, xing, or any other companies in this genre please send them on.

eBay v. Tiffany: 4 years later, eBay wins

Well it looks like eBay v. Tiffany & Co. is finally over and eBay has come out on top. This is a huge case for the web and internet commerce. The ruling means that eBay (and other web based marketplaces like Craigslist)  can continue to rely on trademark holders to monitor their site for knock-off items. Back in 2004, Tiffany’s sued eBay for damages incurred from sales of knock-off Tiffany’s jewelry being sold on eBay and wanted to limit the number of Tiffany items any one seller can have for sale at one time. While a ruling in the favor of Tiffany’s would probably never registered on eBay’s radar screen, an avalanche of money hungry plaintiffs would have followed and the precedent would have been set that eBay could be liable for trademark infringement in regards to counterfeit goods. If any damages were awarded, hypothetically, any brand that has ever had a knock-off item sold on eBay would have stood to get some cash.

In 2001, the landmark case of ecommerce, Hendrickson v. eBay, the court found eBay to not be liable for stolen or counterfeit items sold on its site. The site was found to be in the safe harbor of the DMCA, and differentiated from the classic case of the flea market proprietor found liable for selling stolen goods. eBay was found to be in the safe harbor, including robust terms of service and links for users to flag inappropriate content. At the end of the day, Hendrickson required manufacturers to be on notice and proactively search and flag stolen goods on eBay. This was a big change from the flea market paradigm of the past, but there were a lot of strange things happening in 2001. Conversely, after Hendrickson, Napster & Grokster came through, which were about copyright but pondered a similar unchartered realms of e-commerce and trade. Napster couldn’t keep 100% pirated work off the site per court order, and were forced to shut down.

If eBay had lost the case and been put in a position where they needed to comply 100% a la the Napster Trajectory, they would have been put in an extremely difficult place, because while it is easy to recognize a NBC TV clip, it is not so easy to recognize a knock-off Tiffany & Co. ring by looking at a grainy photograph. This distinction may have been what in the end saved eBay. However, while Hendrickson and Napster both made trademark claims, they were overshadowed by the copyright issues in the cases which call to the DMCA. Tiffany’s claim was strictly within trademark.

Additional coverage: AP, Marketwatch, Reuters, NYT, CNET

Where’s SelfServe by MySpace?

Back in November of ’07, MySpace announced the future launch of “SelfServe by MySpace” which would “allow advertisers to directly purchase, create and analyze the performance of ads throughout the MySpace network.”  It was supposed to be in beta for two months then launched in early ’08.  It didn’t happen and ClickZ reported last month that SelfServe may launch in later summer or early fall.  MySpace is being left in the dust by Facebook Social Ads and LinkedIn DirectAds.  Now Orkut, Hi5, Bebo, Ning and the others need to step up to the targeted advertising plate as well.