Paul Graham’s Office Hours

Wow. Sometimes you watch a video and you are blown away. I’m in the startup space now and everything I’ve read about Y Combinator suggest that they are leading the way for startups and innovation. Watch this video.

Paul Graham, one of the founders of Y Combinator has a candid 6 minute session with 5 startups randomly chosen from a pool at Techcrunch Disrupt. Here he assesses and evaluates startups on the fly, based on his years of experience and intuition.

Any startup or business will get valuable advice from this video. Here he defines the product, the target market, when to monetise (now!), if they should pivot, etc.. The most valuable advice I got was to focus on a niche customer group, that hardcore group that will use your service the most and leverage that.

Here is the blurb from Y Combinator’s blog.

“In 2005, Y Combinator developed a new model of startup funding. Twice a year we invest a small amount of money (average $18k) in a large number of startups (currently 60). The startups move to Silicon Valley for 3 months, during which we work intensively with them to get the company into the best possible shape and refine their pitch to investors…

Since 2005 we’ve funded over 300 startups, including Loopt, Reddit, Clustrix, Wufoo, Scribd, Xobni, Weebly, Songkick, Disqus, Dropbox, ZumoDrive, Justin.tv, Heroku, Posterous, Airbnb, Heyzap, Cloudkick, DailyBooth, WePay, and Bump.”

Y Combinator also funded Adioso.com, an Australian startup. It was the first Aussie startup to get through the program. In fact, I’m using them now to buy a flight!

I’m out like Office Hours,

Matt Ho.

Acqhire model – Good or bad for the tech industry?

Whether or not you agree with there being a bubble in Silicon Valley right now, there seems to be a lot of startups getting bought out by larger web companies.

There is a war for talent going on. Facebook has been quoted as valuing good engineers at $500k – $1m each. Most of the acquisitions appears to have been about buying talent (i.e.”talent buy”) and not necessarily for the products they have created. The products themselves are likely to be killed off, because they simply want the staff.

But is this good for the tech industry?

These are talented engineers / entrepreneurs who have left larger companies or were looking to do their own thing. Only to be brought back in and having their innovative products shut down, and consumed into a larger company.

I would never begrudge another entrepreneur for getting bought out – its everyone’s dream. I am just pondering what are the long term effects it has and whether it will stifle innovation in the long run. Rather than wanting to be the next Google / Facebook / Twitter, people want to be bought out by these companies.

Here are a few articles I read recently on the “AcqHire model”:

http://www.nytimes.com/2011/05/18/technology/18talent.html

http://bits.blogs.nytimes.com/2011/05/18/are-talent-acquisitions-a-sign-of-a-new-bubble/

http://venturebeat.com/2011/05/18/facebook-manquisition/

A lot of the newer products I have started using, I came across because larger companies bought them. For example, I started using Beluga at SXSW and I noticed that Facebook bought it to integrate with the new Facebook groups. This was a big selling point when getting my non-tech friends to use it, in addition to the actual product itself. Beluga got a lot of exposure from being associated with Facebook, and the team behind it are 3 ex-google staff that previously worked on gmail. Beluga was only in existence for 5 months before Facebook bought them out.

The advantages of getting bought out are:

Creating new distribution & revenue models
More exposure
Additional resources – engineering, financial, & marketing horsepower
Allowing the founders to exit (to pursue other opportunities)
Founders can reinvest that money into new startups and keep the cycle of innovation going

From what I understand the first few years of a startup are hectic. You are making a lot of quick decisions with little information, hiring people for positions you don’t have experience with, trying to keep it alive everyday, having to pivot, and getting angel/VC funding. So I appreciate that entrepreneurs want to exit, as it validates and rewards all the hard work they have put in.

I’m out like the rapture,

Matt

Lean Fashion – Zara

I’m a big fan of Zara, having been introduced to them overseas. I saw them in Europe along with H&M stores. When I went to Malaysia and Thailand last year, my friends were also stocking up on Zara. So I did the same! The clothes looked good, decent quality and the prices were reasonable.

My favourite pair of shorts over the summer were Zara. I got them for $30-40 AUD. My favourite jacket over the winter was a Zara jacket which I bought for $150 AUD.

The opening of the Zara store in Sydney has resulted in customers lining up around the block and clearing out the stock. There is clearly pent up demand for Zara in Australia.

Zara – keeping it lean

The Zara business model reminds me a lot about lean startups. Look at this quote from Zara’s Chief of Communication from this article.

“Zara is known for interpreting runway fashion trends and having copycat looks available in-store within three weeks.

Items available include a leopard print cardigan for $59.95, sleeve cotton tops for $19.95 and jeans for $69.95.

Mr Echevarria attributed Zara’s success to focusing on customer feedback and being reactive to their comments. Store managers in Sydney will carry out a daily sales analysis and order new stock twice a week, which will arrive from Spain within 48 hours.”

Similarities with lean startups

So this is what Zara doing:

– Constantly talking to it customers and listening to their feedback.

– Monitoring daily analytics on what’s moving in the store AND knowing what is not selling.

– Analysing fashion trends for new looks and behaviours

– Ability to adjust their design and production rapidly

Which ultimately leads to new fashions in store. This is a rapid iteration process and results in an ability to pivot on a dime. Whilstly talking to customers all the time is good and getting feedback, it is of little use if there are no analytical evidence to back it up. It is also futile if you are unable to adjust your product in a timely manner despite customers wanting a different feature or changing consumer taste.

However, this system only works if the whole process is in sync. It is an end to end process of listening, watching, producing and distributing quickly.

There is definitely a few takeaways that lean startups can learn from this.

I’m out like last seasons fashion,

Matt Ho.

China and the internets

I’m in a China mood lately. I’ve got Chinese class tomorrow, and on Friday we had a presentation at work which mentioned taobao.com. Plus I just finished the Mr China book. So here are some random points about China and the internet that I have come across recently.

Taobao

Taobao is the largest ecommerce website in China. It sells everything! Its basically a Chinese version of Ebay. I actually came across it a few months ago, when this Chinese girl mentioned it to me as the place where she shops for books. Taobao is a subsidiary of Alibaba, which is a huge B2B website.

Let me give you some perspective about Taobao.

Though just six years old, Taobao (Chinese for “to search for treasure”) already has 120 million registered users and 300 million product listings. Its merchants produced nearly $15 billion in sales last year.

The company claims that sales through its Web site are already larger than any Chinese retailer. And, Internet analysts say, sales on its site this year will surpass Amazon.com’s expected sales of about $19 billion.

– New York Times

I came across a tweet from someone at an Alibaba presentation that Taobao is set to overtake Ebay AND Amazon in revenues next year. That’s insane! Consider how big Ebay is and how big Amazon is. Combine them. Then you’ve got Taobao.

Check this for more evidence:

The unique host of Taobao.com has topped 40 million, surpassing that of Amazon.com Inc. and eBay Inc., making the Chinese online marketplace the largest e-commerce Web site around the world in terms of traffic, disclosed Zhang Yong, its CFO.

By far, Taobao.com has had 190 million registered users, accounting for half of China’s total Internet users and 4.1% of the world’s total, according to Web information company Alexa.

– TradingMarkets.com

My understanding of the unique hosts stat is that it refers to unique visits. Having just finished Mr China, lets not get all hyped up considering how much of that information might be true. All I’m saying is ecommerce is big business in China and Taobao is #1 and its huge.

Busting up the search industry

Now in most Western countries, users have choice as to which search engines they can use. There’s Yahoo / Bing and Google. Realistically, most people use Google. However, if you go to Google.cn, you are shown a picture of Google HK and when you click on the picture you are redirected to Google HK.

Google was supposed to renew their search license, but they haven’t done so. They also have not renewed their map and location license. It appears that Google is pulling out of China, and moving its search service to Hong Kong.

They had their recent blowup about abandoning China on ethical and principles, since gmail users were having their accounts hacked allegedly by the Chinese Government. They didn’t mention it specifically, but they hinted at it fairly heavily in this blog post called “A New Approach To China“. Realistically, I don’t think Google would ever pull out of the biggest market in the world.

The big search engine player in China is baidu. There are local players in the China search market, but I’m not too familiar with them. What I did come across recently is that the Chinese Government is entering into the search market by backing another player.

The second, and more surprising deal was a link-up announced two Fridays ago between Xinhua and China Mobile to start yet another search engine. Xinhua, a news agency belonging to the central government which also acts as a propaganda organ and sometimes intelligence gathering body, and China’s largest cellular carrier seem like unusual partners for an Internet venture, and the exact terms of the transaction have yet to be announced.

The New York Times described the deal as follows: “In an apparent bid to extend its control over the Internet and cash in on the rapid growth of mobile devices, China plans to create a government-controlled search engine.”

– via techrcrunch

Its very intriguing. Would you ever see the Australian government busting into the search market like that, creating a state sponsored search engine? I don’t think so. They were trying to introduce an internet filter but this is a relevant and related discussion but for another day.

This move is to introduce competition into the search market, to ensure one player does not become too dominant and to be able to control where people can search and what information can be given to them. The Chinese government wants to be able to do that =)

Having a dominant search engine (even Google) is not a good thing either. Search, like any industry needs competition but from the free market. Why do you think Google come out with Instant Search? So they can blow Yahoo/Bing out of the water with yet another innovation they hadn’t thought of. Search needs to be competitive but also people should have the freedom to find any information they want. Its akin to freedom of speech. How can I form a reasoned, independent and well thought out opinion without the availability of information?

CCTV iPhone app

Speaking of State sponsored ~~propaganda~~ media, CCTV has an iPhone video app blows the water out of any iPhone video app. The quality and speed at which it streams video (Chinese news) is amazing. Hat tip to @vincentzhou for showing me the app.

So why did they do this?

According to Computerworld:

China’s film and TV regulator late Tuesday praised the growth of an iPhone application from state broadcaster CCTV as the country looks for new ways to project its political views abroad….

China is investing heavily to expand the overseas reach of its state-owned news outlets, which often air official Chinese political views strongly at odds with mainstream Western views. The Dalai Lama, for instance, is frequently attacked as a dangerous separatist in Chinese state news reports, while the exiled Tibetan figure is seen more as a saintly religious activist in the West. The first section of CCTV’s major evening news broadcast is always dry footage of top leaders meeting with officials from other countries or with smiling farmers in rural Chinese areas.

Of course, lets throw the State budget at creating an iPhone app to further push their views. I mean, even I am considering watching CCTV to improve my Mandarin. Its one of the few dedicated Mandarin chanels on my Chinese tv at home.

The Wash Up

There are many opportunities in China, particuarly given the size of the market. There are more internet and mobile users in China than anywhere in the rest of the world. Taobao is currently bigger than Amazon, and could be bigger than Amazon AND Ebay. But as you can see in the search sector, its not easy doing business in China especially with the Chinese government moving in to create competition. And yes, they’ll do that with killer iPhone apps too.

I’m out like Google in China,

Matt Ho

Thoughts on Group Buying Sites

I decided to take a look at some of the Australian group buying sites. The ones that offer discounts to restaurants, $20 off massages, cheaper drinks, and the like. There’s quite a few now, and some of them have popped up recently like spreets and Scoopon.

These websites got my attention because of similar product buying sites like woot.com and its Aussie equivalent catchoftheday.com.au. Lately Groupon, a social buying site recieved a lot of press and VC funding with its $1 Billion valuation.

I quite like these websites and the idea behind them. As they offer discounts and better deals than if you bought these products or services directly from the supplier. I have used the Entertainment book for a few years now, and really enjoy the savings that you can get. Ironically, you do need to spend money in order to save money! In addition, it introduces you to new services, entertainment and dining venues which you would have never thought of. It gives you ideas of things to try.

I’ve bought goods from catchoftheday before. Occasionally, I receive emails from friends and facebook updates from my social network about JumpOnIt and Scoopon. Both these sites seem relatively new and tend to have a female skew (well at least within my social network!).

Group buying sites for services

The premise of these newer group buying sites that are emerging is that they focus on services and need a critical mass of buyers. Living social is another example.

Initially these kind of websites focused on products – a supplier or manufacturer may have a surplus of stock which they needed to offload. Hence, they could list on catchoftheday or some other website offering daily deals. It was great for the tri-parties involved. The supplier (seller) could quickly get rid of stock and convert it into cash. The website (deal maker) instantly got a lot of traffic from people visiting the site looking for a deal and a cut of the sales. Lastly, the consumer (buyer) won by buying a product at less than market value (commonly known as a bargain). These websites have proved popular for quite some time, though I’ve only come across them recently in the last year or so.

I love the idea of focusing solely on one product and offering a superior price for it. As these sites have been built up over time with a loyal following and because the products already existed and needed to be offloaded, there didn’t need to be a threshold level that was required to be reached to sell the product.

This brings me now to the service group buying sites. The way that these sites work is that they require a minimum number of people to buy the service before the deal is “on”. e.g. for today’s deal you might need 20 people to buy the massage service before you can obtain the discount. So it encourages people to tweet, facebook, email and generally share it. I think its perfect for today’s social status obsessed environment. People want to share news about a bargain, and encourage their friends to buy it to help them.

I look at some of these daily deals, and I can see that they can easily smash the required number. For example, yesterday Spreets featured a deal @ Doctor Pongs that for $10 you could get $40 worth of food. A saving of 75%. When I checked it with 11 hours to go, there was already 230 people that had bought the service and it only needed a threshold of something like 30!

Behold The Threshold

A key question is whether these service based sites require a threshold number to be reached. Many businesses have multiple coupons and promotions which they use to bring customers through the door. The idea is that these are lead generators. They might take a hit the first time the consumer uses the coupon, however these discounts are more like advertising. What they are hoping for is:

a) an increase in volume in a short period of time (weeks or months during the promotional period)

b) reaching new customers to consider buying their product/service (marketers like to call this “consideration”)

c) however, it really boils down to repeat transactions and selling them more stuff (upsell, cross-sell, monthly or yearly subscriptions, add-ons, etc…)

By having the threshold, it is easier to sell to the business involved i.e. that you need 30 people before the deal is on. This also makes it worth their while to be involved. The more people that buy the product, the more viable and better priced that discount can be and the better the business can absorb that initial hit. What it creates is an economies of scale. It also allows the business to have a crude prediction of demand for that discount.

The other subtle yet important factor is that if you know that you are going to save money in a transaction, aren’t you compelled to spend slightly more? I know I am the type of person that thinks since I’m saving 25%, I might as well spend $40 more!

However, for these websites to be successful, the thresholds needs to be relatively low. Because most consumers like me, will wait til the threshold is almost within reach. In this Scoopon example below, it is tipped @ 20 people. It is within the range where I would consider buying. It is also worth noting that you do not get charged unless the threshold is reached.

Some other Australian examples

The main reason I started writing this post is what I noticed about these sites. So that was Scoopon above and Jump On It above.

Take a look at OurDeal.com.au

Here is Spreets.com.au, a newer site built by Pollenizer and Booking Angel.

Yes thats right, they all look the same!

I showed a friend of mine, who said exactly the same thing. Its like they’ve all been built on the same CMS (content management system), or by the same design team (doubt it on both counts).

However, more likely, they’ve managed to figure out what is the most optimal way to sell these services and some of them may have just borrowed some elements from each other.

I’m out like buying services on my own,

Matt Ho.

U2 Concert On Youtube – the possibilities!

Youtube concert

At approximately 2.30pm on Monday AEST, U2 staged the first live streaming Youtube concert online. And I witnessed it!!

U2 is easily one of the world’s best known bands. It’s probably not the first band to stream a concernt online, but the first of the major bands to do so and to such a large audience. I’m by no means a huge fan of U2, but I wanted to be part of this historic and momentous event. Plus I got to watch a concert for free!

I tuned in for about 2 hours and watched it in between doing work. I had it streaming in the background and witnessed an awesome concert unfold. They played a lot of songs that I was familiar with but didn’t know the names of and got me reacquainted with a lot of their music.

There was a bit of lag at times (about 3 or 4), but overall the streaming was smooth and there were heaps of different camera angles. Considering that there were in excess of 1.3 Million channel views, that was a pretty impressive job by Youtube. Their cloud servers must have been running at max capacity!

Monetisation Streams

As I was watching it, I was talking to my friend @dacheah about the monetisation possibilities. I feel that this was a public demonstration of Youtube’s streaming capabilities. This was a free concert, but imagine how much advertising, publicity, and album sales were made in the lead up, during the concert and post concert.

On the right side of the streaming video, you could purchase a download of the album off iTunes. Or donate to Bono’s Red charity or find out new information about their new album. These are just the direct actions you can take. By using iTunes it allows people to make an immediate purchase and receive the album on demand, an even cheaper distribution method.

But what happened indirectly?

They were able to bring in people like myself who aren’t big U2 fans into their music. Created new fans and advocates of the brand.

Given all that is happening in the music industry with the profileration of free downloads and pirating, there needs to be alternative money stream. Stream the concerts for free and entice people to purchase singles, albums and merchandise.

However, I think the biggest play would be to charge people access to live streaming concerts. This could be Youtube’s monetization model, have people pay $5 -10 to watch a world class concert. You could potentially have a subscription service as well, whereby people pay a yearly fee and get access to number of online streaming concerts. I’d also pay for this.

The ability to use streaming online video is now quite easy. We used it for our basketball game via Livestream (formerly Mogulus).

Back of the Envelope numbers

Using some general online stats that only 10% of people would pay for an online service, lets assume that 130,000 of the 1.3m viewers would have tuned in @ $5 a pop (lower end of the scale).

$5 per viewer x 130,000 number of viewers = $650,000 Revenue

Envelope-Calculation

Video Costs

1. Streaming costs

Youtube offers branded channel but their not cheap. If you advertise more than $80k with adwords, you can get it for free. They also have free accounts as well at the public level. But I feel that its going to be bundled together with streaming, storage space similar to how Livestream and Ustream do it. Let’s do a yearly calc based on Livestream current costs:

1 Channel with 25GB streaming, HD up to 1.7 MPS: $350 a month

20 premium channels with 200GBs streaming, HD up to 1.7 MPS : $1,250 a month

I assume that there will be an option in the future for premium users for 1 Channel with 200 GBs available for larger concerts. It could possible use Google App Engine or Amazon EC2 which will bring the cost down. However, lets go with $1,250 since this is a publicly available cost. Give that 130,000 viewers watching video could potentially smash the server, lets multiply the cost of streaming by 5 fold to be ensure there is enough capacity to handle the extra traffic.

I’ve chosen a yearly fee because the band will want to maintain it and possibly do a number of concerts.

$1,250 per month x 5 x 12 months = $75,000

Note that this is a variable cost because it can be cancelled or use more/less bandwidth. But you will probably want to retain it and the more concerts you do, the more the cost will be spread.

2. Camera crew for 2 hour concert

Camera crew will be needed for full day to prepare, stream and record, dismantle stuff. This staff is in addition to existing sound crew. I don’t want the regular sound crew worrying about online streaming in addition to the concert as well.

This could be you streamed online....

Lets say 5 are needed – one in the booth to check video, three camera people to give different shots (upclose, in the crowd, pan wide), maybe an extra sound guy. That’s 5. I use 8hrs for a full day required for a 2hr concert.

$80 p/h x 8hrs x 5 staff = $3,200

3. A couple of IT and social media guys

On standby to monitor streaming, computer/servers crashing, social media feedback, commenting, drive traffic – 3 staff. I’ve chosen the figure $120 an hour to get more quality staff with experience.

$120 an hour x 8 hrs x 3 staff = $2,400

Total costs

$75,000 streaming + $3,200 camera crew + $2,400 IT staff = $80,600

$650,000 Total Revenue – $80,600 Total Cost = $569,400

That’s approximately $570,000 profit.

I haven’t included advertising costs, but this could be done in conjunction with their concert promos i.e. a URL at the bottom of the concert poster, twitter updates / facebook updates, email, radio. The cost of this should not significantly increase current advertising spend.

Of course not all bands are going to have this kind of fan base like U2. Smaller bands can cut costs by hiring less staff, opt for a smaller online account, but I dont see how they couldn’t take advantage of this.

Plus you also need to add in the profit from ticket gate receipts, album sales, tshirt sales, iTunes downloads, etc….

Final Thoughts

Online streaming simply provides an additional revenue stream for music bands via concert. I’m sure some bands and event planners are concerned that people might not turn up to a concert if shown online for $5 instead of a concert ticket price of $130. But nothing beats seeing something live.

However, there is going to be a significant number of fans that can’t afford the ticket price, cannot make it due to work / commitments or are simply living overseas. Surely this can be monetized! Your providing them with the chance to also participate in the concert, be a part of the crowd, and sing along.

Side note: Youtube has also introduced paid search for video, and the videos shows up as a sponsored link. There is also Google Music Search, which produces results for all the different music services.

I’m out like Mogulus,

Matthew Ho.

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