What will “social” disrupt next?

I recently read an interesting post by Josh Kopelman at First Round Capital about the next phase of evolution within eCommerce I spotted an interesting theme. Many of the new innovations such as group buying were being facilitated by high penetration of social networks (such as Facebook and Twitter).  These new communications platforms enable messages to be distributed rapidly across the web as well as facilitating high levels of engagement and dis-intermediating traditional players.  These messages are now containing a range content from a simple link to a news article, an image, video and more.

Online media has been leading the way within this social transformation of the web and there are a number of examples that use social distribution to great effect: YouTube, Hulu, We7, Spotify, Last.fm to name a few.  Other verticals are now evolving:

• Gaming – probably the second largest category after media but more commercially successful.  Games such as Farmville on Facebook have over 80m active users and is helping Zynga generate $10s millions of revenue from microtransactions. Mobile gaming is also taking off through platforms such as iPhone, Nintendo DS and these are increasingly using social networks for recommendations and distribution as competition increases and it becomes increasingly difficult to cut through the noise.  Some example companies include: Zynga, Playfish, Chillingo.
• Commerce – social eCommerce can take many forms from collaborative shopping through to group buying and even auction / reverse auction sites.  Commerce is naturally social with at least two parties involved in a transaction but with real time solutions and social distribution, business models are evolving that really demonstrate economic theories such as price discrimination. Some example include: Groupon, mycitydeals, Swoopo
• Recruitment – this vertical is really interesting as it is still largely using old media and web1.0 solutions such as job boards / publishers.  The irony being that it is probably the one vertical where social networks is more relevant, just think about who you would trust for a hiring recommendation. Opportunities within this vertical will be about leveraging data in social networks, engagement between employers and potential employees and viral distribution. Examples include: Linkedin, jobs2web, jobwhizz, jobvite, twitter job search

There are more categories that I could cover but would be interested in hearing some suggestions.

Some of these thoughts are also explored more in earlier posts on monetising social networks and mobile app stores

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• Commerce 2.0? (avc.com)

Mobile app stores – what are the opportunities?

There has been much hype around Apple App Store – over two billion downloads, 100,000 apps, 50 million multi-touch devices – but what are the real implications for the future of mobile applications, widget platforms and app stores?  Currently the implication is that there are many “me-too” offerings: Nokia’s Ovi store, Blackberry, Palm, Microsoft, Sony Ericsson, Vodafone. But what are the really big opportunities? KPCBs $100m iFund is a sign that there are big opportunities in mobile apps but I don’t think that single apps are where the opportunities are. The simple reason being that apps are a hits driven business – Pinch Media’s blog has shown this for both downloads and engagement:

Therefore it will be businesses that solve the three main challenges of the mobile app stores today that are likely to be the real winners:

1. Search and discovery – finding apps in the iPhone App Store is becoming more and more difficult with the large number of apps available. There are a number of approaches for solving this challenge including: SEO, social networks and affiliates. Interestingly Flurry has now extended its product to enable in-App affiliate model
2. Monetisation – two sides to this problem: cost of production and revenue / business model. There are now a number of “app-builders” being developed which will help lower the cost of production, allowing whitelabel apps and content based apps (such as for film releases) to be more viable. Not sure how big this opportunity is… On the revenue side there is clearly mobile advertising (note Admob’s $750m acquisition by Google), but in-App purchases and virtual goods will likely become increasingly important. Companies such as Ngmoco, Scoreloop, Chillingo, Openfeint are all looking into this area, with some also using social features to address the first challenge
3. Fragmentation – although Apple’s fully integrated solution has solved some of the challenges here, firmware and hardware fragmentation is still an issue even for Apple. Some games publishers are having to create a lite, premium and in-app purchase version to cover all bases. Add to this the other app stores: Android, Ovi, etc and this problem grows exponentially.  Some are trying to get around this by focussing on mobile web and leveraging advances in browsers technologies such as Webkit. There are however, a number of startups such as Mosync, Appcelerator and Rhomobile that are looking are using cross compilers and development frameworks to solve this issue

In conclusion, as a VC I am interested in this market but cannot at present see who will be the big winners in this market apart from the handset OEMs, Google, Apple and MNOs

Some further reading:

• Vision Mobile have a couple of great posts
• mJelly has some great stuff on AppStore SEO and general stats
• Flurry, Pinch Media, Admob and Distimo all have great information on their blogs / metrics reports

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• 5 app stores under the microscope (slideshare.net)
• Move over Apple – Nokia, App Stores need to get FAR more draconian (allaboutsymbian.com)
• Android To Be Sony Ericssons Saviour? (thenextweb.com)

Things you shouldn’t do when pitching to a VC

Having sat (and stood) through a number of pitches I have often found myself getting quite frustrated. Here are a few things that I would advise any budding entrepreneur to avoid when pitching to a VC:

• Quantifying the potential return on exit – we can work this bit out
• Using the “IF” approach to market sizing! Multiplying a total universe of potential users (e.g. total internet subs) by an arbitrary “price” IF they paid
• Including explanations of basic business principles e.g. the difference between a direct and indirect sales strategy or the principle of economies of scale.
• The shotgun approach to marketing, product, etc.  When the VC asks who is your target audience do not say “everyone”! When they ask about channel / distribution do not give a long list… we want to see focus and clarity…  we’re hoping to see that our money will be used efficiently!
• Finally, lying!  Just don’t do it… If it’s a piece of data / tech / competitor you don’t know then just be honest. Remember, it’s all about building a relationship and trust with your investor

There are also plenty of good links out there on what you should do when presenting to VCs:

• Startable blog
• Entertaining SlideShare example

Social networks – the monetisation problem

Having seen a number of social network start-ups (and not progressing with them) I have been thinking about how to capture the value of these established social networks (Facebook, Myspace, Bebo).

The major challenge is that users have assumed these services are free and charging for membership would be a bold (stupid?) move.  However, there is clearly intrinsic, latent value locked up in these networks with the amount of users / data / engagement they see. So, here are some thoughts on the potential business models

• Advertising: this is just not working. The way consumers are using these services are more akin to a rich communication platform than a publisher site. This means low levels of engagement with adverts and poor CPMs.  The other problem is the cost of running these platforms is growing significantly as more and more content is stored online
• Freemium: allowing users to have a limited amount of access / usage and pay for a premium version is a model that works well if consumers’ can see value in the service being provided. This model works well for vertically focussed and closed groups e.g. recruitment, photosharing… Not likely to work for the generic networks like facebook
• Virtual Goods: Getting users to pay for things online is possible and many Far East social networks, virtual worlds (Habbo, Second Life) and other services like Flirtomatic are generating direct consumer revenues by selling virtual goods.
• App store: One potential evolution of the above model for the likes of Facebook is to move towards an app store / platform model for third parties. Running an app platform where they would control the billing relationship with the user of a third party app / service run on the platform.  Facebook are rumoured to be looking at this model and may be developing a payment service to facilitate it
• Hangouts / Domains: Charging businesses to have access and create a presence on the network is the one I have the least to say about and I am not sure if there is much evidence of success.  It is one that is favoured for Twitter to go down. Key challenges will be around policing as well as salesforce requirements
• Buzz / trend tracking: A B2B model that charges advertisers to track what people are saying about their brand, product, competitors, etc.  There are a few start-ups including UberVu who are attempting to go down this route.  Could Facebook / Twitter / et all develop an analytical tool to do a Google Analytics for the social web? What would users think of this?
• Management tools: This model is essentially the one being used by premium third party Twitter app providers.  Given the proliferation of social media and networks there appears to be a great opportunity to create a single social console / browser to manage all your social interactions: IM, presence, location, content, contacts, calendar. It is still unclear if users would pay for such tools (and may have to be combined with the above freemium / ad-funded models) or how the revenue would flow back to the likes of Twitter / FB… it could lead to FB and Twitter being the data owners?

I’m not sure if I have done this subject justice and I am sure there are other models / hybrid’s out there.  However, I for one have found it a useful exercise to try and establish a framework

What’s the best source of deal flow?

Four months in and the mist is starting to clear.  Given my focus on sourcing and evaluating new deals for my firm I often ask myself what is the most effective way of finding new opportunities and entrepreneurs. Currently there are three routes:

• Website: unsolicited business plans represent about a third by volume but probably 10% by time spent evaluating these plans. Plans often miss the mark in a number of ways: too long; not explaining their product; not articulating their customer need / pain
• Zeitgeist / trends / research: we take an active approach to follow key themes in the tech sector and pick a few for deep dive research. This sometimes leads to a potential deal but the key value is building up domain knowledge to allow easy assessment of deals coming through the other sources
• Network: this is by far the most successful route for new deals. All deals done at my VC were in some way fed through the network. My recommendation for anyone seeking VC financing: find a way into the network

Based on the simple conclusions above I am spending a lot of time networking at events such as Seedcamp, Techcrunch Geek n Rolla, Open Coffee and Drink Tank.  I find these events great for meeting entrepreneurs but I wonder if there is potentially a tech solution… crowdsourcing for VCs? Twitter Deal Flow? VC marketplace?

A New World

I recently left a large multinational corporate and joined the murky world of Venture Capital.  Here I will be responsible for helping the Partners find and assess new deals in the UK technology space.

On this blog I will attempt to provide a narrative on my journey through this new world.  Hopefully providing interesting insights on what it’s like working at a VC firm as well as general musings on technology ventures and business models

I will remain anonymous for the moment, for fear of embarrassing myself and/or my employer.

In case you don’t know what a VC is, here are a few examples:

• Index Ventures
• Accel Partners
• Balderton Capital