What’s the Ultimate TV: iTV, Google TV, Kindle TV?

There is a lot of speculation (including teasers from Jobs and Cook) about how Apple will upend the TV experience with an iTV device – the same way it did for phones.  Whether that happens or not, the space is ripe for disruption, and several players are primed to take a pole position.

Re-imagining the TV viewing experience
TV viewing has largely remained the same for the last 50 years. The number of broadcasters, the number of channels have increased, but the concepts of “shows” and TV programming schedules haven’t changed. The TV ecosystem has largely remained stagnant between broadcasters, device manufacturers and cable/DTH operators. Other than the advent of Pay TV for premier content, the business model has largely remained the same. Among consumer devices, the TV remote has remained the only constant – still inflicting upon us a very primitive user experience. For something which is used for a couple of hours every day by a vast majority of the population and for something which is present in every house, the lack of innovation is almost breathtaking.

Its not about the device
While the device itself (TV and remote) is due for a major overhaul, Content, is where real disruption is needed. What we need is
1. Large variety of content available on-demand and at a reasonable price

2. Simplified pricing structure and flexibility to choose content

What we need is an iTunes (music) like equivalent for video content. iTunes provides a good library of TV content, so does Amazon Instant Video and Hulu Plus. But a lot of content is still not available and the pricing is still prohibitive – for ex: A season pass for Modern Family on iTunes costs $30. Thats HIGH when you can get 45+ channels (including ABC which broadcasts Modern Family) on Comcast for $30/month.

It has been incredibly hard to get major content producers to license content (at a reasonable cost) for internet based distribution. Bill Gurley wrote an excellent post articulating the fundamental reasons behind this and why this is unlikely to change. An innovative ad supported business model is needed to subsidize the high content costs and make it compelling for the vast majority. However, the traditional pre-roll, mid-roll and post-roll ads (which are staple fare on TV) are not effective. The relevancy is low and those ad units will never match the TV ads in terms of revenue. Native ads for video which are contextual and highly relevant are needed.

Personalized content and discoverability
With the profusion of content (from traditional broadcasters, independent studios, mom and pop home videos), content discoverability and personalization become critical. While I know that I would like to see cricket occasionally (when its not totally one sided), and see some popular shows, I really would like to discover new shows, new movies and new videos. My viewing choice is determined by whats popular, what trending, whats recommended by my friends and other reviewers I trust. Content search based on viewer preferences, content relevancy and social influence is fundamental to the experience.

TV and Remote
Ironically, the biggest device in our lives, perhaps really does not need a major overhaul. Display technology will continue to evolve, but from a interaction standpoint, I still would like to sit down, relax and watch TV. With a companion TV remote app on my smartphone, I should be able to perform a wide range of interactions – browse the web, search content, interact with ads, make video calls from TV and so on.  Once voice based control is enabled the experience will become even more natural. For ex: instead of browsing through the catalog, you can just say “I want to see The Dark Knight”. So, all you need is a set top device (such as Apple TV, Roku, Google TV) that can connect to your traditional flat screen. Kinect like motion gesture based control is all rage, but believe me (I have a Kinect at home), motion based gestures and leisure dont go together.

So, who will be the king of the hill?
To disrupt the TV experience, you really need to control three levers

Content:  Netflix is the leader here, but its content licensing costs have been steadily going up and its not clear if they will be able to sustain.  Apple seems best positioned with its history of striking partnerships with big  media companies. Google with Youtube is clearly the leader at the other end of the content spectrum – dominant in indie content. Amazon is a strong contender – they have steadily built the digital downloads business and by  heavily promoting Amazon Instant Video to Amazon Prime members, they are focusing on building loyal customers who will in-turn buy more products from Amazon.com.

Ad supported model: An innovative ad supported model is needed to bring down the content costs and share meaningful revenues with content providers.  Google is clearly the undisputed leader here, even though they still haven’t yet cracked the video monetization puzzle. With the continuous innovations that they are making to the Youtube platform, I think its only a matter of time before they are able to monetize video content effectively and build a sustainable content licensing model where everyone wins – content providers, Google and consumers.

The Device: While the device (set top device or integrated device) is key to provide the last mile connectivity, it may not be as important as the above two levers. First, its very unlikely for a single company to capture a dominant share of the market. Second,  whatever is the end device (Apple TV, Google TV, Roku, Xbox or others) its unlikely that they will restrict content streaming  from other players. Ex: A Youtube app would be there on the Apple TV as well.

The TV space is going to get very interesting in the next few years and it will be exciting to see how the ecosytem shapes up. What do you think?

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Forget FaceBook, what about Google’s mobile monetization strategy?

Ever since FB went public, there has been a lot of commentary on FB’s mobile monetization strategy (or lack of it). I think FB has good growth ahead (still doesn’t justify the $100B IPO valuation though!). Mobile has only increased users’ engagement on FB. Investors who harp on FB’s mobile monetization strategy display the same characteristics as those who were skeptical of FB’s success in display ads 2-3 yrs back.

But lets examine at how mobile can potentially cripple the big gorilla in online ads – Google.

At a high level, things seem to be going great for Google on Mobile

Android
Unlike MSFT, Google was very quick to realize how mobile is going to fundamentally change computing. Instead of being content as the default search engine on iOS, they built a second and now bigger smartphone ecosystem. The benefits of Android and how it feeds into Google’s core search business is well analyzed by many. Check out the excellent post from Bill Gurley. With Android, Google has ensured (for now) that it is the default search engine on almost all smartphones and continue its Search dominance.

Explosion of connected smartphones
According to industry reports there are now over 780M smartphones globally compared to 1057M PCs. While the PC shipments are growing at < 10%, smartphone shipments are growing > 40%. By 2016, smartphones would be over 2.5B, while PCs would still be around 1B. And the percentage of smartphones with data plans (hence always connected) is increasing very rapidly. So the potential access points for Google search can treble in the next few years.

Per captia mobile search volume
Unlike desktop, people interact with their smartphones much more frequently. Its available on the go, connected and is much more personal. The per capita search traffic from mobile would be much higher –  5x doesn’t seem to be a stretch at all.

All in all, we can expect a 5x-10x increase in search volumes for Google in the next 5 yrs because of mobile.

With so many great things, why should Google be worried about mobile?

1. Siri like personal assistants
Voice based discovery engines such as Siri fundamentally change the way users discover information. Android is coming up with its own Google Now “personal assistant”.  The biggest challenge for Google is: How to monetize “searches” over Siri type voice interfaces? What is the equivalent of AdWords for Siri type voice searches? This is a big unknown and innovation needs to happen on newer ad formats which are natural for Siri like voice interfaces. I suspect that the profitability per search query in the context of newer ad formats will be a lot less than it is now.

2. Revenue or profit per search on Mobile
Even for the cases, when users actually “see” (not hear) the search results on the screen, number of ads that can be shown will be significantly less – 1 or 2 per screen on mobile, instead of 8-10 per screen on desktop. The impact will be mitigated because Google shows ads with high CTR and which are highest paid, but the revenue/ search on Mobile will be quite less compared to that of desktop.

Essentially (1) & (2) mean that the increase in traffic to Google doesn’t translate to a proportionate increase in ad inventory and thereby revenue. Will a 10x increase in traffic only translate to 2x-3x increase in ad spots? This has big implications to Google’s revenue growth rate and profitability – more search queries are needed to generate the same revenue, but the cost/query for Google doesn’t change.

3. Samsung getting chummy with Bing/ alternate search engines
While Google has done a great job of building the Android ecosystem, powerful partners (such as Samsung) can start introducing their own variants (which Amazon did with Kindle Fire). Apple most probably will not extend the search contract for iOS once it masters Siri and develops its own “search/ personal assistant” functionality. Samsung can choose to replace Google as the default search engine – this is a great opening for Bing to be aggressive and strike partnerships with the likes of Samsung, HTC instead of suing them

4. Display Ads on Mobile
Display Ad business in general is having a tough time. CPMs are going down. Effectiveness is doubtful – retargeting seems to be the only effective display ad mechanism. With mobile the problems get multiplied. CPMs are a fraction of what they are on desktop. Retargeting is quite difficult to achieve  (atleast to the extent its possible on desktop). In general, Display Ads on Mobile will not significantly impact Google’s growth.

5. Mobile Ads:Desktop Ads:: Online Ads: Offline Ads
Just as online ads disrupted the traditional ads business (for publishers, agencies and brands), mobile is disrupting the desktop ads business. For a new company this presents an opportunity, but for Google which is the dominant player in desktop ads – this disrupts the business model. Even if Google dominates mobile ads (and they seem to be doing many right things) the fat profit margins it is used to (in the desktop world) will start getting squeezed.

References:

Global Smartphone Sales Forecast for 88 Countries: 2007 to 2017

Worldwide PC 2010-2014 Forecast Update: July 2010

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InMobi doing $31M in monthly revenues?

InMobi, as most folks know is one of the few Indian start-ups that is evolving into a big MNC. The fact that they achieved this in 5yrs is incredible. InMobi has been posting really impressive growth figures. As per their website, they did 93B impressions in Jan 2012. Considering the recent successful IPO of Millennial Media (they are valued at $1.4 B), it’ll interesting to see how InMobi does, when it hits the stock market. However, analyzing Millennial Media’s (MM) S-1 filing from Jan 2012, throws up some interesting figures about the mobile ad space and gives an indication of InMobi’s run rate.

The following table gives an overview of Millennial’s financials

Millennial Media (MM)
  12 months ending Dec 31 Nine months ending Sept 30
  2008 2009 2010   2010 2011
Revenue 6.28 16.22 47.82 29.08 69.12
Gross profit 1.28 4.62 16.22 9.66 26.59
Net Profit -8.35 -7.55 -7.12 -5.37 -0.41

Now doing some quick back of the envelope calculations:

  1. In FY10, Q4’10 accounted for 39% of the MM’s annual revenues. Assuming a similar break-up in FY11, MM’s Q4’11 revenue should be around $44.5M.
  2. Assuming that December makes up about 40% of Q4 revenue, that would amount to $17.8M revenue in Dec’11. As per the S-1 filing, MM did 40B impressions in Dec’11, which translates to roughly 44 cents average CPM in MM’s network.
  3. MM is primarily based in US, whereas bulk of InMobi’s network is outside US and Europe. Assuming that CPMs in the InMobi network are lower (discount of 25%), the average CPM in the InMobi network comes around to 33 cents. With over 93B impressions (Jan’12), that translates to a monthly run rate of $31M*.

$31M monthly run rate is just incredible by any stretch. If we take MM’s valuation as a benchmark, InMobi’s valuation should top $3B.

Way to go InMobi!

* This is a quick back of the envelope estimation and as back of the envelope estimations go, they need to be considered primarily for directional purposes.

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Avenues for getting ~$1M funding in India

I am curious about opportunities to get funding in the $1M range for start-ups in India.

1. Most of the VCs in India seem to be interested only in deals over $2M. The average size seems to be $4M-5M. I believe this is a direct consequence of VCs raising funds over $100M. Even if you write $5M checks you still need to manage 20 companies! So cannot afford to make and then manage small investments. Also, with the valuations of many established companies falling to ground levels, with a $5-10M investment, VCs can now get a good stake at low risk. So more VCs seem to be doing PE type deals.
2. $1M is still a big amount in India. It cannot be raised from Friends, family and fools. Angel investors also balk at that number. Are there any professional investors who fund in this range? What are the options available for companies planning to raise in this range? (Of course, if there are no options available, we can always wait till we have greater investment needs)

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Navigating through the Economic Blues

Like many other small to medium companies we are also being tested in the economic conditions – delayed payments, delayed sales decisions, delayed cash inflow. I would like to share some thoughts on how we can counter this situation. We are implementing many of the following to gear up for the rough weather. I hope others find this useful and hopefully some others can provide better suggestions:

1. Dont put complete faith in investors for cash flow
Its good to be a funded company in this environment. However, I would like to caution my fellow entrepreneurs that unless you have the money in the bank dont count on it. Many investors release payments in tranches over a period of time (say 5-6 months). Assume the worst case – investors may not able to release the latest tranche when the time comes. Its not because they dont want to give, its just that may not have the cash to give. Remember, investors (such as VCs) themselves raise funds from other investors. With the current cash crunch, its better to be prepared for the worst (and given the current economic uncertainty “worst” case is quite likely to occur). Dont make the mistake of planning your execution based on cash you “definitely” expect to get next month (or even next week). Treat investor cash as an added “bonus”. This particularly applies for services based companies which usually should be able to do well without investment as well.

2. Laser Focus on BD
Sales is the life blood of business. Put all your energies on actually meeting sales targets. Have daily sales update calls. Change the incentive structure – reduce the base salary and instead add two layers of bonus structure. Maybe if they achieve 50% of their targets they will get their original salary. When they achieve 75% they get more. When they achieve 100%
their total payment is actually much more than what they would have got before. The idea is – your competitors are as desperate as you are, without concerted sales efforts there is no way you can tide this crisis. In fact increase mktg/ sales budgets. If something is working in mtkg double the investment in that – of course make those investments in the right areas and in the right people.

3. Everyone should sell
This is an offshoot of the previous point. Think of ways where everyone (including admin, technical) contributes to sales. Often it takes an yr or two for small companies to consistently predict revenue flows. During this time everyone is figuring out the right value prop that sells. You will invariably find a few sales people who are actually meeting their targets and many who are not. Follow the 80/20 rule and cut down the sales team which is generating only 20% revenues. Instead rope in admin, development to augment the star sales people. Admin can make calls, fix up meetings. Technical folks can accompany sales and provide compelling arguments to convince the customer. This will ensure that your number dogs get more time to actually focus on meeting numbers and not on how to convince customers.

There are other obvious mantras to be implemented. They have received wide coverage and everyone knows them so I wont expand on them:
1. Cash is king
2. Prepare for the worst
3. Cut your workforce to the bone. Its better to cut more than cut less. In fact cut so much that you have money left to hire the best.

Hope this helps.

Reposted from http://www.venturewoods.org/index.php/2008/11/06/navigating-through-the-economic-blues/

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Online and offline classifieds – Disconnect in traditional media

I have been thinking about this for sometime: All of us know, classifieds is big business. Both online and offline. In the offline world traditional media like newspapers are the big gorillas – they basically built the classifieds industry. In the online world we of have craigslist, networks such as google adwords, vertical classifieds such as magicbricks, trulia etc. Though newspapers have gone online and online classifieds are proving to be successful businesses, I feel that there a distinct disconnect between the offline and online worlds. Why aren’t newspapers (or any other traditional media) integrating their offline classifieds with their websites? Online classifieds of all newspapers (thehindu, timesofindia, local papers like deccan chronicle, eenaadu) suck big time – they have minimal/obsolete content, search/usability features are non-existent. What could be the reason for this?

I feel newspapers have everything going for them 1. They have a captive customer set (who give them offline classifieds). So content (and revenues) is not an issue. Pricing could be different for online. 2. They have a decent online reader base. So integrating the online and offline worlds should be the most obvious thing to do. But this definitely is not happening. Even newspapers in US (NY Times etc) dont seem have integrated their online and offline worlds. Only google (who buys a lot of print ad slots) seems to be bridging this.

I would like to understand the reasons for this disconnect. Are they purely cultural – sticking to the existing cash cow and under estimating the online effect? Or is it more than that?
Are there any traditional media which have successfully embraced the online classifieds model – can anyone point some examples? It would be great if someone can throw some numbers – typical revenues made through offline classifieds. How much can online classifieds effect the overall revenues for the business etc.

I feel there is a business opportunity here – enabling traditional media to broaden their pie. If you want to collaborate on this pls comment or directly contact me.

regards,
Vamsi

Article reposted from here

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Content Aggregation sites in India: Legal problems ?

There have been quite a few content aggregation sites that have cropped up in the recent past – both in India and US. ixigo.com, Yahoo Farechase, zoomtra for travel, Yahoo Jobsearch, bixee etc for jobs, spoteazy for electronics and there are many others in US in this space. My question is: What are the legality issues w.r.t content aggregation? Can the host websites sue the content aggregator for using their content for “commercial purposes”?

For example: I build a car portal aggregator from carwale.com, carzoo.com, carsalesindia.com etc. When a user searches on my website, he/she is presented results from any of these websites (with a brief summary) and when he/she clicks the link, they are taken to the host website. My revenue stream is sponsored ads. Once I get sufficient traffic, I may also open up the site to take listings directly.

Can carwale.com etc sue me on the basis “I am using their information for commercial purposes” or “I am using copyrighted content” etc – and yes, its written in the terms and conditions of all the content websites that their content cannot be used for commercial use without their explicit approval.

Atleast with travel, jobs the main revenue stream for the host web sites is not ad based (they are getting paid for subscription or when a transaction takes place). So content aggregators may not be perceived as direct competitors. But for free listing providers such as directory services, car listings, yellow pages, real estate websites where their primary revenue stream is also ad-based, content aggregators can be perceived as direct competitors (even though they drive traffic to the host site). CAN the host websites sue content aggregators? What about the “fair use” clauses – can they protect the content aggregators (in India)?

First of all, is this a big issue? How are the current content aggregators (in India) dealing with this issue? And should start-ups be worried about this? And how should they deal with this?

(this article is also published here)

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