Last Saturday I had the privilege of participating on a panel at the Harvard Business School Venture Capital and Private Equity Conference entitled “What’s Next: What will be the next hot sectors for venture investment?” All of the panelists were asked to bring a slide highlighting a “hot” VC investment sector for the upcoming year. I chose to talk about the broad theme of “social media monetization” as an upcoming trend in the coming twelve months.
With the rise of social media – now accounting for over 5% of internet visits and growing – we’ve seen investors continue to pour money into new spins on social networks. Vertical social networks and uniquely branded social sites have sprung up from both startups and from established media companies. The primary goal of these to date been about acquiring audience, and leveraging the network effects which result from an increasingly growing user base. But I think we’ll see a shift of attention in the coming months (which has already begun) towards startups focused on and about generated revenue out of these media assets. While many of the strongest players have been paying attention to it for well over a year, I suspect that many of the second and third tier social media sites haven’t been focused on monetization to date. But with the increasing impatience around delivering tangible results, a refreshing turn towards building media businesses not just media properties will follow. And with this move, there are opportunities for companies to facilitate in that monetization process for those sites which will look for partners to help them on their own.
In my quick talk, I identified four categories of social media monetization:
• Behavioral-based advertising networks – matching targeted ads to people based on who they are rather than page context. An advertisement is effective if it is relevant to a specific person, regardless if that ad isn’t matched to the current page (which is difficult to discern contextually in many social sites given the nature of the content).
• Syndication advertising widgets – facilitating the tools to spread marketing messages in a distributed web. The current use-cases of branded badges, contests, and music video promotion are just the beginning of widget advertising.
• Social shopping/commerce – providing consumers with rich social context and relevancy to the purchases which they are making with inherently monetizeable content.
• Integrated mobile platforms – incorporating medium with embedded billing mechanism. While consumers are reluctant and to pay for services on the web, they’ve repeatedly shown a willingness to pay for content on their mobile (ringtones, premium SMS, etc.). There is further opportunity to marry these two worlds working towards the goal of monetizing the tremendous traffic online.
While I had been spending a lot of time in (and blogged about) each of these individual areas in the past year and continue to do so (in fact, note that Masthead Venture Partners is an investor in Tacoda, an online behavioral advertising network; ExpoTV, a social commerce service; and Intercasting, a mobile social networking platform), it wasn’t until going through the exercise thinking about articulating a broad trend did I come to the insight that all of these groupings fell under the same broad theme. And it leads me to ask to myself… what other categories of social media monetization are or will emerge?

Because my Pittsburgh Steelers’ mediocre season didn’t propel them into this year’s Super Bowl, this weekend I will be paying more attention to the media experience as a whole rather than the game itself. The premier media event of the year, the Superbowl has come to both signify and magnify the larger trends in the digitalization of media content. It not only represents what’s becoming the new best practice in tactics for advertisers (e.g. using social video sharing sites to pre-release some material to create blogosphere buzz, like Budweiser’s sneakpeak this week on Youtube). It also offers a venue for high-profile pioneering experimentation which push the boundaries of digital advertising (like unique mobile interaction with advertisements). Of course this makes sense, as Steven R. Schreibman puts it, “The Super Bowl is the only media property where the advertising is as big a story as the content of the show so you want to see how much you can leverage it.”
But it’s funny to think back only to last year that it was real news that the Super Bowl ads would be available after the game on a multitude of platforms – mobile, VoD, online, etc. – after the game. And now a year later, that is to be expected. Of course I should be able to see them whenever and however I want! For all of the hype and overanalysis of this media spectacle, the event truly has come to lead the way in reflecting advertisers use of multiple digital mediums in what is becoming an increasingly post 30-second spot world.

This morning I was reading this week’s issue of Chris Shipley’s Guidewire report which addressed a popular topic du jour, asking whether or not we’re in a bubble for web-based businesses. The paper argues that “compared to the Dot Com boom of the late 90’s very little money has been invested Web 2.0 companies. Indeed, these companies required little or no investment in order to explore early concepts and put beta sites into the market.” While it’s true that the absolute dollars put to work is in fact lower, that doesn’t seem like automatic cause for dismissal for an environment that feels frothy.
But further on in the introductory analysis of this report is a line that I can really agree with, “While the low capital requirements remove a significant roadblock to starting a web-based company, they mask the real economics of business building.”
It rhymes very much with Fred Wilson’s post from a month ago “Web 2.0 is A Gift, Not a Threat, to VCs” in which he plots in a great chart the capital requirements for startups over their development, and further says that “It may take only two or three great developers to build and launch a web service. But it still takes a bunch more to maintain it, develop it from there, deal with scalability, deal with feature enhancements, take the service in new directions, respond to competitive threats, etc, etc.”
And entrepreneurs are feeling the same way. These sentiments rang familiar a conversation I had with a serial web entrepreneur in NYC last week, who commented to me that while “the bar for launching a service is lower, but the bar for success is higher.” In other words, web companies who are attempting to leverage network effects to drive sustainable long term value are having difficulty because of the volume of companies launching places a strain on the available pool of “true” early adopters willing to try a service. The loud echo-chamber marketplace makes it extremely difficult now (vs. two years ago) to rise about the noise to spread the word in the blogosphere or other natural communications forums applicable to the target market.
As a consequence, consumer web services are being forced to attract customers outside this ecosystem. While I’ve seen some entrepreneurs with successes in utilizing offline marketing to incite behavior online, my experience has shown that the best way to get people do something online is while their online – after all, they’re already there. I think that as some Web 2.0 shakeout emerges over the coming months, we’ll see a trend that the ones which endure beyond the initial flash are those which have incorporated the marketing of the service directly into the service itself.
Nisan Gabbay hit the nail on the head in his guest post on Masheable last month when he said that for a company to be an internet success story “it must either be a true viral marketing candidate (likely a communication service at its core) or it must be a strong candidate for leveraging natural search traffic.” If a service is truly viral (i.e. the act of referring another user is deeply ingrained into service itself) or directly leverages natural search, then it possesses a more predicable sustainable way to continue to build traffic (and leverage network effects over time).
The title to the aforementioned Guidewire report is spot on – “Web2.0 is Dead, Long Live Web 2.0.” We’ll continue to see experimentation with the launch of new services and companies, but we’ll also increasingly see those which haven’t generated traction fall away. And many of those with the potential to create an enduring company will need additional capital. It may be easier to start something these days, but it’s still difficult to make it last.

When there’s an article on something in the New York Times, as there was last week on widgets – you know the concept has gone mainstream. I’ve been spending a lot of time recently reading blogs about, thinking about, and most importantly, meeting with entrepreneurs creating endeavors which leverage the ramifications of an increasingly decentralized widgetized web. And the primary focus has been on advertising. How will advertisers play in a world in which widgetized microchunked content proliferates?
Hooman Radfar over at the blog Widgify recently pointed to Universal’s use of a snaggable movie trailer promoting this week’s debut of the film Smokin’ Aces (with the help of his company ClearSpring). When people post this snippet of code on their site, they are in effect standing behind it, creating a validating point that this is content worth watching, and consequently promoting the film in an engaging way that an interruptive advertising type couldn’t do.
With marketers searching for alternative means to reach consumers – even going as far as placing branding ads in airport security bins – Greg Verdino of the Emerging Channels team at Digitas recently cautioned, “Just as the smartest marketers are realizing that interrupting unreceptive consumers is no longer an effective means of spreading brand stories, other backward-looking media and marketing companies seem proud that they’ve found new ways to interrupt… you can’t break through advertising clutter by simply creating even more clutter.”
Interactive online widgets offer a viable alternative for spreading advertising and branding messages which rise above interruptions and facilitate direct consumer interaction with true engagement. Seeing this opportunity, UK-based social networking site Bebo announced just a few weeks ago that they will feature advertiser supported widgets in their widgets gallery in this upcoming year. Another example is that nearly all of the professional sports leagues are starting to embrace widgets to promote their teams and games. Many of the social commerce startups, like ThisNext and MyPickLIst, feature product-based widget apps. And this potential goes beyond just pure commercial advertisements. Consider ChipIn, a web service which allows organizations looking to raise money for causes to do so via an online widget proliferated via social network pages.
I agree with Radfar’s sentiment that “it will take some time for the right models to work themselves out, but with all of the [widget] activity mounting this year is promising to shake up the world of online advertising.”

One type of company largely uncovered in the web 2.0 blogosphere is the emergence of vertical marketplaces – or at least the framing of them that way. Of course, eBay has traditionally been the ultimate marketplace brining buyers and sellers together. And certainly the general online classifieds (like Craigslist), job boards (like Monster), and dating sites (like Match.com) have flourished since the dawn of the internet of “Web 1.0.” But I am beginning to see a set of additional verticals emerging outside these established forums, and it will be interesting to watch how they progress.
There are times when a general classified ad would do, but when a vertically focused connection service will better facilitate a transaction between interested parties. That is, as long as the market is liquid.
It’s amazing to observe the success that a site like Rentacoder has had over the past five years in creating a place for buyers and sellers of contract programming work to connect. Of course, interested parties could use a general-purpose classified site to facilitate the same exchange, but there is something unique about having a marketplace devoted solely to this vertical. Other interesting examples that I would place in this category are the few startups, like ClickForLessons, which are trying to the same thing for an entirely different set of groups – buyers and sellers of private music, dance, singing, acting, and art lessons. It’s also notable that social network for pets, Pawspot, partially differentiates from leader Dogster in promoting the exchange of petsitting services. Additionally, we have had a few companies pitch us at Masthead who are launching or have launched new marketplaces focused on connecting buyers and sellers within companies/organizations in specific industries. (What I am not talking about, however, is creating a set of vertical industrial supplier markets that many tried to approach during the late 90’s with a few resulting players emerged.)
The real opportunity here is in the business model itself – not just providing paid advertising listings (or even contextual relevant advertising adjacent to the listings themselves), but rather actually participating in the transaction as a percentage fee. The more intimate the relationship these marketplaces play in the transaction, the greater the value they can capture from it. As Rentacoder has demonstrated, this level of is engagement is possible by assuming the risk of the transaction, which gives both transacting parties the comfort in “paying” for the introductory services in a substantial manner.
Just as it looks like the all-purpose job sites are having trouble recently competing vs. niche sites (as paidContent and Businessweek report), perhaps there is a real opportunity for specialized vertical matching of buyers/sellers as well. Rather than just connecting for the sake of connecting, I think one evolution of the social networking space (and especially one towards monetization) will focus on these types of connections. Rumor has it that MySpace is already doing very well with its classifieds, but I hypothesize that more focused solutions (many from startups) will also make an significant impact in the future.

I’ve enjoyed reading all of the blog discussion in the past few days in response to Rich Skrenta’s Monday “Winner-Take-All” post. He deemed Google the winner in this “third age of computing” (2001-) having succeeded the prior two of Microsoft (1984-1998) and IBM (1950-1980). A post well worth reading, as he is correct in assertion that “Google is the start page for the Internet,” and the solid analysis which follows in his post is compelling.
Yet his conclusion that “it’s conceivable that they [Google] could actually end up owning the entire net, or most of what counts” is too strong, in my opinion. He argues that because user switching costs are zero, a winner-take-all market paradoxically results in all other lucrative destination verticals. However, one failure in this analysis is that many of the emerging online vertical applications contain a social component to them – these create robust network effects that do yield rather high switching costs for users. If web applications evolve towards not just finding information, but rather participating in it, there are compelling reasons to start with communicating and not searching. As we continue to see greater trends towards social media, users will seek services which add value from other users, not because a service has a better fundamental underlying technology or because they go there out of habit; rather, users will seek services which provide established rich interaction.
Moreover, Mitch Ratcliffe counter’s Skrenta argument with other good points, citing historically effective CPM rates for Google and increasing customer acquisition costs. Ratcliffe further goes on to state that if one extrapolates from those periods of dominance (quickly becoming shorter) that “Google in 2007 has a year or two of dominance left.” I would put forth that the “fourth age of computing” (following the above meme) is going on a different platform – a mobile-based one – and from this perspective, Google has anything but a dominant position. While the vision of many in the industry is for “one web” in which “the same information and services available to users irrespective of the device they are using,” the road towards this point will be a long and winding (uncertain) one. There are too many interested constituents in the value chain with real power (like the domestic carriers and handset manufacturers) for the battle for dominance over mobile applications to be already won by the likes of Google.
So while I agree that Google currently dominates search now, I have difficulty believing that they will “own the entire net” as we know it today, and there is certainly much question about who will dominate the apps of the mobile device web of tomorrow.

For the past couple months, I’ve been co-chairing a committee with Henry Houh of Podzinger which is organizing this winter’s MIT Enterprise Forum conference. Entitled “Brave New Web,” it’s going to be held on February 7th at the Colonnade Hotel in Boston. We’re focusing the conference’s content with sessions on how the web is dramatically changing the way that people and communities communicate, contribute, and collaborate. I’d encourage regular readers of this blog who are in the area to attend, as many of the themes which I’ve written about in the past are going to be explored with some notable speakers (see list at the end of this post). You can learn more details and register for the all-day event on the conference website.
In addition to “traditional” conference content of keynote speakers and panel sessions, the Brave New Web event is also going to have a “Demo Lunch” where local web startups will have an opportunity to present their service to attendees. I am also heading the group which will be selecting this set of seven New England based self-, angel-, and VC-backed companies whose business model integrates pioneering use of the next generation web. Each chosen company will receive a table in a designated area adjacent to attendees’ lunch seating and the opportunity to walk through live demonstrations of their offering or service. If your startup is interested in presenting in this forum, you can learn more and apply online here.
The two keynotes for the MIT Enterprise Forum Brave New Web conference are:
* Jeremy Allaire, Chairman and CEO of Brightcove (keynote)
* John Furrier, CEO of PodTech (keynote)
And other notable speakers to date (with more soon to be announced):
* Adam Bain – Executive Vice President, Technology & Production, Fox Interactive Media
* Laurie Baird – Director of Technology Partnerships, Turner Broadcasting System, Inc.
* Jose Castillo – President of thinkjose.com
* Steve Garfield – Blogger, videoblogger and Boston correspondent, Rocketboom.com
* Tom Gerace – Founder and CEO, gather.com
* Nick Gogerty – Founder and CEO, InClue
* Phil Hollows – Founder and CEO, FeedBlitz
* Henry Jenkins – Co-director, Comparative Media Studies Program, MIT
* Joseph B. Lassiter III – Professor of Management Practice, Harvard Business School
* Amber MacArthur – New media reporter/host, CityTV
* Andy Plesser – Founder and CEO, Beet TV
* Juliette Powell – CEO and executive producer, Inspiration Festival
* Scott Smigler – Founder and president, Exclusive Concepts
* Jeff Taylor – CEO, Eons
* Jon Udell – Evangelist, Microsoft

As I’ve done with others in which I’ve been intimately involved with a new investment here at Masthead, I wanted to write a blog post describing why I believe our most recent is a promising one for our firm (See previous posts on NewsGator, Intercasting, and Tremor Media). Today ExpoTV announced a $6.0M investment co-led by Masthead Venture Partners and Prism VentureWorks, with Brady Bohrmann of Masthead and Will Kohler of Prism joining ExpoTV’s board.
Expo Communications offers short-form video-based product shopping content collected from consumers, produced in-house, and submitted by advertisers. With this asset base of digital video, the company syndicates and monetizes it via distribution to online portals, online e-commerce retailers, comparison shopping engines, and cable video-on-demand outlets. Most visibly, on the ExpoTV.com site you can browse the over 20K “videopinions” – user-generated video product reviews – which the company has collected in the past few months. But the current incarnation of this website is only a partial glimpse into the opportunity which the company has begun to engage in order to create tremendous value for its investors.
The ExpoTV Opportunity: Intersection of Online Video and Social Commerce
When I first discovered ExpoTV earlier this year, it struck a deep chord with a number of themes which I had been pursuing. Not only is it capitalizing on the fundamental shift towards video-based content on the internet, but it is also a prime example “social commerce,” something I’ve longed viewed (and blogged about here here and here) as a ripe investment opportunity.
Almost a year ago in January of this year, I posted that “There’s no question that the basic premises – the who, what, where, when, and how – of consumers’ interaction with video content is dramatically changing, and that’s getting people excited.” Certainly we’ve seen how the prediction then that 2006 would become the “year of video” has proven true, but I believe that we are still at the beginning of the transformation of how we interact and relate to video content online. We’ve seen the adoption of broadband spur short-form user-generated video content, and the explosion of consumer usage of sites like YouTube and Revver have demonstrated that the visceral nature of viewing video online is extremely powerful. However, the content contained within these sites is often random and haphazard, leaving it difficult to monetize as some advertisers shy from the unpredictability.
The other emerging opportunity, which is less recognized, is to facilitate and leverage social commerce – providing consumers with rich social context to the purchases which they make through the use of web social software. With a significant portion of consumers’ time online spent online devoted to researching and evaluating future product purchases, the tools available today to aid in this activity (user-generated text review sites, price comparison engines, and editorial content publishers) don’t fully provide vivid social relevancy to the process. People are genuinely interested in connecting with each other about and expressing themselves through the products which they buy and their experience with them. Yet there isn’t a primary social destination site where individuals can shop together in a strong community (i.e. social shopping – sharing the act of shopping itself with others. Just as some people enjoy shopping with others in the real world, some will enjoy doing it virtually within a social network).
The opportunity, then, is for purpose-driven content which benefits both advertisers and consumers alike. ExpoTV capitalizes on this need by facilitating, aggregating, and distributing newly available video-based advertorial content (where the content itself is advertising). By value-add packaging of consumer generated videopinions and advertiser supplied video, along with its own editorial impartial product reviews and produced content, ExpoTV possess a highly-monetizeable digital asset for circulation in its own online property, others’, and on MSO’s VOD channels. This product content, in turn, directly facilitates online e-commerce transactions, making it much more valuable than other non-product editorial or user-generated content.
Content creators and community participants benefit from expression and connecting with others; consumers who reach the content via syndication benefit from the direct product knowledge with meaningful social context; advertisers benefit from awareness of their products; syndication partners benefit from added content and increased revenue. And, of course, ExpoTV benefits by providing and monetizing the entire platform for this intersection of constituents.
Founders Daphne Kwon (formerly of Oxygen Media and Walt Disney) and Bill Hildebolt (General Atlantic) have brought on Thi Luu (Amazon.com) and Jorge Escobar (Yahoo!), along with many other extremely important folks, to the team. And they’ve already accomplished quite a bit to date – collecting 20K videopinions in the past nine months, signing and launching a number of notable online syndication relationships (click to see examples of collaboration with Yahoo, AOL, Buy.com, Google, just to name a few; others impending), as well as extending the reach of ExpoTV to 20M VOD homes (on MSOs including Time Warner, Comcast, Charter, and Verizon FiOS TV).
Building on these accomplishments, we at Masthead are excited about our investment and the chance to work with the Expo team and Prism VentureWorks to further extend the platform and help transform consumerism on the web.

There are many blog commentators out there (including myself) who at the beginning of the year predicated that 2006 would be the year of video (here here here here). And, of course, we are all now patting ourselves on our back for what amazing predictive powers we had. But if we all saw it coming, is it really a story (or much of a prediction)? Hardly. I think that the real (and largely uncovered) story of 2006 is the emergence of online syndication widgets. I didn’t see the importance of a few simple lines of portable HTML code affecting the online space so dramatically, and I suspect most others didn’t either.
First, it should be said the rise of online video was fueled in part by widgets – YouTube built a good portion of their own traffic through the syndication of their player throughout the net (and especially on MySpace). Many photosharing sites (like Photobucket and Filmloop) similarly based their viral expansion on syndication of their hosted content through widgets on MySpace and other social networks. The success of these services spurred Fox Interactive Media into launching TheSpringBox, a “widget” platform for MySpace users that also works on the desktop. Similarly, Google released Google Gadgets in May, and Yahoo released “the long-awaited Universal binary of the Yahoo! Widget Engine version 3.1.4” that month as well. In my own daily consumption of information, blogs like Widgify and Flying Seeds became staple reading.
Of course, numerous startups got into the mix – rising social networking star Bebo launched “Bebo Widgets” last week, Widgetbox/PostApp provides a directory of widgets, and most of the social shopping sites leverage them for user-expression. Widgets are now the building blocks of the emerging set of personalized start pages. The Chumby promises to expand the reach of our widgets from our computer screen and into the rest of our homes.
And the introduction of WidgetsLive conference one day before the now seminal Web2.0 Conference became a notable sign of the times. The list goes on and on, as the power of widgets which syndicate content (whether it’s media, interactive software, or otherwise), as they fly across the internet, is challenging the basic assumptions of the web (“are pageviews obsolete?”).
And it all seemed to happen in 2006 without much premonition.

In the last few weeks, there has been some chatter in the VC blogosphere about the importance of good mentors. Since my own first job, I personally have been very lucky to have a number of mentors, managers, and teachers who have shared their business wisdom and experiences with me. These folks have imparted a number of lessons which I have deeply internalized and have made a significant impact on how I view the business world. Many repeated mantras which became familiar, but all spoke lessons which I’ve integrated along the way. The following is a list of those quotes which were often repeated to me (along with a nod to those from whom I heard them) – they are the ones most significant to me and those which I believe can be generalized and applied to startup situations.
Seven Lessons Learned for Startups
“Input not consensus.” – Scott K. While many have different views on management styles, I favor decision-making processes being inclusive to all parties who deserve to share their opinion, but having the ultimate decision made by a single person who is ultimately responsible for it. The problem with true consensus thinking isn’t that good decisions don’t come out of it, but rather that it’s unclear when final decisions are made. Startup situations aren’t the right place for muddled thinking or unclear directives. Once a decision has been made, owners of responsibility must immediately run off and execute. Although many extremely successful organizations were built on consensus-driven cultures, my opinion is that there isn’t time for it in a startup – but there is absolutely time for everyone’s input.
“Be authentic.” – Mark L. As I’ve written previously, I believe most successful entrepreneurial endeavors are sprung from a genuine idea born from true experience or direct & tangible observation. Companies that emerge out of a team with heritage in a particular market and technology have direct understanding of that realm. Furthermore, when employees act in an open and authentic manner with each other, it helps foster a team environment which is productive for everyone. It is with this authentic foundation that great companies are built.
“Dead cats don’t bounce.” – Joe G. Unfortunately, many many startups do not succeed. It takes a strong entrepreneur to admit when a particular project, product, or company isn’t destined for success. (Often those failures lead to learning experiences from which new successes are born.) But if something isn’t going to take on life, startups must realize when that’s the case and move beyond the fleeting hope for it to take off.
“Solid-gold relationships.” – Bill A. The most important relationship that any company has is with its customers. And the most important of those are the key large or influential customers. It is with those special constituents – whether they are consumers, SMBs, or enterprises – that should be nurtured and cared for. Not only do they provide the (first) notable revenue, but also necessary market feedback for further refining the product offering. With all of the distractions that arise in a startup setting, it’s extremely important to keep focused on cultivating these special relationships.
“Get involved.” – John C. I used to have this quote from a former boss hanging above my desk. A daily reminder that when deciding whether to take action, experiment, or try something new, it is usually better to take this route than to not.
“Take time to think.” – Kelley M. While action is always a priority, deciding the correct action often requires reflection. Dedicating time during a critical juncture in a project or undertaking to leave time for unstructured individual contemplation of the larger current work situation provides an opportunity for everyone to obtain a richer perspective. It’s an underutilized tool to require that people occasionally briefly pause from the task-oriented workday (not just to provide brief respite from the pile of to-do’s, but) to contemplate what efforts truly will have the most impact on the company.
“Reward those who deserve it.” – Kevin M. Credit should go where credit is due, with the right people rewarded for their efforts. And that doesn’t just mean appropriately compensating people financially. Particularly in a startup where there is less cash to share, recognition and acknowledgement of accomplishment goes a long way. A long way.

(The above mantras are obviously not the only, nor are they necessarily the best, words of wisdom which I’ve ever received. However, they are the ones that have sunk in internally for me the most. While this is a professional post, it is also a personal one as well, as I am extremely appreciative of those listed above who have made a direct impact on my own thinking and direction over the years and will continue to do so.)
(This is the fifth installment in my “Sevens” series of posts. See also Seven Founding Sins, Seven Reasons To Become a Founding Entrepreneur, Seven Questions Employees Should Ask Before Joining a Startup, Seven Common Tactical Mistakes Entrepreneurs Make in their Initial VC Pitch which are Simple to Fix.)