A VC

More Twittering

I went through the typical Twitter experience. I tried it, sent a few messages, connected with a few friends, and then turned it off on my phone as I was getting killed with text messages.

I think the best way for me to use Twitter is text my updates in and use the web to display them to all of you. I've put a twitter badge on my right sidebar and have set up the system to nudge me for an update once a day.

follow fredwilson at http://twitter.com

I realize that updating once a day sort of defeats the instant gratification aspects of the system. Maybe I am just too old to communicate that way. Or maybe if I start doing it once a day, then I'll gradually start doing it more often.

I was sitting with Jason Calacanis the other day in his office and he posted to Twitter that we were having coffee. I would not have thought to do that. Maybe in time I will.

But regardless of how I use Twitter, I do see a lot of benefits of a communication system like this. Dave Winer has written thoughtfully about what Twitter might turn into over time. And this Technology Review piece suggests that developers are already building on top of the Twitter API:

But at least a few independent Web developers are still enamored with Twitter, and they're using the programming interfaces provided by Obvious to build mashups that give messages more context.

I think there's a lot of merit to the idea that Twitter can be a part of the Internet infrastructure like Google Maps or FeedBurner. And so I intend to keep trying to use it.

What Is A Social Browser?

  CO-OP 
  Originally uploaded by k.james.

I've been trying to digest the news that Firefox is going to add social functionality into their browser via a project called The Coop.

My initial reaction was "this is going to be great. Now I don't have to maintain all these social networks, Firefox will do it all for me". But alas, it's not that simple.

As I understand it, initially the functionality will be limited to creating a profile in the browser, allowing others to see when you are online (like AIM and Skype), being able to share URLs and publish feeds (like Flickr, Facebook, delicious, etc) to others.

That's a pretty nice set of features but it doesn't really address the fact that I've got all these profiles all over the web that in their totality represent me and I'd love to have one single profile that aggregates all of this activity and presents it in one single place.

Since I use Firefox almost exclusively, it's in a great position to do this for me. It can see all of my activity, capture all of it, and present it. But there's one obvious problem; not everyone uses Firefox. So unless all of the browsers adopted an open profile standard and all of them built social networking into the browser, the only people who will be able to participate in my social web are others who use Firefox.

It's probably easier to build this meta social profile as a web service and there are a host of companies trying to do just that. That approach requires that the social networks all cooperate with each other and share data. Given that the dominant social nets like MySpace and Facebook aren't exactly jumping up and down to do this, I am not sure the web services approach will happen so easily either.

It's client versus server. Client software benefits from its ability to see everything I do, but suffers from the fact that not everyone uses the same software I do. Server based software can't see everything I do as easily, but can achieve ubiquity (or get a lot closer to ubiquity).

Even though the social browser Firefox is building isn't exactly what I want, I am excited to get social features in my browser and it's telling that Firefox is going to get their first again.

Comic Life

My brother in law Jerry turned me onto this software that comes with all new Macs called Comic Life. I've had it on my laptop for six months and had no idea.

It lets you take your photo libraries and turn them into comics. We've been playing with it all morning.

Here's the photo of me and John MacFarlane that I posted yesterday, dressed up in Comic Life.

I think I'll use this quite a bit on this blog to spice things up.

New Music Thursday

1) Wilco's Sky Blue Sky is great, at least I think so, my girls think its too mellow. Anway the record goes on sale May 15th and can be pre-ordered on Amazon. Wilco announced US tour dates yesterday and will be playing the Hammerstein in NYC on June 25th. TIckets haven't gone on sale yet. I think the song Hate You Here sounds like Steely Dan. So here's something for all you Steely Dan/Wilco fans.

Any Major Dude Will Tell You - Steely Dan covered by Wilco (from the Me Myself and Irene soundtrack)

2) Kings Of Leon is a band I want to like. Every once in a while I come across one of their songs and am blown away. They've got a new record and a bunch of the songs have been on the Hype Machine lately. I am not running out to buy the record, particularly since my favorite track isn't even on the record. Check out this cool song called My Third House, particularly the guitar solos.

My Third House - Kings Of Leon

3) Techdirt says the Arctic Monkeys have rejected the very model that made them (leaking all of their songs on the Internet). That may well be true but a bunch of songs have appeared on the Hype Machine recently.  I like everything that I've heard but my favorite thing is this instrumental thing called Chun Li's Spinning Bird Kick. It's not even on the new record (Favorite Worst Nightmare) which will be out on April 23rd and is currently available for pre-order on Amazon. The Arctic Monkeys will be at the Hammerstein on May 15th. Here's a video for the single called Brianstorms.

Goodbye Becky

We've had season's tickets to the NY Liberty (WNBA basketball) since we moved back to NYC in 1999.

And we've gone to a ton of games. My two teenage girls grew up idolizing Becky Hammon, the Liberty's star point guard and sparkplug. They both play point guard on their school teams although that's likely to change this year when they both play together on the high school team.

Today I got the news on my blackberry that the Liberty traded Becky to San Antonio for the rights to Ohio State star center Jessica Davenport and a 2008 first round pick. Apparently the Liberty are trying to get younger and bigger.

My girls didn't take the news to well. We'll see how well they take to the team without Becky. They've watched the core team they grew up wtih; T-Spon, Crystal, Vicky, and Becky all get traded away. I guess that's what happens when you are a sports fan. You learn to cherish your favorite players while they are around because nobody's untouchable. Hell the Knicks let Patrick go and haven't won since.

We'll miss Becky and wish her well in San Antonio. We are already checking to see if we'll be in town when San Antonio comes to the Garden this summer.

What Kind Of Web Page Are You?

Rich Skrenta points out the web pages have begun to be standardized.

Back in 1995, when the web was new, visitors to a new site would lean forward, squint at the page, and try to figure out how it worked.

That metaphor didn't last. People don't lean forward and squint at web pages to figure out how they work anymore. They instantly recognize -- within 100 milliseconds -- which class of site a page belong to -- search result, retail browse, blog, newspaper, spam site, message board, etc. And if they don't recognize what kind of page they're on, they generally give up and hit the back button.

That's an interesting observation and I think its true. I certainly do that. And I urge my companies to adopt standard web page metaphors to make their services easier to use.

Maybe the web has become like every other media before it. It's developing its own categories of services. In television, a show is a sitcom, a drama, a news show, etc, etc. It doesn't take very long to figure out what kind of TV show you are watching.

Is this good or bad? Has most of the innovation on the web already happened? Are we now in mainstream mode, sucking as much cash out of a mature model as we can?

I am not entirely sure. There have been a number of new web page metaphors successfully introduced in the past five years. The wiki style, the blog style, the web video page, the photo page model, etc. I think we aren't done with innovating, but it's interesting to think that the web has become so standardized in such a short time. Just a bit over ten years and it's certainly not the chaotic adventureland it once was.

My Visit To Sonos

One of my favorite companies that I don't have an investment in is Sonos. I own their products (four zone players), I've written extensively about them, and they sponsor my "In Heavy Rotation" widget which to my mind was the first sponsored blog widget.

So when I found myself in Santa Barbara this week, I felt like stopping by and visiting them. And I did that yesterday. I remarked to the team that greeted me how different their headquarters looked (that's it on the left). They asked me what I expected. I told them the standard silicon valley style office building. They all laughed and told me that doesn't exist in Santa Barbara.

I dropped in pretty much unannounced but everyone made time to come by and say hello to me. It's a very friendly company. I got to talk to the marketing people, the product management people, the technology people, and the CEO, John MacFarlane.

Here's a photo of me and  John MacFarlane, taken by Thomas Meyer on my way out at the end of the visit.

We talked a lot about new features I'd like to see, the marketing opportunities and challenges they face, and why Sonos is such a great product. We also talked a bit about the venture business, the best ways to finance companies and how to create value.

I came away from the visit with an even greater appreciation for Sonos the company. I guess I should have known. It takes great companies to build great products.

Presidential Politics

I read that the top six contenders; Clinton, Obama, Edwards, Romney, Guiliani, and McCain raised over $100mm in the first quarter of 2007.

Those are my numbers as I added up what I read about each campaign.

Not a dime of that $100mm came from the Gotham Gal and me. We've met and given to Hillary and Edwards in the past. We've voted for Guiliani but don't plan on making that mistake again.

I've been reading Obama's book about his roots, called Dreams From My Father. I've not had the pleasure of meeting this man, but I will tell you that he can write. I am not done with the book but its better than anything I've read by Clinton (both of them) and Gore.

I've got Obama's other book in my nightstand at home. I'm doing my diligence. I'll let you know where I come out when I'm done.

I Like This Ad Model

In today's Wallstrip show, the sponsor Lifelock, gets a short (3 sec) brand flash, and then a 30 second post-roll. Check it out.

The Carried Interest Tax Debate

The NY Times came out today on the side of taxing carried interest as ordinary income instead of capital gains. I'll be the first one to admit that the preferential treatment of carried interest as capital gains is a great boon to the general partners who run private equity and venture capital firms. And being a progressive who is in favor of more equity in our tax code, I would gladly pay more taxes. But I am not sure this is the best way for the federal government to get more money from me.

First, I think there are a couple things the NY Times got wrong.

Here's a quote from the Times' opinion piece:

The deeper question in all this is whether capital gains — which are currently taxed at less than half the top rate of ordinary income — should continue to be so lavishly advantaged. The answer there is no.

I think the Times is dead wrong on this one. Entrepreneurs and investors who risk their capital in an attempt to create new businesses that employ people, make our lives better, our businesses more efficient, etc should be rewarded for doing so. I don't think a long term risky investment that pays off should be taxed the same way that interest on a corporate bond is. We need a tax code that creates some incentives to take risk or wealthy people will be less inclined to do so. This is a competitiveness issue and the Times clearly doesn't get that.

Second, private equity and venture capital are different animals. An early stage venture firm that is making $1mm investments in hopes of a 10x gain over five to seven years is just a different animal than a buyout firm that invests $5bn in equity to make a $5bn gain in two to four years. The amounts are different, the risks are different, the incentives are different, and the gains are different (all by orders of magnitude).

But to my mind the biggest issue with changing the way VC carried interest is taxed is the unintended consequences. If angel investors who put up their own dollars at risk continue to get capital gains treatment (as they should) and venture capitalists who are investing institutional money lose capital gains treatment, the best venture investors will simply choose to invest their own capital instead of others. It's already happening. The capital bases of the very best venture capital firms are increasingly made of of the general partners' own capital. They continue to invest third party capital as well. If the economics of managing third party capital gets much worse, I bet we'll see the best firms move to investing only their own capital.

Arlington West

In Santa Barbara, California some veterans have created a memorial to the troops who have lost their lives in Iraq. They call it Arlington West and they put up the memorial each Sunday on the beach right by Stearns Wharf.

It's a powerful and moving memorial no matter what your particular take on the war is. One of the veterans who was on duty yesterday was handing out postcards with information for veterans with post traumatic stress disorder. This is clearly a political statement, but it's also a labor of love by veterans for others who have served their country and paid the ultimate price.

But for me, the most impactful part of this memorial was the right hand side, where they have put up cards with time based milestones (invasion, Sadaam topppled, free elections, etc). Take a look at this picture.

What you see is that so many of the deaths have come since the end of the military mission, even after a democratically elected government was established. It's pretty clear that the invasion itself was not a particularly deadly affair for the US Military. The occupation on the other hand has been a massacre. I guess standing between two enemies who are trying to kill each other isn't the safest place to be.

Behavioral Targeting Pioneer Joins TACODA

One of the most interesting things about my experience over the past five years as an investor and board member of TACODA, the leading behavioral targeting ad network, is that much of what TACODA is doing was tried once before, in the late 90s, by a CMGI company called Engage.

Maybe Engage was too early with its profile driven advertising services. Maybe it got caught up in the bubble and bought too many other advertising businesses. Maybe the financial engineering done by CMGI did it in. The answer is probably all of the above.

Anyway, much of what Engage set out to do in the late 90s has been accomplished by TACODA and its competitors in the behavioral targeting (BT) sector of the internet advertising market. I expect that when you add up all the BT campaigns run this year, either directly on portals like Yahoo!, or online publications like The New York Times, or networks like TACODA, the total market will be north of $200mm and possibly much higher. Behavioral targeting has arrived in the mainstream of internet advertising. It works, media buyers understand it, and money is flowing into the category.

So it's quite exciting to me that Daniel Jaye, a founder and CTO of Engage, has joined TACODA as its Executive Vice President, Product Management & Development. So much of what goes on in web 2.0 is refining and executing on ideas that were hatched in the first go round. It's a great thing to see when someone who had the right idea but couldn't get it to happen gets another chance. Welcome aboard Daniel.

Now That's Good News

EMI announced this moring that they are going to start selling higher quality unprotected files in iTunes and also through their other online retail partners. iTunes will feature the EMI catalog in 256 kpbs unprotected AAC format. That's fine with me. If I have to convert to mp3 to run on certain devices, I can do that. And I like getting higher quality for iTunes listening. These files will cost $1.29 per song and you can pay $0.30 per song to convert your existing fairplay EMI songs to this new format.

EMI also announced that they will offer their retail partners the opportunity to sell their music unprotected in AAC, MP3, or WMA formats presumably at this higher bitrate.

I am happy to pay more to get music in the format I want it in. The extra $0.30 seems to be a fair price to pay for the flexibility I've long wanted to put my music wherever I want to put it.

My big question is why Apple doesn't offer this new format (256 kbps AAC unprotected) for all the music that is currently available in unprotected mp3 on eMusic and elsewhere? That would have the unfortunate effect of putting a huge dent in eMusic's business.

But I won't buy music online in a protected format. I don't have to put up with that when I buy CDs and I refuse to put up with it online. iTunes is missing a big opportunity by keeping all its indie music in DRM format when they don't have to.

Led Zepplin To Reunite and Tour

Bob Lefsetz has the news:

At a press conference in Bron-Y-Aur early this morning, Jimmy Page announced that to commemorate the sixtieth anniversary of Aleister Crowley's death, Led Zeppelin will reunite.  Although reporters joked that a seance would be held to bring John Bonham back, Jimmy cracked nary a smile and said the drums would be handled by Zak Starkey.  Rumormongers believed Jason Bonham would sit behind the kit, but after attending a recent Who show, Jimmy determined the diminutive Mr. Starkey would invigorate the players most, and perform for less, since he had something to prove, his father still being alive.

There will be no agent.  No one was willing to work for the one percent Jimmy offered.   Instead, Jimmy has made a direct deal with AEG.  Turns out with Beckham injured, Philip Anschutz has some newly-freed up cash, and he jumped at the chance to ice Live Nation's puck.

The initial gig will take place at the Oakland Coliseum, and the co-promoter will be Gregg Perloff's Another Planet, as penance for the beating of Bill Graham's employee back in 1977.  To insure there will be no fracas this time, there will be no custom signage, nothing for a member of Zeppelin's entourage to covet.

....... Read the rest of the news at Lefsetz' blog

Hoyas

Well the run is over.

Josh and I watched the Hoyas lose to OSU yesterday. After the game, we immediately started thinking about next year.

Roy Hibbert played as good a game as Greg Oden, maybe better. If all these guys are around next year, the Hoyas should be back in the final four, and maybe they'll win it next year.

Great run guys.

Thinking About Online Photo Services

I woke up this morning thinking about online photo services. Probably because of my friend David Kirkpatrick's column this week on Photobucket. David points out how huge Photobucket has become by riding on the coattails of the social networking boom. I don't use Photobucket but my girls do.

In our family, we use three online photo services, Photobucket (the girls), Flickr (me and Gotham Gal), and Shutterfly (Gotham Gal). The Gotham Gal used to use Shutterfly more, but she doesn't use it as much these days. She mostly used it to get prints, but now she uses iPhoto for that.

The online photo business is big and getting bigger every day. Shutterfly, which is the only pure play public company (SFLY) did $66mm in revenue in Q4 2006 and almost $20mm in operating income. But the stock's been flat all year at about $16/share which is a $380mm market cap. The problem is the analysts aren't projecting much growth in Shutterfly's business in the coming years.

Which brings me to the point of this post. About a year ago, my friend Helene asked me why I used Flickr. I told her that I thought it was the best online photo service. I could upload my photos, store them, share them, tag them, blog them, and see everyone else's photos as well. And it was free to use for a basic account but that I had quickly upgraded to a Pro account. She was using Shutterfly and liked it. I told her that I felt Shutterfly was closed and not likely to  succeed long term with that model.

I may be wrong about that. Shutterfly might succeed long term with it's business model, but it's going to be surpassed (and has been surpassed when it comes to user base) by the open services.

Take a look at these worldwide numbers from comScore. I used Google search results plus my own knowledge of the market to put together this list. If I missed a popular online photo service, I apologize in advance.

There are two juggernauts in the online photo market right now; Photobucket and Flickr. They are blowing everyone else away. Webshots was once the leader in the free/open market has been in decline for the past year. Fotolog, which is largely an international phenomenon, is doing well too (again with a free/open model).

The closed/web 1.0 players which to my mind are Snapfish, Shutterfly, and Kodak (fka Ofoto) are flat or in decline. They may be sustainable and large businesses (just look at Shutterfly's numbers), but they aren't growing.

And it's not just because the services are more expensive than the newcomers (although they are), it's because they don't take advantage of the web. They aren't about sharing, self expression, linking, blogging, social networking, and everything else that the web has become today.

The Gotham Gal and I have this long running debate that will never end about digital photography. She is still all about the photo album and we have dozens of them. In my view, the photo album is now the web, and when we are old and gray (getting there), a simple google search (or some other better image search engine) will produce the images we want to look at. For now, we are hedging our bets. I suspect many people are doing that.

But back to the money part of this issue. Shutterfly is worth $380mm and hasn't increased in value in the past year. Photobucket is talking about selling the company for between $300mm and $400mm with revenue projections of $32mm for all of 2007. So the market values Shutterfly at 3x revenues and Photobucket (potentially) at 10x revenues. What does that tell you?

It tells me that Yahoo! got one hell of a bargain when it bought Flickr.

Reign Over Me

We saw Reign Over Me this week. The Gotham Gal reviewed it on her blog and I'll stand behind her review.

Adam Sandler and Don Cheadle are great in this movie, but it's two songs that steal the show.

Drive All Night by Bruce Springsteen and Love, Reign O'er Me by The Who

I haven't been able to stop listening to both songs since.

And I am sure I'll think of Adam Sandler's character with his headphones on everytime I hear Drive All Night from now on.

The Industry Standard - Lessons Learned

One of Flatiron Partners' more high profile failed investments was The Industry Standard, "the bible of web 1.0". I learned a bunch of lessons from that investment but the two that stick with me most are:

1) Unsustainable revenues will kill you if you build your costs to match them.

2) Don't invest as a minority investor in a company controlled by a corporate entity.

The corporate entity in that deal was IDG, and John Battelle, who was the CEO of The Industry Standard, points to this bit of revisionist history on the part of Pat McGovern, founder and CEO of IDG:

Why did the Industry Standard die?

McGovern: In 1997, the magazine was launched as many big Internet companies were launched, and investors needed a weekly publication covering the industry. In its first year, ‘97, the magazine made $9 million in revenues, and in its second year it made $25 million. And then at that point, there was $800 billion invested in Internet companies.

But then the bubble burst. The magazine went from making $200 million in revenues in 1999 to making only $50 million in 2000. Unfortunately the management had put the magazine on an IPO track. They bought very expensive CRM software, and had $120 million in fixed costs per year. It was a hopeless situation. The gap between costs and revenues was too large.

The magazine had made a volcanic rise and fall. We’d never seen anything like that before or since. In 1999 the magazine set a record for the number of ad pages, and the next year it set a record for the largest drop in ad pages.

The paradox was that in 1999, we were approached by Time Warner and Hearst, who wanted to buy the Standard for $400 million or $500 million. But [then-CEO] John Battelle had a plan to be making $1 billion a year by 2006, wanted to take the company public, and planned to make a tender offer to buy Dow Jones. It was a plan for world domination, and we should have taken the money from the magazine publishers and run. Business 2.0 sold for $350 million right before the bust.

I edited that a bit to take out the less relevant parts. Click on the link if you want to read the whole thing. What Pat says is largely true about the fundamentals of the business. Try as we might (and my partner Jerry Colonna who was on the board did try a rescue financing), there really was no way to save The Industry Standard. That big of a whipsaw will kill most companies.

But that part about turning down the $400 to $500mm offer is pure revisionist history on Pat's part. I recall very clearly Jerry coming back from a board meeting and telling us that IDG was blocking the sale, that they didn't want the magazine to end up in a competitor's hands. That was very frustrating to the investors because we would have made a significant gain in a very short period of time. But when you invest as a minority in a company controlled by a corporate entity, you have no control over such things.

Lesson learned. Never doing that again.

We Were Dead .....

The new Modest Mouse is out and it's number one on iTunes and number twelve on Amazon. Not bad for an indie rock band.

I've had the pleasure of listening to this record for the past six weeks and I love it. Issac Brock speaks to me.  He isn't the greatest singer. He isn't the greatest songwriter. But ever since the Gotham Gal and I went to see Modest Mouse play at Hammerstein several years ago, I have had this thing for Modest Mouse's music. I love the way Isaac spits out the vocals like a machine gun.

The early reviews say there isn't a single like Float On on this record. Surely Dashboard isn't in that category, but Missed The Boat and People As Places sure are.

People As Places As People - Modest Mouse - We Were Dead Before The Ship Even Sank

Tree Skiing

  Jessica Cruises The Aspens 
  Originally uploaded by fredwilson.

My friend Pete taught me to ski the trees when I was in college. Up to that point, I had always skied the runs on the trail map. We had one particularly amazing day in the Aspens at Snowbird that I will always remember.

Anyway, as my skiing has become more family oriented, I've tended to stick to the trails, but as my kids have gotten better, I've taken them into the trees and they've gotten bitten with the tree skiing bug.

Today we woke up to 9 inches of fresh snow which was pretty quickly skied off. But not in the trees. So we spent most of the day in the trees and had a blast. Nobody got hurt although Josh did do a 360 flip when his snowboard hit a tree stump that was not visible under the snow. Too bad I didn't videotape that one.