Economy Drives Ad Innovation Once Again…and Direct Marketers Are Back in Full Force

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It’s happening all over again. Check this out:
OPA Members Strive For Higher Impact In Online Ads
Members of the OPA are launching new ad units, much larger than current IAB sizes. Here they are (quoted from previous Mediapost article):
1. The Fixed Panel (recommended dimension is 336 wide x 860 tall), intended to appear naturally embedded into the page layout, and scrolls to the top and bottom of the page as a user goes up or down the page.
2. The XXL Box (468 x 648), providing page-turn functionality and video capability and expandable to 936 x 648.
3. The Pushdown (970 x 418), which opens to display the advertisement and then rolls up to the top of the page (collapsing to 970 x 66).
Back in 2001 when the dot-com bust was upon us, I was at Yahoo! and we worked with the IAB to roll out and standardize new larger ad sizes, which you see at the IAB ad size standards page. In fact, the industry had grabbed hold of a lot of the new ad units already and Yahoo! was painfully behind in adopting the new standards until the industry had just tanked, and the major source of ad dollars during the dot-com boom had disappeared – other over funded dot-coms who all but died in/around 2001. Yahoo!, along with all the other publishers were forced to adopt new larger ad sizes and introduce new ad experiences to woo advertisers onto their sites.
It worked great. New larger ad sizes were standardized, new ad experiences were conceived and offered like expandable ads and floating ads – we gave advertisers more opportunity to do what they do best: create WOW.
As time goes on, these ad units became commoditized both in the eyes of advertisers and users. They weren’t special anymore, so prices that advertisers will pay dropped and users got used to them and starting ignoring them.
But it seems like it took yet another economic downturn to create innovation in ad units. Isn’t this dumb? It would seem to me that publishers should take an active role in managing the roll out of new ad units and ad experiences on a regular basis to keep interest in them high from an advertiser and user perspective, and thus prices and value are also kept high. Unfortunately, this didn’t happen. At least now the industry is forced to introduce new things into the marketplace.
The other funny thing that is happening again is the rise of the direct marketer in graphical ads. When all the dot-coms died back in 2001, ad units from known brands disappeared and all that were left were ads from direct marketers. These ads were the best of the best in deception – there were tons of ads that looked like dialog boxes and read “Your hard drive is deleting! click here to stop”. They were also just inapprorpriate – I remember an ad that had a picture of an old lady lying on the ground that read, “Help! I’ve fallen and I can’t get up!” Awful stuff. At Yahoo! we created strict content guidelines that just got rid of all these ads AND we worked super hard at bringing traditional brands onto Yahoo! so that we eliminated our revenue dependence on these direct marketers.
But they’re back:
Ad Recession Brings on the Belly Fat
While these ads aren’t deceptive, they are pretty offensive in their design. But yet, they are effective at driving traffic to lose weight websites as they offend the rest of the population. And they aren’t all that wonderful at creating a great brand experience within anyone’s website. This is why all the male enhancement ads are placed all the way in the back of popular men’s magazines; if you saw them in within their main content pages, you might think that this men’s magazine has an undesirable perception amongst its readers.
The same will happen to websites if these ads are found on their pages. Do you want your brand tarnished by the ads that run on your pages?
In the short term, direct marketers have the cash. Perhaps we are forced to take these ads in the short term as we figure out new ways to generate revenue. I hope that in this case, history repeats itself in that the industry will innovate yet again and more desirable advertiser dollars will flow into the ecosystem. But instead of getting rid of direct marketers, can’t we find a way to help them create more acceptable ads from a design perspective but are ALSO as effective?

Still Lots of Interest in Incubation Out There

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In the last few months, I’ve encountered at least 3 people who are thinking about incubating. On the one hand, it’s amazing that the topic still comes up, but on the other hand, it’s not so amazing.
Clearly the news about the spectacular failures of incubators during the last Internet bust hasn’t deterred anyone from trying to build incubation operations. We can even find examples of incubation-type operations that are arguably working like Ycombinator and similar operations in other locales, like Techstars and LaunchBox Digital.
People keep wondering themselves why they can’t just build stuff, and keep building stuff until something works. Or setup something like Ycombinator/Techstars/LaunchBox. It seems so cheap and easy to build a web site/service and get it out there. Why not just build lots of things quickly and try them until something works?
I believe the answer is YES you can. But before you do, I would point you to my two blog posts about incubation, which were gleaned from conversations from many incubator operations both personal and groups in the present and in the past. At betaworks, I took on the project of finding out as much as about incubation as I could, to inform betaworks about the best way to go about coming up an idea (or ideas), how to get them built, and set them up for later success. I then went out and talked to people incubating and distilled what I learned into these two posts:
Incubation 101
Incubation 201: Should You Incubate?
Words of wisdom/caution to those who want to do this:
1. Generally, professional investors run away from people trying to raise money into incubators, because of lot of them were around when the dot-com incubators all collapsed and they remember that. So calling whatever you’re doing an incubator has been found to be a detriment to fund raising.
2. Find your benefactor, woo someone who believes in you and what you’re going to do and has cash to fund your operation.
3. Be aware of destroying incentives that will hinder people from working their butt off on their projects. These are things like paying people full salaries and benefits, and not tying the ownership of the project deeply enough to the people working on them, among other things. Keep people hungry and motivated, that they think their entire future and life depend on the project they are working on.
4. Transferrance of an idea is SUPER HARD. Don’t think it’s easy to just be able to explain an idea to someone else and they will understand it as intuitively and viscerally as the idea originator.
5. Keep costs as low as possible. This will keep everyone’s runway as long as possible. It will also add to the hunger.
6. Figure out what you’re good at, and leverage that in developing the incubation operation. Paul Graham loves smart hackers and is really good at filtering for that. So Ycombinator teams are always composed of super smart hackers because his strategy is based more on having super smart hackers around than just the idea, because often times where you start is not where you end up, and smart people will find a way to success no matter what. What do you believe will generate success and how will your strengths help that strategy?
7. Following on 6., I would advise you not to compete with Ycombinator or any of the other incubator type operations out there. Don’t call yourself Ycombinator 2.0 either in name or messaging. Only Paul Graham can pull off Ycombinator in the way he is doing now. Be yourself and build your own brand.
8. Out of respect for the kind folks who shared with me their knowledge and wisdom which cost them a ton of time and money in legal fees to figure out, I am not publishing anything about what I learned about company structure or legal matters. You should go find a law firm who has worked in this area before and they can help you figure things out. As a hint, some of that has to do with the SEC Investment Company Act of 1940.
I wish you well in your incubative endeavors. May you build something truly great!

I’m Using iBlogger on the iPhone

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How cool is this- no more pulling up my blog’s MT software on Safari and worrying about losing 3G- iBlogger allows me to blog safely with an iPhone interface. Now if only Apple would allow connection with Bluetooth keyboards; then my iPhone would be the perfect anytime/anywhere blogging platform without having to lug my MacBook around!


[Posted with iBlogger from my iPhone]

Book Update

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It’s been about a year since I really started working on this book. I engaged someone to help me write it and we’ve been meeting more or less regularly for about a year now. I think I’ve finally gotten to a point where we can form a coherent story line about the history of online advertising at Yahoo! and I’m going to batten down the hatches and go heads down in trying pull that together in March. The world around us has changed drastically and so I’m leaving the how-to section for last since I feel that it will be easier to write about factual, educational information but also because the world is changing quickly and what I want to say about adding online display advertising to a startups’ strategy may change by the time I finish.
Thanks to all the ex-Yahoos who have sat with me for hours and given me their recollections of the happenings back there. It’s always fun to reminisce and hopefully I’ll put it all down in the book in a somewhat coherent way.
Stay tuned!

The Importance of Revenue at Early Stage, Now More Than Ever

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Revenue is important. DUH.
It seems as though we forgot about that through the internet years. People were willing to put money into startups to build up a user base and put revenue generation second before that. They didn’t have to deal with revenue because they knew that they could raise their next round based on tremendous usage and on the assumption that if you had a gazillion users, then you must be able to monetize them somehow.
That did work for many startups through the dotcom boom years, and even after the internet bust it still worked for many years, right up until the economy took a nose dive.
The world changed, and now that second round is just about non-existent.
So I, along with just about every other experienced investor out there, have started to demand revenue as soon as possible (better) or want to see it at the outset (best). We have turned away just about every early stage company that has no revenue or no firm revenue plan.
While we’d love to be optimistic and place a bet on a startup that only has user building potential, but no clear revenue plan, it’s just too risky right now. Or, if the entrepreneur has not created a firm revenue plan, or does not plan to turn on revenue generation as soon as possible. Any of those are too risky for me right now.
Why? In the economic climate of today, 99% of the funding sources won’t even touch a startup that doesn’t have revenue showing, when they hit their next round. I’ve seen it happen multiple times for companies trying to raise money today. Thus, if you don’t have your own source of cash (a.k.a. revenue), then you’ll end up dying when you burn through your initial cash that you’ve raised. You just can’t count on that next tranche of cash to appear when you need it most.
So in investing in you, I want you to survive. I want you to build a great business. I DO NOT WANT YOU TO DIE a few months or a year from now when you run out of cash, just simply because you put off revenue generation until the very end and it’s too late to generate enough cash to support yourself. To me, that’s a waste of not only my money, but of everyone else’s money as well. Think about that if you’re going to take your friends’ and family’s money. In today’s funding environment, you might as well be tossing it out the door if you don’t start revenue generation from day one.
Before the internet, startups were always created to make money. Entrepreneurs always thought about building businesses to make money from day one. And many of them would drive themselves into the hungriest state, risking their homes on additional mortgages and their relationships with divorce. Their unwavering belief in their business idea coupled by their need for cash to sustain their lives kept them going until some of the biggest businesses of today were built.
Somehow we lost that when funding sources were willing to bet on ideas that didn’t have obvious monetization early on. It took the economy to dive into recession to bring this “create a business to make money” philosophy back into the forefront.
Perhaps it never should have gone away.
I’m only looking at startups with revenue or will turn on revenue from day one now, but I also wonder about what I will do when the economy recovers. Would I go back to placing bets on some ideas that may not have obvious revenue plans, or are generating revenue immediately? I think that we’ll have to take a look at the funding environment and the startup ecosystem to see if we’ll ever go back to supporting businesses like that.

Recession? What Recession? Part II

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I just read Newsweek issue Feb 23, 2009. It has an interesting section in it entitled, “Myths of the Recession.” The myths they talk about are:
Myth: The Credit Crisis is Over
Myth: All Industries Are Suffering.
Myth: The Dollar Will Collapse.
Myth: Credit Cards Are Killing Us.
Myth: Here Comes Protectionism.
The article talks about how a lot of things have been overblown by the media and makes it look as if the world is worse than it really is. The myths relevant to my previous blog post are:
All Industries Are Suffering.
Credit Cards Are Killing Us
Apparently, a few sectors are really messed up. Banks, financial institutions, brokerages: yeah they really are in big trouble. But the rest of the business world, things are still OK. A ton of companies have built up rainy day funds and are weathering the storm OK.
As for consumer debt, you hear about credit cards being a big suck on consumers, and people are living beyond their means. But the attention is on speculators and lower income people who took on unreasonable amounts of debt relative to what they were taking in. So yeah, a lot of people are going broke or getting kicked out of their homes. But the number is still a lot less than the general populace (90+ percent of the population) didn’t do stupid things with debt, so much that they are in trouble now.
If you believe this article, and I tend to think that the media does over exaggerate statistics and make things seem worse than they really are simply because they are talked about a lot, then the general population doesn’t really feel the brunt of the recession. As long as they still have their jobs and didn’t spend so much over their means to support it, the world still seems rather…normal.
I think this is why people don’t seem to think the recession is really there, because it hasn’t really hit them. Now lose your job or the roof over your head – yeah that’s a pretty big hammer hitting you on the noggin.
Or if you are an angel investor helping out early stage startups – the world’s mess really does affect you in a very direct way.

Recession? What Recession?

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In the last few weeks, I am amazed at how many people are completely unaware, oblivious, or uncaring of what is happening in the markets.
When you drive past malls, the parking lots are full. People are still out shopping! Maybe they aren’t buying? At least they still aspire to buy even if they are not. However it seems that some people still are.
One of my startups, Ideeli, who sells luxury goods at 40-90% off, is showing great growth. I guess women still want their luxury goods even in a recession.
The other day I was catching up with a buddy of mine and I told him some of my companies are shutting down. He was amazed that this was happening.
Some startups I meet with still are in the mode of building for users and making revenue part of their future plans AFTER they raise their next round. I tell them that the investor community has completely stopped funding startups without revenue WHEN THEY SHOW UP at their doorstep. They look at me like I’m an idiot for asking about and pushing them to generate revenue now.
WTF??!?!
Ignorance? Obliviousness? Inertia of irrational exuberance still keeping spirits high? Or perhaps some things just haven’t affected some?
It almost reminds me of when I was a kid growing up during the downturn of the 1970s. My parents dealt with the problems, but they never affected me directly. I never stressed about it, and nobody asked me to stress about it. Food showed up on the table, I went to school, still had clothes and toys. The world was all right.
I think some are like that. They have money. They have support. They still walk down the street to their Starbucks and buy coffee. Everything does seem normal in our little microcosms.
But if you take a look at the world beyond our immediate surroundings, it’s a mess. The larger, global mess trickles down to creating a mess all the way down to affecting us. It’s in all the news, and in our stock prices, our gas prices. For us in the investing biz, it’s in how we think about building startups.
Sometimes I think people just don’t read newspapers, or watch the news. Or maybe their larger view doesn’t have enough experience yet to process all the macro effects and distill them down to micro effects, and finally down to those that directly affect each and every one of us individually.
I think that I was fortunate enough to be an adult through the 1989 downturn, the boom-bust of the internet through 2001, and now this one. It’s a sobering thing to be hammered so many times and to viscerally have experienced their effects on us. I have learned to process broad data and bring them down to the individual level, and I have much more to learn.
I meet with my financial advisor regularly now and pump him for broad economic data, because he sees much more info than I do. We talk about how it affects my investments, but also about the broad economy both domestic and global because I want that data to process, so that I can strategize effectively in all areas of my life, including my startup investing.
When I think about how I get all my information, it’s almost a full time job keeping track of all this information. So maybe I can forgive those who are ignorant/oblivious/irrationally exuberant because it’s a lot of data to process, cutting across a lot of experience areas, and it’s hard to understand if you don’t have context or experience to pull it all together.
I can only hope that people do a more deeper dive in broader economic factors because it does affect us all, and we’ll make better decisions about our lives, money, and work because of it.
And I can stop getting in arguments with people about why building for users isn’t a good strategy now….(more on this in a future blog post).

An Evening with Jeff Jarvis and his new book, What Would Google Do?

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On Thursday night, I went over to the offices of Daylife to see Jeff Jarvis talk about his new book, What Would Google Do?.

His presentation was a bit rushed as his prepared powerpoint was a lot longer than his talk. But I had read some of his book by the time I got to the presentation.
I think his book is pretty good at gathering together a whole bunch of disparate strategies and thoughts from the state of the Web and its effects on a variety of businesses. To us in the biz, I think it’s stuff that we deal with every day, but it’s nice that somebody put it all in one place.
The one thing I think could be better is the title. It’s deceptive because there are things that are described in the book that are valid and true, but they are not what Google would do. In fact, Google itself would never do them ever because it doesn’t make sense from a business standpoint for them. And it’s funny that even if Google doesn’t do them, they enable those activities to be done by others.
I would probably call the book something like, “This is the Way the Internet Is Now and What to Do About It”.

Yahoo!, Investors, Next Steps

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Here is a quote from Mediapost email, paraphrasing from an article from BusinessWeek: The Difficulties Bartz Faces at Yahoo:
“As Sanford Bernstein analyst Jeffrey Lindsay said, “We see no growth path forward. The only thing that’s going to excite investors is a transformational move, and that could take months or quarters.” Indeed, new CEO Carol Bartz admitted as much during a conference call with reporters. She said she needed time to talk to more people inside the company about what direction to take it in. Investors are unlikely to give her much time.”
The last sentence irks me:
“Investors are unlikely to give her much time.”
I think this is a systemic problem that is wrong with how we incent businesses to function. It breeds short term focus and doesn’t let companies do the things they need to do, especially if they are going to take months or even years.
Sure, I’d be pissed too if I were losing millions or billions on stock price. But there must be a way to stop companies from reacting to pressure from investors to deliver short term results in order to bring great long term growth to the company, and before investors demand the management team to be fired…?!?!?