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November 19, 2006  It's Hard to Predict the Future

Slide, the company I work for, recently announced that we raised a round of financing. The additional funds will help us grow faster as we ramp up our infrastructure and bring on more engineers and designers to build out our service. It also adds Vinod Khosla, co-founder of Sun Microsystems and former general partner at Kleiner Perkins Caufield & Byers to our team.

Raising money can also draw criticism, as people look at your company and question its value and ability to succeed. Liz Gannes from GigaOm mentioned that "we (GigaOm) can’t say we get the big idea."

Criticism is fair. Far too many companies have squandered investor dollars on services that were ill conceived and poorly managed. But it's also hard to predict the future.

Consider the Yahoo! homepage in 1994:

It's hard to imagine this is a company that in 10 years would grow to having a market capitalization in the tens of billions, and would become one of the top two, if not the most, trafficked Internet site in the world.

Or consider Amazon's homepage when it was founded in 1995:

When I heard of a company selling books online I thought the idea was niche at best. I was wrong. Amazon is now the largest online shopping site. When it was founded in 1995, it had 11 employees by the end of the year. Within four years, it had more than 1,600 employees and four million customers.

As John Gruber of Daring Fireball notes, the success of products and service typically come after a long journey of incremental improvements, rather than overnight success:

"The most remarkable thing about Apple’s iPod/iTunes platform is how incrementally it has grown. These annual iPod/iTunes special events garner tremendous fanfare, and deservedly so, but it’s really just been one small evolutionary step after another.

"It started with nothing more than a $399 5 GB Mac-only MP3 player and a Mac-only jukebox app. Then they officially supported Windows, albeit without iTunes,5 and only on PCs equipped with FireWire. Then the iTunes Music Store, still Mac-only. Then the Windows version of iTunes. The expansion to a family of iPods: the Mini. Then photos and color screens. The Shuffle. Then, a year ago, the Nano and video iPods. And, now, after a year of selling 30- and 60-minute TV shows, feature-length motion pictures. Walk, jog, run.

"Steady, consistent improvement and expansion, one step at a time — and now it’s a juggernaut."

Slide has come a long way since we launched the service at the end of August 2005. Slide hasn't released any numbers about our service usage, so all I can really do is point you to publicly available information. For example, I've graphed the number of links from blogs that we've received (according to Technorati) since we launched.

The growth is exponential.

As Reuters reports, The Hitwise numbers for October also reflect Slide's strong growth:

"Slide ranks as the sixth-most-visited U.S. photo entertainment site, according to Web measurement firm Hitwise Inc, attracting more visitors than sites such as Snapfish and Shutterfly. In terms of visitors, it is neck and neck with Yahoo Inc.'s Flickr in the category."

Hitwise tracks only US Internet usage, and I suspect if we were to look worldwide, Flickr would pull ahead. That said, it's impressive to see this type of growth through what is basically word-of-mouth distribution. Slide doesn't spend money on advertising.

Another criticism is that Slide is not, at this point, revenue focused. The success of Slide, long term, is ultimately tied to how well we can monetize our service. But it's important to keep in mind that for a startup at the early phase, being overly concerned with profits can actually be problematic, as Paul Graham notes:

"The idea of building something popular then figuring out how to make money from it was born in the Bubble. It sounds irresponsible, but it works. Requiring founders to have a carefully worked out plan for making money is not hard-headed business sense. It's what hackers call 'premature optimization.' The really important thing is to make something people want."

This leaves us with two certainties:
1. Slide has come a long way.
2. It's hard to predict the future.

Posted by johnnie at 02:29 PM | Comments (2)

July 24, 2006  Advertising

Monetizing Eyeballs

As the online advertising market shot up from $0 in 1995 to $6B in 1999--with projections of hitting $16B by 2005--there was a surge of companies building websites that could "monetizing eyeballs". With the advertising slump that accompanied the dot com crash, in conjunction with the economic recession and post-9/11 economic stagnation, a lot of companies moved away from the online advertising model to premium and subscription based revenue streams.

Today, with an online advertising market of about $12B and Google's 2005 revenues hitting $6.1B--based on 99% ad revenue--the desire to revisit the original premise of an online advertising driven business has increased.

The Economist recently published a report on the online advertising business entitled "The ultimate marketing machine" in which it details a number of new trends that are making online advertising not only a desirable outlet for promotion but also a competitor to traditional advertising channels.

Online advertising is no fad. It has evolved out of thousands of years of commercial promotion ranging from signs written on to papyrus in ancient Egypt to the $300M mega-campaigns of today.

A look at the evolution will show where we've been and where we're going.

Interruption Marketing

In the 1950's with television viewership booming there was a rise in brand advertising. The theory was that the best way to sell your company's sugar cereal was to tie it to a brand that was larger than the product itself. This style of advertising is typically referred to as "Interruption Marketing" because it would interrupt what someone was focused on to present them with the promotion. This was easy to do with television, particularly when there were very few channels to choose from. Of course, The "Tony the Tiger" style brand building of the 1950's didn't scale. The number of brands and the number of channels through which people are exposed to brands increased to the point where people were too bombarded with advertising to even notice. The expenditures continue, however.

Permission Marketing

In response the 1960's brought forth a more subtle form of advertising, where the content and the promotion was blurred. It marked a fundamental shift in print media, with the perennial example being Cosmopolitan Magazine. Cosmopolitan was started in the 1880's and grew rapidly as a publication of fiction stories, printing the works of talented authors such as Jack London and H. G. Wells. With the advent of television the demand for fiction magazines was decreasing and the subscription rates were falling. Helen Gurley Brown, a former advertising copywriter, approached Hearst about transforming the magazine to focus on women's advice, which allowed them to more easily blur the line between paid placements and their content. The influence is undeniable. Cosmo readers today account for £1 out of every £11 spent on cosmetics and skincare in the UK.

An extension of this trend came with the rise Permission Marketing. Cable Television jumped on this trend with stations like MTV that were entirely devoted to promotional content that people would opt to watch. Of course the next wave would be the most interesting, as the Internet allowed for unprecedented interactivity and contextual marketing.

Interactive & Contextual Marketing

The cost per 1000 viewers (CPM) of a Super Bowl ad, the quintessential place for brand advertising, is roughly $25, and there is no shortage of companies lined up to pay. TV averages around $10. This is not that different from newspaper CPM rates which can be anywhere from $5 up to $65.

Of course with this style of interruption advertising you have no real idea how effective a particular spot was. There is no direct customer feedback in the form of an action to the ad.

Overture, an online advertising company that Yahoo! purchased in 2003 for $1.7B, patented the notion of an auction system for advertising that is paid for based on user action (a click of a mouse) rather than simply an impression.

Google, which has come to popularize the notion of Pay Per Click and Contextual Advertising, agreed to issue 2.7 million shares of common stock to Yahoo! in exchange for a perpetual license of U.S. Patent 6,269,361.

Although the costs can vary wildly because of the auction-based pricing system, a click will typically cost a company around 50 cents or $500 per 1000, which is around 25x going rate of CPM. This premium reflects the additional value that advertisers feel they receive from placements that are interactive and require user participation, rather than just passive placements.

Of course CPC advertising is not without its problems. Just because someone clicks on an ad doesn't mean they're necessarily interested in your product. They may simple by clicking on ads on their own site to raise revenue, or clicking on a competitor's ad to force them to waste advertising dollars. Both of these are types of click fraud that are rampant today, with ads for "Clicks for Rupees" tantalizing those in India to destroy the benefits of CPC advertising.

Google and other companies are moving beyond pay per click and initiating CPA, or Pay per sale, advertising models in which the company is only paid if they lead to a sale. The premiums here are far more significant, with potential affiliate rates of $10, $20 and up per sale, which is around 30x CPC and 750X CPM.

Diverse Opportunities for Promotion

The online advertising world has changed a lot since 1999, and it has also had a significant impact on traditional Madison Avenue advertising philosophy. New models haven't destroyed old ones, but have impacted the premiums that they can charge and offered more choice to advertisers. The more time people spend online, in an interactive environment, the more the opportunities there are for promotions that are well metricized and understood. As the Economist noted: "If you can track the success of advertising, especially if you can follow sales leads, then marketing ceases to be just a cost-centre, with an arbitrary budget allocated to it. Instead, advertising becomes a variable cost of production that measurably results in making more profit."

Posted by johnnie at 11:42 PM | Comments (1)

February 05, 2006  The World’s Information

"Google's mission is to organize the world's information and make it universally accessible and useful."

Google's web keyword search has become an integrated part of many people's day to day life. Yahoo's Chief Financial Office Susan Decker told Bloomberg News in late January: "We don't think it's reasonable to assume we're going to gain a lot of share from Google. It's not our goal to be No. 1 in Internet search."

The people at Yahoo who work on search were not impressed. They responded "Believe it or not, we are still in the early days of search. As all of us at Yahoo agree, we're in it for the long haul, and we're in it to win."

Yahoo's approach to finding things on the web started out very differently from Google's, based on human editors who would go around the web, find sites, and then categorize them in to a directory. This is how Yahoo organized information from 1994 until 2002, when it switched to using Google's crawler-based results. It wasn't until 2004 when Yahoo dropped Google and built out its own crawler-based search solution.

This may explain Yahoo's fascination with "social search" and "the wisdom of the crowds", as both are based on people organizing information for others to consume. Today, unlike 1994, there so many people online that you don't need to hire human editors. People will do the work for you as a natural process of using the Internet.

For example, Yahoo recently bought Del.icio.us, a social web bookmark website, and Flickr, a photo sharing website. Both of these sites are organizing the world's information, yet they are doing it through human editors. Humans will bookmark websites using Del.icio.us, out of which grows an organization structure and rating system (people bookmark what they find interesting). Flickr works similarly where people will take photos and tag them and put them in to pools, so that when you're looking for pretty flowers, you're much better off going to Flickr than Google because you have the ability to see who thought it was pretty, and whether or not you agree with them.

Business Week writes: "By cultivating online communities -- and encouraging people to tap into the collective knowledge of these groups -- Yahoo is hoping to change the way people find information online."

Yahoo is not alone in providing services the use the power of humans to help others find information (companies like YouTube, Digg and Yelp come to mind), and tends to be better at it than Google, which has yet to create anything that can compete with Flickr or Del.icio.us.

RSS and push provide other possibilities as Jeremy Zawodny of Yahoo explains: "[Our new VP] also talked a bit about searching 'without a search box' in the not too distant future. Information may arrive on you screen (computer, television, cellular phone, etc) as you need it—without having to ask. It's one of the many ways search will be reinvented. Those of you using RSS aggregators and news alert services have seen just faintest glimpse of what's going to be possible."

In this light, I hope Slide can make a contribution to help organize information and make it accessible and useful. One system we just released that brings information to your desktop as you need it is a push-based delivery mechanism for eBay auctions. If you go to ebay.slide.com and search for "Nikon D70", Slide will query eBay for you, aggregate the search results and produce a show of the results and push them to your Slide Player (available for Windows, Mac and the web). It will also continue to monitor eBay for you, adding new items as they are added.

This technique can be applied to other areas as well (dating comes to mind) because the fundamental need for content aggregation and distribution applies broadly.

Posted by johnnie at 12:22 PM | Comments (0)

November 08, 2005  User Generated Content

A friend of mine teaches art at a high school in Orange County. He sent me an email asking about Rupert Murdoch's acquisition of MySpace so that he could have more information to include during a lecture on media.

Rupert Murdoch is the head of News Corporation, one of the world's largest media conglomerates. News Corp owns Fox, DirecTV, and now... MySpace, a social networking website. MySpace is popular with younger audiences and the site eventually lowered the age to legally join from 16 to 14 to better accommodate its target market. If you don't know what MySpace is, you are either under 12 or over 25.

This shouldn't be a surprise. The New York Times recently wrote that "according to the Pew survey, 57 percent of all teenagers between 12 and 17 who are active online - about 12 million - create digital content, from building Web pages to sharing original artwork, photos and stories to remixing content found elsewhere on the Web. Some 20 percent publish their own Web logs." The article continues: "Most teenagers online take their role as content creators as a given... [with] mounting evidence that teens are not passive consumers of media content."

Xanga, Livejournal and MySpace have become the new after school hangout, with kids turning away from traditional media distribution channels to consume content produced for and by people they know.

There are a lot of social networking and blogging sites on the Internet, so why did Rupert Murdoch decide to pay $580M for MySpace? It certainly isn't because MySpace generates a lot of revenue. Although the site is one of the fastest growing on the Internet (the site adds millions of unique visitors per month), it boasts only $30M to $40M a year in revenue. This is why the site sold for $0.58B--a large sum, but nowhere near as large as what other sites that get the amount of traffic that MySpace receives are able to generate. According to Alexa, MySpace is one of the top Internet destinations, which means that it is surrounded by companies like Google, Amazon, AOL, EBay, Microsoft and Yahoo, the multi-billion dollar titans of the Internet.

The competitors to MySpace such as Thefacebook, Friendster, and Tribe, are nowhere close to the amount of traffic and growth that MySpace is seeing. Therefore, I made the argument to my friend that the reason Rupert Murdoch wanted the company was that it was highly undervalued. It was easy to take a site like this, for a man who made his fortune on advertising, and use it to produce highly relevant, targeted ads, similar to what Google does.

I talked to Max Levchin about this and he had a more cynical view. His take was that Rupert Murdoch was not so much interested in using the site to push heavy advertising to drive revenue, but rather to use targeted brand advertising: "The people who watch Fox News today are old and will die in the coming decades. Kids today don't know who Bill O'Reilly is, or that he had a sex scandal. It's a great opportunity to influence them while they are young and impressionable. It's a long-term play."

This, then, is a bit of a sad story. It began with children turning their backs on passive media consumption and becoming active participants in the world of content production. Yet it ended with the head of News Corp purchasing the engine that fuels their creativity. But there must be a silver lining? As Max pointed out, there are only so many Rupert Murdochs. They can't buy every site like this. And some are not for sale.

Posted by johnnie at 02:04 AM | Comments (1)

September 21, 2005  Successful Companies

NOTE: If this post looked weirdly formatted and broken, it was because Flock inserted a bunch of line breaks in to it and wrecked a bunch of my hyperlinks, and deleted the last paragraph. :(

The WYSIWYG editing is cool, but as with most WYSIWYG editors, it may not interpret hand-written code properly. I don't blame the Flock guys, though. I should be more careful than to use pre-release software on my live site.

Recent Success

You've probably heard of EBay's acquisition of Skype. As Cringely notes, Skype's investors put two years and $20 million into the company for a return of 12,899.88 percent. With results like that you're going to get a fair amount of attention.

I will avoid talking about whether or not I think the acquisition makes sense, or whether or not EBay paid too much. I'm too far removed from the matter. What I will say is that Skype has seen tremendous growth, with a stated 57M users, and making a product that successful isn't easy.

In fact, Cringely will even speculate that EBay, with its $50B market cap and vast resouces, would have a hard time fighting with Skype:

"Yes, eBay could have built a Skype equivalent, but that would take the same two years or more than Skype took to do it. And unlike Skype, eBay would be building its VoIP division in an environment that still contained Skype as a competitor. But the simple fact is that the chances of eBay being able to repeat Skype's success at this time are pretty close to zero. Skype has too much of a head start in terms of members. It would be analogous to eBay starting a payment service in competition with PayPal, which they once did, and that, too, failed. Maybe eBay was trying to learn from the PayPal experience and simply cut to the chase, which is acquiring earlier and avoiding completely any expensive lessons."

Recent Challenges

Another Internet startup, Technorati, which has also seen tremendous growth over the last year, with several million people hitting the site daily, has had a different experience. Technorati is a search company, indexing feeds from blogs and news sources. Recently Google, the top search company in the world, has decided to roll their own solution.

David Sifry, Technorati's CEO and founder, welcomed the competition. Yet some people are not so optimistic on their chances. Ken Norton, VP at JotSpot and former Yahoo! engineer, thinks Technorati's chances are slim.

So who's right? Since Technorati didn't get purchased by Google does that mean that they're in trouble? Or might they go the way of PayPal and end up beating the multi-billion dollar competition.

Advice

Now that I'm working at a startup of my own, far from the three 17-story marble towers of my former employer, I've been looking for advice on how to design something useful and sustainable.

I'm reminded of John Maeda's question to Paul Rand:

John Maeda: "Most of your designs have lasted for several decades, what would you say is your secret?"

Paul Rand: "Keeping it simple. Being honest, I mean, completely objective about your work. Working very hard at it."

I also finally got around to watching Robert Cringely's interview with Max Levchin on Nerd TV. Max had two pieces of advice.

The first is about being brutally honest with yourself and admitting that you need to change course:

"One of the things I had to learn at PayPal, which was sort of going back to your engineering question, is actually engineers and me as an engineer but pretty much any engineer get into this trend of thinking, and they like what they're doing, even if it's not necessarily a business-savvy thing to do. And then when the time comes and you have to change your direction, it's actually very painful. The very specific moment when your business counterpart or your manager, whoever, comes and tells you, that code you've been writing for the last six months, I'm really sorry, but you might as well just erase it now, is really painful. That is a very painful moment for an engineer to stomach."

The second is about the importance of execution:

"I actually think that a successful startup is 5 percent good idea and 95 percent execution. It's really - it's just one of these things where can you strike the fear of God into your competitors by releasing every two weeks the features that it takes them three months to write. And by the time they're done copying the features that you built last week, you've got three more months on them. And this is really all about execution."

Of the companies that started more or less around the same time as Slide (ANT, YouTube, Vimeo, Flock, FeedBurner, Technorati, Shutterbook, Furl, Del.icio.us, Digg, Odeo, Yelp, Rojo) sometimes I wonder who will be around in five, ten, fifty years.

Posted by johnnie at 01:02 AM | Comments (4) | TrackBack

August 27, 2005  Introducing Slide: Personal Broadcasting

Now that CNet has broken the story, I can talk about what I've been working on for the last 6 months.

I'm the designer (there will be two of us shortly, which is good because my head is about to expode) at a company called Slide.

Slide is a company focused on the idea of personal broadcasting. With Slide, you subscribe to the people and content that you care about, and publish content for other people to subscribe to. By subscribing to content, it is delivered to you automatically. When someone adds photos or a link to a website, you get it directly, without having to constantly check a website to see if there's anything new.

Those in the blog community are very familiar with this. We use tools like Bloglines and Newsgator to subscribe to the blogs that we read regularly. As I've mentioned before, I believe that this idea of subscriptions is the third big wave in the evolution of the web (hyperlinking was the first, search was the second), which is why I was so excited to jump in.

Those more technical understand that this is all powered by a variety of technologies (many of which I discussed in "The Syndication Mess") and will learn quickly that Slide can build channels using RSS 2.0 feeds as well as content from your local machine. But the nice thing is that if you don't understand what I just said, it doesn't matter. The goal is to try and simplify the entire process so that grandma doesn't have to worry about XML, RSS and a bunch of other acronyms. She can just subscribe to Johnnie's photos and they will stream by, and new ones come through automatically. The details around whether those photos come from a Flickr RSS feed, from my laptop, whether they're pushed using RSS 2.0 or Atom or going over 443 vs. 80 should be completely transparent to her. It should just work.

In addition to the idea of exploring subscriptions and personal publishing, I've also been interested in working on a connected client-application for a while now, especially when reading articles by people much smarter than I am on the subject. Google and Yahoo! are getting more involved in the area of connected client-applications as well, which is, I believe, the right progression (for an over-the-top assessment, read Kottke's take).

Slide is currently in private beta, but will open to the public on Monday. If you can't wait that long, let me know and I will invite you.

www.slide.com

Oh, and one last thing: Right now Slide is Windows only (doh!) but we're building out our Mac dev group, so contact me if that is something you'd be interested in working on.

Posted by johnnie at 10:43 AM | Comments (5) | TrackBack

August 23, 2005  Google's (Changing) Philosophy

Posted: 8/23/2005
Updated: 8/24/2005

Google has changed its philosophy. Their "10 Things About Google" page was recently updated:

Here is Google's explanation (written at the very bottom of the page):

Conspicuous? Yes. Do I blame them? Hmm... I guess not.

Google has changed. The company that used to preach "Don't be evil" is now blackballing the press because they dug up information on Eric Schmidt. The company that was once a small, quiet place for nerds to code is now a $85B media company. Is Google going to become the new Microsoft? It already is.

Update:

As it turns out the timing of the removal of the "Google doesn't do... chat" was not coincidental. Google has announced a chat client called Talk.

Also, it seems that the New York Times and I are in full agreement. Relax, Bill Gates; It's Google's Turn as the Villain:

An excerpt:

In that article is also the first press mention of my new company, Slide:

Posted by johnnie at 09:33 PM | Comments (3)

April 25, 2005  Adobe and Macromedia

Some people have asked my opinion about the $3.4B acquisition of Macromedia by Adobe (humorous translation by John Gruber). I left Adobe at the end of February, so I have more flexibility in what I can say than if I were still employed there. Here is my opinion, point by point.

1. "Who cares?"

Surprisingly the direct result of the news was a backlash against the two companies.

Dave Winer, one of the pioneers of web infrastructure like the RSS specification, commented: "Off the top of my head, who cares? At one time both companies had some mojo, to borrow a term from Yahoo, but those days are long-gone." Om Malik, senior staff write for Business 2.0, wrote something similar: "These two companies have not developed killer apps for either broadband or wireless enabled comm-puting. They missed the whole blogging thing, and have not produced a must have killer app in recent times. They are becoming increasingly irrelevant in digital worlds where free programs like iPhoto and Picasa are setting the tone on the desktop."

Pot, kettle, black. In the same way these Web 2.0 advocates are claiming Adobe and Macromedia are falling behind for not understanding the "new" world of blogging and consumer photo apps whose valuations are three to four orders of magnitude smaller than the platforms developed by Adobe and Macromedia, they are falling in to the trap of thinking that that world of social software is the only thing that matters. Get over it. It's not.

Saying the "biggest ever deal in the content creation and Web development sector" (ZDNet) doesn't matter is a little self-serving. Macromedia Flash Player and Adobe Reader are on virtually every web connected computer on the planet. That sort of platform is not something that you can build overnight, and building platforms is not as sexy as releasing funky consumer applications, but it is much more rewarding financially.

Another critique came from David Beisel, who wrote that Adobe "'innovates' around a new tweak in the next Photoshop release, not around new product lines or business models." I would disagree. Adobe innovates around platforms: PostScript, PDF, Photoshop. Macromedia does that same thing. Flash isn't just a file format. It's a platform.

2. The merger will help customers

Kevin Lynch, Chief Software Architect at Macromedia, points out how each of the four markets served by the companies will benefit: "creative professionals and web developers already use our products together, and we will be able to provide an even more efficient authoring"; "in the rapidly growing mobile devices area, we are able to provide a very strong set of products for developers, content providers, and operators to create and deliver rich mobile content"; "for enterprise developers, we can provide a wider set of development tools and solutions that help connect people and business systems"; "for mainstream business users, we provide a more complete environment for dynamic, engaging collaboration over the internet that enables both on-line and off-line work."

This optimism runs counter to much of the reaction from designers, who are more worried that the lack of competition will stagnate the market or that their beloved product may be left in the software scrap yard.

The fact is, this isn't going to help or hurt people across the board--some things will improve, others will get worse. Also, as with any acquisition it will take a lot of time for the changes to ripple through (Compaq Presario Notebook anyone?).

3. It's all about Microsoft

Ovum senior analyst Bola Rotibi said "What makes it more poignant for MS is that having those two companies together makes it a harder play for Microsoft in these areas. Microsoft should be worried." News.com reported: "What's taking shape is the ultimate battle for the browser," said Paul Colton, CEO of Xamlon, a company that provides tools for creating applications that run in Microsoft's .Net framework.

It would seem obvious: for both Adobe and Macromedia, Microsoft presents the most significant risk to future growth. Microsoft has a market capitalization of near $275B and could swallow both Adobe and Macromedia and not even notice the $2B/year revenue growth amidst the $36B that it pulled in last year. Microsoft is not an 800 lb. gorilla. It is a 275B lb. gorilla.

And yet, John Dvorak still has the short-sightedness to say that Adobe is over-reacting to the Microsoft threat: "OK, so with this dingbat bogeyman-fear mindset Adobe grabs Macromedia in a big $3.4 billion dollar deal this week. There is no real evidence that mean old Microsoft was thinking about Macromedia, but there has been a lot of chatter about Microsoft getting more serious about the online content development game."

Microsoft not thinking about Macromedia? Absurd. Have you not been tracking XAML + Avalon + Sparkle? Microsoft's vision for the future of Windows is all about multimedia, all about rich interactivity, separation of the presentation layer from the data layer... and you don't think that falls squarely within the world of Macromedia?

4. Fear the worst?

Despite recommendations to the contrary there still seems to be a nervousness among graphic designers that I've talked to about the merger. The fact of the matter is that this is common. Remember the $500M acquisition of Aldus by Adobe back in 1994? Adobe picked up PageMaker, FrameMaker and some software that they later killed (anyone still crying over the death of Aldus Hitchcock?) because it overlapped with superior Adobe applications. Adobe to this day still sells PageMaker and FrameMaker even though it has also build InDesign. Three page layout applications from the same company? Why not? Each serves its own niche. I suspect the same will happen with the Macromedia merger. If people really love Fireworks, it will be around, even if the overlap with Photoshop causes confusion in the minds of new customers.

5. Adobe paid too much

Adobe paid a 25% premium of the last closing price of Macromedia (and with the typical dip in the stock price of the purchasing company, this number went past 30%). Many people have said that this is too much to pay, and I have to agree. Macromedia has been struggling. Their growth rate is only at 10% compared to Adobe's 30%, and their P/E is at 50 which is okay for a company like Yahoo! who's seeing a growth rate of 120% on revenues of around $4B, but not for a company with the financial performance of Macromedia.

Being that I worked at Adobe, the one thing I regret is that I was hoping to see Macromedia crushed, not consumed.

My favorite quote about this entire ordeal is from a Seybold Report:
"The combined company will be a giant within the publishing market. No one else will be able to approach it in size, name recognition, customer support and breadth of product line... From the Adobe side, at least, the real driving motivation behind this deal has less to do with products and product positioning than it does with creating a certain kind of company for the future." By the way, this Seybold Report was written in 1996 and it was about the merger of Aldus and Adobe.

Posted by johnnie at 12:44 AM | Comments (1)

April 10, 2005  The Fragmented Consumer Photography Space

Original Post: 10 April 2005
Update: 15 April 2005

I came across the new website for Layers Magazine recently. It's focused on tips and tricks for Adobe's professional products and features an overview of Vanishing Point that's worth checking out.

What does this have to do with fragmentation in the photography space? The world of magazines for design and technology is highly fragmented. There is no de facto standard (at least none that I've been informed of). In fact, when people ask me to recommend design magazines, no single magazine comes to mind as the "right" place to start. At this point the magazines I subscribe to are more related to world events and business than they are to design.

Now back to consumer photography software... Robert Scoble kicked off a debate about whether or not the HeyPix acquisition by CNET this last week was more notable than the acquisition of Flickr by Yahoo!. CNET currently owns Webshots, a photo sharing web service, which has shifted the debate to Webshots vs. Flickr.

Some disagree with Scoble's analysis, while it has also been pointed out that Webshots has been around much longer, and has a much larger user-base.

I've spent some time working in this space. Which do I prefer?

I don't use either. The real question in my mind is not which is better, but if any can be so much better than any other that it becomes a serious player, dominating the market. The consumer photography space in the United States is so fragmented at this point that I would argue that it is actually impossible to achieve a dominant position.

What do I mean by dominant position? If I were to ask you who has the dominant position in desktop operating systems, you could tell me the answer. Or if I were to ask you about online auctions, or a way to e-mail someone money, or the place to buy a book on the Internet... these industries had a company come in early and dominate from the start, preventing fragmentation. That never happened in the United States in the consumer photo space (I mention the US specifically because it did in Japan).

What does this mean for the entrepreneur looking to build a business in the consumer photography software space? Good news and bad news.

First the bad news: You will not build a monopoly here. In fiscal terms that means that if you do build a business that you can monetize either through channel distribution or through a typical subscription/advertising model, you cannot expect to have the kind of market capitalization that PayPal, Amazon, or E-Bay were able to achieve. (I also believe that had Google been started a couple years earlier I could say the same for it, with respect to Internet search... but that's a debate for another time.)

So what's the good news? Well, if you're not looking to start a company with a market capitalization of $5B, $10B, or $50B, then you may not be disappointed. The fragmentation has lead to an M&A flood, with anyone and everyone having a shot at getting snatched up. Because of the fragmentation in the space, no company feels locked out from having a stake. Everyone from imaging giants like Kodak and HP to companies with no direct business in imaging like CNET are looking to buy, not build, software to help them out.

Let's look at some recent activity (the numbers below are estimates):

• 2001 - Kodak got Ofoto for $58M (1M users)
• 2001 - Adobe got Fotiva for $5.4M (0 users)
• 2004 - CNET got Webshots for $70M (14M users)
• 2004 - Google got Picasa for at least $4.7M (<1M users)
• 2005 - United Online got PhotoSite for $10M (<1M users)
• 2005 - Yahoo got Flickr for $30M (<1M users)
• 2005 - HP got Snapfish for at least $50M (13M users)

The small user-bases of these companies is what I was referring to when I talked about the fragmentation of the market. The amount of money is also a direct result. Are all well under $99M, and significantly less than the amount paid for, say, MySimon, or even offered for Pointcast, by at least one order of magnitude if not two or three.

Of course, as with the HeyPix acquisition, if two guys can build a .Net app and sell it to CNET after four months, maybe we all should take this summer off, make a photo website, and laugh all the way to the bank.

Update:

I was talking to Ryan Blitstein, journalist at Red Herring, about this topic and he got me a copy of an article he wrote last year about it. (Sorry, this one didn't make it up on the web, so I don't have a link.) The line that I found most important was this: "More than a hundred companies have tried to monetize the online process of sharing photos with friends and family, but only a few outlasted the dotcom shakeout that swallowed their competitors."

In less than two years, Zing had burned through most of the $14M investment from Kleiner Perkins, with little to show.

I guess that's one thing to remember before we rush out to build the next Electric Shoebox, Picaboo or Qurio.

Posted by johnnie at 10:37 PM | Comments (0)

March 25, 2005  Web 2.0

Original Post: 23 Mar 2005
Updated: 25 Mar 2005

We're on to Web 2.0. "But we're not even finished debugging Web 1.0," you say. Oh well. With God as Product Manager you have little choice but to upgrade.

What is Web 2.0? Well you can read the Wikipedia definition, if you feel inclined or keep reading while I attempt to unravel it for myself.

Web 1.0 was pretty cool. Remember GeoCities? That was funny. You would make an ugly website, and GeoCities would stick ads all over it. Yahoo, King of Web 1.0, bought Geocities in May 1999 for $6.4B and a lot of Web 1.0 people got rich. What made this whole thing so Web 1.0? The sites you would make on GeoCities were islands: no comments from visitors and with mostly static information that you would have to update by hand. To find things you would search using Yahoo, Google, etc.

Now we've entered a world where content creation has radically changed. We've got blogging tools like Blogger and Movable Type. We've got wikis like Wikipedia. This makes collaboration a joy. People leave comments on blogs, trackback when they post a response on their own site, and create a feedback loop in to the system.

All this information is then syndicated using RSS, which allows for a whole new way to consume the data: with RSS aggregators like Bloglines and ANT, container sites like the Open Media Network, RSS search engines like Technorati, or bookmarking tools like del.icio.us and Furl. These tools then allow you to syndicate out what you're consuming via syndication, creating yet another feedback loop.

One of the most compelling examples of this sort of feedback loop is the success of the photo sharing site Flickr, recently acquired by Yahoo for around $30M. Flickr is not particularly large. It has a user base of 270K, which is tiny compared to the 300M people that use Yahoo on a daily basis, but it is growing at 30% per month.

So what's so Web 2.0 about Flickr? Well, unlike Ofoto or Shutterfly, Flickr is built around the idea of community. Sound too fuzzy for you? Okay, Flickr assumes most people will default their permission settings on their photos to public, not private, and will syndicate posts using RSS. Call it social networking meets photo hosting meets syndication. That means that you can subscribe to a feed on squared circles and receive the updates as they come. How does Flickr know if something is a squared circle? Well you tell it by adding the tag. What if you don't have time? Someone else can tag it for you. Yes, collaborative tagging. Why would someone tag your photos? Why not. Flickr CEO Stewart Butterfield explained in an interview with O'Reily's Richard Koman: "Some people really are primarily using it for sharing photos with friends and family. They have contacts in the system and select certain photos to be only available to friends or family, only occasionally making a photo public. The majority, though, are making almost all of their photos public. Of those 3.5 million photos, 82 percent are public.... [People] derive some pleasure from building value in the global collection."

And this is the key insight that is driving Web 2.0: what we had initially thought of as private data is being incorporated in to a collective consciousness. My life's journal of photos, written entries, Internet bookmarks, who I like, where I eat, what I think about and when I think about it... it's all getting syndicated out to the world. And as people tune in, that creates a feedback loop. I tune in to them tuning in to me. Together we go about exploring something as simple as a squared circle or as complex as whether or not Kruzweil is correct about the idea that "exponential change is subtle".

Where do we go from here? Well, we may not have a choice. There is a natural progression to these sorts of things, and we may be along for the ride. But there is a chance to make a contribution. It's not clear whether your code or mine will power the pistons, but it's clear that someone's will. So we can spend our days building the Yahoo 360s, the iMeems, and, gulp, maybe even a HeyPix or two. Along the way we'll post to our blogs about the long tails, and what we ate for breakfast. We're embarking on a new era where we will know, as Michael Rollin put it, "that which will emerge from the structured amassment of all human knowledge, thought and behavior patterns". Now that I think about it, maybe we should call it Web 2.5.

Update:

In response to the launch of the new Yahoo! Creative Commons search, which allows you to find content that is free for distribution for non-commericial purposes as licensed under the Creative Commons, Lawrence Lessig--Stanford Law Professor and chair of the Creative Commons project--had the following to say: "This is exciting news for us. It confirms great news about Yahoo!. I met their senior management last October. They had, imho, precisely the right vision of a future net. Not a platform for delivering whatever, but instead a platform for communities to develop."

That's what I was trying to convey with this post about Web 2.0. To repeat: "They had, imho, precisely the right vision of a future net. Not a platform for delivering whatever, but instead a platform for communities to develop."

Posted by johnnie at 12:49 AM | Comments (4) | TrackBack

February 27, 2005  The Distribution of Web Content

In the Red Herring released on 21 February 2005, there was an article called "Harnessing BitTorrent's Storm" that interviewed BitTorrent creator Bram Cohen. Unlike a similar article published by Wired Magazine that was focused mainly on the rapid adoption and success of BitTorrent, the Red Herring article touched on a critical piece of information: Bram Cohen is looking to cash in. For those that haven't been following the file sharing movement, a quick description is that Bram wrote, by himself, an application that allows you to download very large files very quickly. He distributed his software freely as open source starting in 2002. He does accept donations via PayPal, but while he's reportedly made some good money from the donations, it's not anything close to what he could be making if he were to build a multi-billion dollar company off of the technology. With a user base of 30 million and a growth rate of 10% per month, the product has a significant reach and potential for monetization.

But how do you ensure you become a Google, and not a Friendster?

Bram Cohen seems to have some strong opinions about how to monetize his user base because, as the Red Herring article describes, he is focusing all his efforts in this area. What surprised me was his approach. He didn’t go down the typical advertising route like Google with a CPC (cost per click) and CPM (cost per thousand impressions) strategy. Instead he seems to be focusing on the content providers themselves: the Rupert Murdochs. He explains: “You have content providers in competition with each other, but they're all using the same technology. So you want to be the one who creates that technology and--to some extent--controls that technology.”

Why is this of interest to me? Why do I care so much about the desire to create new methods of distributing web content? More on that later.

Posted by johnnie at 12:17 AM | Comments (0)

January 29, 2005  The Business of Design

I've always been interested in building things. I love to create products that make it easier for people to pursue their passions, communicate with each other, and learn more about the world. As a result, I also spend a lot of my time thinking about the systems and practices for building products. While I was at Stanford for my undergraduate work, I had the honor of having David Kelley as one of my three advisors. David Kelley used to juggle running IDEO on top of teaching and advising at Stanford. Recently he has stepped down as the head of IDEO and is working on a new project called the d.school. The d.school is a center for design at Stanford University with the mission to "advance interdisciplinary research and teaching, place Stanford at the epicenter of the design field, and strengthen the connection between the university and industry." The d.school has gotten a fair amount of press coverage, including this lengthier Business Week article. The implicit message here is that a center like this is what you need if you want to create products that make the world a better place.

I went to a d.school open house on June 9th 2004. While at the mixer I saw a Venn diagram which I have tried to replicate here (my apologies to David Kelley and George Kembel if the replication is flawed):

The idea is that design innovation is the link that combines the world of business, technology and human values. It also creates a framework to build a curriculum around design innovation. While I was at Stanford I took classes in Computer Science (Technology), Mechanical Engineering (Technology), Human-Computer Interaction (Design & Interactivity), Psychology (Human Values), Sociology (Human Values), and Art (Human Values). I didn't get a formal education in Manufacturing, Business and Organizational Behavior. I've always felt this has limited my ability to get things done in the corporate environment. Design discussions frequently spill over in to marketing issues, and the whole process of building a product is driven by organizational behavior. Because my background is in technology and human values, I typically don't get a seat at the table when business issues are being decided.

Motivated by the d.school meeting, I wanted to learn more about business. One way to do this is to apply to business school, but even the top general business schools (Stanford and Harvard) don't really teach in an interdisciplinary way.

Stanford is ahead of Harvard, but until the d.school is fully geared up, the GSB at Stanford is still a bit of a silo. So is the MBA route worthwhile?

I was talking to Max Levchin about this and he asked me a very important question: of the entrepreneurs that you respect, how many of them have an MBA? I started to go through the names of people that I look up to: Steve Jobs, David Kelley, Bill Gates, Larry Page, Sergey Brin, Walter Hewlett, David Packard, John Warnock, Chuck Geschke... None of them have an MBA. The other unifying factor is that they all started their own company.

So what does this mean for me? Do I apply to the d.school in 2007/2008? Do I start my own company? Do I start a mini company within a larger corporation?

Posted by johnnie at 12:47 PM | Comments (1) | TrackBack

January 06, 2005  Rapid Innovation

I met Jon Bruck at Que Tal, a coffee shop on Guerrero at 22nd Street, most notable for amount of natural light that passes through the large windows. Jon wanted to show me the discHUB (his latest project) and talk to me about a concept called Rapid Innovation.

Before I get in to the specifics of Rapid Innovation, let me describe the existing landscape. Today, if you are an individual or a company without deep design resources, or if you are looking to create a new project which has no in-house staffing, you enlist the help of design firms such as Pentagram, IDEO or Frog Design. These firms do work internationally for the Fortune 100 and have a reputation for delivering high quality solutions.

The problem is that these firms are expensive. At the height of the dot com boom, it was rumored that Frog Design was charging $1M for a corporate logo. IDEO will layout a multi-phase plan for research, prototyping and testing, but just kicking off the first phase will run about a quarter of a million dollars. If you are Pepsi and are looking for a new toothpaste tube design, this expense is trivial. But what if you are an individual with a new idea for a way to build CD storage system? You’re not even sure if you really like your idea, so spending a lot of money is out of the question, but at the same time you’d like to explore it a little bit—poke at it for a while and see if there’s something about it that’s worth exploring more indepth. Similarly, if you’re working at a big company and have a small idea that you’d like to explore, you can’t go to your boss and ask for a quarter of a million dollars to work with IDEO, but you may be able to get a small experimental budget of a couple thousand dollars.

This is where Rapid Innovation comes in.

Rapid Innovation is a way of working with people to visualize and prototype a concept quickly and inexpensively. It allows the client to explore ideas and get questions answered without having to make a significant financial commitment. Rapid Innovation is like dating your idea. Going to a firm like Pentagram is like proposing marriage to your idea. In the dating world you get to explore and learn what works for you and what doesn’t. If you find something that clicks, you can propose marriage. But when you go to a big firm for design consulting you have to make such a significant investment of resources up front that it’s essentially like marrying your idea. It’s a serious commitment.

I’ve had the opportunity to work in a nimble, light-weight way at NASA and Microsoft. In both cases, I was able to build a prototype to help them visualize what they wanted in under 3 months. The total cost in both cases was nominal (in the area of $10K). The difference is that back then I wasn’t thinking about a system like Rapid Innovation explicitly.

Now that I’m thinking about Rapid Innovation explicitly, I’ve started to use the technique of delivering fast, low-cost idea visualizations not only with external clients, but also internally at Adobe. With the help of my boss, Bill Bachman, I’ve started to do three week stints with different product teams. I spent some time with the DVA team, then with Mark Hamburg, and most recently on Creative Suite 3. By staying nimble and moving quickly it’s forced me to operate as if I were working with a small budget. For a company like Adobe which is used to the marriage model, this is an approach that runs counter to the cultural norms, but if it proves successful it can help pave the way for a richer culture of prototyping.

Posted by johnnie at 04:44 PM | Comments (1)