Posted at 11:23 PM in Conferences | Permalink | Comments (0) | TrackBack (0)
Almost a year later, no apocalyptic shakeout has hit yet. So what happened?
Venture and private-equity investments in ad networks have been robust for the past several years. More than 60 ad networks -- vertical ad networks, video, brand, performance, wireless, gaming, behavioral, contextual, etc. -- have raised $1.5 billion in the past five years, and the top 25 firms have received almost $1.2 billion of that total, according to VentureSource. Significantly, more than 75% of the money has been raised in just the past three years. These funding numbers do not include the more than $250 million that was invested in other companies that have already exited (Adify, Blue Lithium, Quigo, Tacoda, Third Screen Media, etc.).
A handful of ad networks have indeed either shut down or been acquired for nominal amounts (Adzilla, Ad Infuse, AdEngage, Jellycloud, mSnap, NebuAd). A few others, like Peer39 (disclaimer: I sit on Peer39's board) and Ringleader Digital, have switched from building ad networks to selling technology instead. And a few are even thriving. Most, however, are merely surviving in this down economy.
Many of the less differentiated, standard graphical networks have not shut down, because they are easy to run with very little expense these days. Most of the lesser-known ones (and even some of the bigger players) are essentially glorified brokers that acquire their inventory on the exchanges. They hire a trafficker, a salesperson or two, sign a 5-cent-CPM contract with an ad server and find someone who knows how to bid the exchanges to stay in business. They don't need to invest significant resources in acquiring high-quality inventory or professionally managing relationships with publishers. These networks can generate a profit, enough to survive and to eke out a decent living.
Fundamentally, I would argue that the ad-network model still makes a lot of sense today and can be quite resilient. In particular, those ad networks that develop proprietary technologies and offer truly differentiated solutions are the ones most likely to be successful.
The basic reasons why so many ad networks are surviving:
I believe that, in the next few years, many ad networks will survive but relatively few will flourish and become great businesses with compelling economics. The former group will remain undifferentiated (in terms of technology, focus or services) and compete primarily on price, leading to the continued commoditization of pricing and tighter margins. The latter group will target attractive segments in which they can achieve critical mass and build true barriers of entry through proprietary technologies, value-added services, advanced analytics and reporting, scale operations, etc. This is hard to do but financially rewarding if you are one of the few who can do it, which is why I personally continue to be fond of the ad-network business model (disclaimer: I sit on the board of Tremor Media, the premium-video ad network).
Ironically, the fact that it is easy for most ad networks to generate some level of revenue will likely persuade many of their investors to continue to fund these companies. Better to fund a company that has some revenue but is unlikely to achieve venture-like returns than to admit defeat and to pull the plug. Unfortunate, but true. It will be interesting to watch.
Posted at 09:23 AM in Venture Capital | Permalink | Comments (0) | TrackBack (0)
Image by Getty Images via Daylife
Richard Siklos' Interview with Robert Iger, Disney
Posted at 07:16 PM in Conferences, Television | Permalink | Comments (0) | TrackBack (0)
In the past few months, two of the highest-profile and most heavily-funded online-video startups -- Veoh and Joost -- have given up trying to compete with Hulu and YouTube and have now drastically switched their business models in hopes of surviving.
There are many reasons why things went wrong: technical missteps, lack of premium content, tough terms from content owners such as CBS and Viacom, etc. But that's not the whole story. Joost and Veoh had an even bigger problem, one that will likely claim dozens of other media and advertising startups that have been founded over the past three years: too much venture money, too soon.
In the last few years, the top 25 most heavily-funded video startups
(excluding Hulu, which has raised over $130 million) have collectively
raised over $1.2 billion in venture capital, or an average of $48
million each (see chart
).
The top 10 companies in the group, names like Spot Runner, Move
Networks, Visible World and DailyMotion, have raised $720 million, with
an average of $73 million. More significantly, nearly three-quarters of
this money was raised within the first two years of the initial
funding. That's an impressive pile of dough, even for VCs.
Raising lots of money is not a problem, per se. Raising too much money too early and before hitting key milestones (e.g. getting paying customers, showing attractive margins) can be. This is particularly important for online video startups, which, due to their costs, need to be run with tighter margins from the start.
This year and next, these companies' venture backers and boards will have to make wrenching choices: continue to fund these companies with the hope that the economy will turn around or a generous buyer shows up, shut the companies down, or sell on the cheap. This will turn into a buyer's market for the next several quarters.
Dangerous path
The simplest lesson to take away here is don't raise too much money too quickly. Unfortunately, that's easier said than done. Too much money, often, though not always, leads to poor habits like over-hiring, overspending and a lack of discipline, which itself leads to mistakes such as sticking with bad ideas too long and throwing money at a problem rather than solving it the right way.
Note: I'd like to thank Michael Learmonth and Bartek Ringwelski for their help in thinking through some of these ideas.
Posted at 01:53 PM in Lessons Learned, Television, Venture Capital | Permalink | Comments (0) | TrackBack (0)
D7: Interview With John Malone, Liberty Media Chairman
Prior to joining Canaan Partners, I worked in Comcast's venture capital group in Philadelphia for five years. To become acquainted with the cable industry, I read Mark Robichaux's Cable Cowboy: John Malone and the Rise of the Modern Cable Business. In my opinion, it's one of the best books detailing the rise of cable industry and a fascinating look at one of its pioneers, John Malone. A must-read for those interested in better understanding the cable industry and its strengths/weaknesses.
Posted at 01:31 PM in Television | Permalink | Comments (0) | TrackBack (0)
For those interested in media ...
Posted at 10:24 AM | Permalink | Comments (0) | TrackBack (0)
This past Monday I attended Wired's Disruptive by Design conference in New York City. Usually by this time of the year, I'm pretty tired of conferences and I was debating not attending this one. Fortunately, I decided to attend and I'm glad that I did. The interviews were terrific with some great insights shared.
For me, the two highlights were interviews with Jeff Bezos and Jeff Immelt. Some good writeups on those two sessions:
Wired's "Jeff Bezos: Why the Kindle Is So Expensive"
NYT's "Tips on Innovation and Entrepreneurship from Jeff Bezos"
Wired's "GE's Immelt: We Actually Hire People"
One particular quote from Immelt that I found fascinating:
“My job at GE is to look 20 years ahead,” he said. “And every time I go to China, I get a headache.”
“The rest of the world just moves without us,” he said. “People aren’t going to wait for us, they don’t wait for us anymore.”
Posted at 09:48 AM in Conferences | Permalink | Comments (0) | TrackBack (0)
Posted at 06:07 PM in Venture Capital | Permalink | Comments (0) | TrackBack (0)
I've been reading Rebecca Lieb's excellent The Truth About Search Engine Optimization recently and that has started me thinking more about what's happening in the search space these days. For the past few years, Google has dominated the general search space as both Yahoo and Microsoft have struggled to catch up. A few weeks ago, I attended All Things Digital where Steve Ballmer introduced Microsoft's new Bing search service. I doubt that Bing is a game-changer but I do think it represents Microsoft's first credible effort in challenging Google. Remember, Microsoft doesn't need to overtake Google, but just needs to target specific lucrative categories, such as travel, health, shopping, and local. If it can make a dent in those categories, then that would represent meaningful progress for Microsoft. The emergence of other new search startups like Wolfram Alpha, Cuil, etc. promises to further contribute to this space.
Posted at 10:54 AM in Cool Tech | Permalink | Comments (0) | TrackBack (0)
Image via CrunchBase
Enlightening article from Fred Wilson on his decision to invest in Zemanta:
Two points that I think one should consider when thinking about taking the leap of faith: (1) the upside and (2) the timing. On the first, taking the leap of faith on an investment is fine, but one should understand what the upside might be. Risk is a natural part of venture capital/entrepreneurship, but make sure that the upside is commensurate with the risk or "leap of faith" being taken. On the second, make sure that the "leap of faith" can lead to something that can materialize in the foreseeable future (i.e., 3-5 years). Being too early can be just as hard as being too late.
Posted at 11:20 PM in Venture Capital | Permalink | Comments (0) | TrackBack (0)