There were plenty of companies, both old and new, at this year’s Mobile World Congress in Barcelona that offered creative new ways to enhance the mobile-phone multimedia experience. From semiconductor chips to software applications to new online services, a dozen of the hottest companies at the show had been picked up.
by Aaron Ricadela
It’s nearly enough to make you long for the days of typo-ridden e-mails pretending to come from your bank.
As Internet users display more of their personal information on social networking Web sites, and office workers upload more sensitive data to online software programs, computer hackers are employing increasingly sophisticated methods to pry that information loose. In many cases, they’re devising small attacks that can fly under the radar of traditional security software, while exploiting the trust users place in popular business and consumer Web sites.
In September, the names and contact information for tens of thousands of customers of Automatic Data Processing and SunTrust Banks were stolen from Salesforce.com CRM, which provides online customer management software for those two companies. The incident occurred after a hacker tricked a Salesforce employee into disclosing a password.
The assaults on consumer sites are getting more unnerving as well. A security researcher reported Nov. 8 that hackers had hijacked pages on News Corp.’s social networking site MySpace, including the home page of singer Alicia Keys. Clicking nearly anywhere on the page would lead viewers to a Web site in China that tries to trick them into downloading software that can take over their PCs. “We’re going to see a lot more of this in the consumer space,” says John Pescatore, an Internet security analyst for Gartner IT.
These kinds of targeted attacks on Web-based services may constitute the top computer security threats of 2008, according to security experts. “One of the biggest challenges of 2008 will be, how do you do business online when you know there’s a bad guy in the middle?” says Chris Rouland, chief technology officer in IBM’s Internet security systems division. “The personal computer isn’t the target of 2008; it’s the browser,” he says. IBM sees the landscape changing profoundly enough that the company plans to spend $1.5 billion next year to develop security suites that can address a broad array of threats rather than different products aimed at specific security risks.
Although a rash of e-mail-borne virus outbreaks in recent years have made most PC users wary of opening attachments or clicking on links in suspicious messages, it may be harder to prevent attacks that exploit the Web-based lists of friends and business contacts that users store in widely used services and social networks. “We’ve definitely seen the bad guys use malware to go after friends lists on MySpace and Facebook,” says Pescatore. “They’re exploiting trust.”
By targeting a relatively small number of users at a time—tens of thousands vs. millions—new hacking strategies can elude efforts to detect them. Hackers also are employing more professional approaches to maximize damage without being caught. These include division of labor by hacking expertise and wider use of black-market sites to hire programmers and purchase professional malware-writing tools.
Hackers Shift Attacks
Factor in the growing variety of places where people are connecting to the Internet—from work, from home, from Starbucks —and the growing array of devices they’re using to do so, and the coming year could present a potent brew of problems.
Although traditional PC software such as Microsoft’s Windows operating system and Office programs still present the broadest target because of their hundreds of millions of users, hackers are increasingly attacking online services, says Scott Charney, Microsoft vice-president for trustworthy computing. Worse, traditional virus attacks that crash PCs or issue floods of commands to overwhelm Web sites are being augmented with malicious software that can swipe personal information, such as bank and credit-card numbers.
To be sure, it’s in the interest of companies that sell security software to maximize fears that there’s a cyberthreat lurking behind every mouse click. At the same time, the sheer size of attacks is getting larger, and the Web’s incursion into nearly every facet of daily life presents attackers with more ways than ever to strike.
Cellular and Corporate Caution
For consumers, it’s not just their profiles on social networks that can be mined for personal information. Sophisticated smartphones that run full-fledged operating systems and e-mail applications, and hence store more valuable data, could present tempting targets. Security researchers have found numerous ways to break into prominent mobile-phone platforms from Symbian and Microsoft, and quickly demonstrated ways to hack into Apple’s new iPhone. “All of a sudden on that phone is the stuff the identity
thieves go after,” says Gartner’s Pescatore, noting security vendors have been hyping the cell-phone threat for years, while the damage hasn’t amounted to much.
In the corporate world, criminals are hunting for more of the valuable information stored on companies’ servers. A computer breach at T.J. Maxx in 2005 and 2006 may have handed hackers access to credit- and debit-card numbers for up to 94 million of the retailer’s customers—double what the company originally reported, according to court documents filed by Visa and MasterCard in October.
Cyberthieves are also attacking corporate databases in search of undisclosed financial data or proprietary design and engineering information that can be sold, says Phil Dunkelberger, CEO of security software company PGP. “The really big money now is going to be in stealing intellectual property,” he says.
Viruses: More Sophisticated Bait
Hackers are also unleashing viruses that can recruit armies of consumer PCs into larger networks of remote-controlled machines. These “botnets” can distribute spam, attack database software, or keep a record of users’ keystrokes. One of the worst, Storm Worm, has infected tens of millions of PCs this year.
Even the messages containing virus payloads are getting slicker. In the past, as compared with the sophistication of the viruses, the e-mails carrying them were rather crude. That made users less likely to follow their instructions, says David Perry, director of global education at security software vendor Trend Micro. “These were really well-written viruses, but nobody in the U.S. would click on them because they sounded like they came from Boris and Natasha,” he says, referring to Cold War characters from the old Rocky & Bullwinkle cartoons. Now, he says, “they’re hiring professionals” to write the e-mails.
Given the assortment of nasty behavior befouling the Internet, what’s a PC user to do? BusinessWeek.com consulted the experts, who offered the following advice:
- Don’t give away any valuable or sensitive personal information on your MySpace or Facebook profile, or within messages to other members of the network. And don’t click on any links in social network messages from people you don’t know.
- No reputable company will ask for your password, account number, or other log-in information via e-mail or instant message.
- Use one of the many antivirus, antispyware, and firewall programs on the market. Often, vendors offer all three functions in a single package. And many Internet service providers offer them free with your monthly subscription.
- Upgrade your browser to the most current version. From Microsoft, that’s Internet Explorer 7, Mozilla’s Firefox is on version 2, as is Apple’s Safari browser.
- Pay attention to the messages from Windows that pop up on your screen, especially in the new Vista operating system. They often contain helpful security information that many users overlook.
- Turn on Windows’ automatic-update function to get Microsoft’s regular security patches.
By Rachael King
The web has long been hailed as the next great marketing frontier for entrepreneurs. But even with the best Web site, it’s tough for little-known companies to attract online visitors. Sure, pay-per-click campaigns and search engine optimization strategies are a start, but they won’t do much to help you find the customer who isn’t aware he needs your product or service.
That’s where a whole host of new technologies comes in. These low-cost marketing and communications tools let you reach customers and clients across the Web—in many cases, even those who don’t know they’re looking for you. The idea is to transform a static Web site into a constantly evolving experience, better engaging customers with audio, video, photos, and even community-generated content.
Two of the best known of these tools, Webcasts and blogs, are already being used by more than 400,000 small and midsize businesses, according to a March study by consulting firm AMI Partners. About 260,000 more companies are using podcasts. That’s 660,000 entrepreneurs maximizing the capabilities of the Web to market and advertise themselves to new customers. After reading the following profiles of five who’ve used these tools successfully, maybe you’ll be convinced it’s time to make it 660,000—and one.
TRAMP THE GRAPES, WRITE THE BLOG
In 10 years since starting the Dover Canyon Winery, Mary Baker and Dan Panico have learned to expect surprises. But last March, when Baker heard someone yelling from her driveway at 3:30 a.m., her heart pounded. “Truly freaked out, I awakened Dan and I suggested (in case it was a homicidal maniac) that he should go check it out,” wrote Baker on her blog the next day, adding that the maniac turned out to be a truck driver whose rig was stuck on the road to the Paso Robles (Calif.) winery.
Baker’s humorous and informative posts give readers a peek into life at the two-person, $400,000 winery, which makes zinfandel and syrah. Mail-order sales have almost doubled in the past year, and the blog is an inexpensive way to reach the growing number of online buyers. “It’s more important than ever to create a personal connection,” says Baker.
Baker started her blog in April, 2006, using a software package called TypePad Pro that costs $149.50 a year. She got the blog up in a half-hour and spent two weeks tweaking the design. “It grew into this place where I could be creative and tell what we’re all about,” says Baker. Beyond the daily happenings at the 10-acre winery, she posts articles on sulfites and tannin, grilling recipes, news about Paso Robles, and anything else she feels might pique her readers’ interest. That’s just what a blog such as hers should do, says Debbie Weil, owner of WordBiz.com, a blogging consultant in Washington. “Nobody cares about your widgets,” says Weil. “People care about what they can do with your widgets or the lifestyle surrounding your widgets.”
To get people reading her blog, Baker drops a postcard with the blog’s address into bags with customer purchases. She includes a link in the winery’s e-mail newsletter, and has joined a community of bloggers who in turn link to her. Weil suggests building an audience by making insightful comments on the feedback sections of other blogs and including your blog’s address. Just be subtle: Asking influential bloggers to trade links, says Weil, is “totally bad form.”
It’s a good idea to post at least a couple times a week, but Baker often doesn’t have time. TypePad allows her to schedule posts, so she can write several entries at once that appear several days apart. As she juggles the many tasks of running a winery, Baker takes comfort knowing she can at least blog about them in the morning.
SIT DOWN. LOG ON. TALK RECRUITING
The folks at Hireability wanted to get people talking about their Londonderry (N.H.) recruiting software and services business. So they created a place for recruiters to meet and chat.
In May, the $1 million, 12-person company launched The Recruiting Network, a social networking site. In two months, some 500 recruiters signed up, with about 90% creating profile pages detailing their specialties. Members can link to friends in the network, post videos and blogs, and participate in discussion forums about everything from techniques for finding candidates to job interviews gone horribly wrong. “We’re hoping that, because we’ve put in this time and energy to build a community, we have another vehicle to promote and highlight our offerings,” says Craig Silverman, HireAbility’s head of sales and marketing. His employees post company news in the site’s forums, and information about HireAbility is displayed in Silverman’s blog and in a section of the site called the Recruiter’s Toolbox. Silverman says a handful of the site’s members already have become HireAbility customers.
Silverman built the site in about a week using a free service called Ning. (Others include PeopleAggregator, GoingOn, and CrowdVine.) Creating a more highly customized site could run up to $100,000 for developers, servers, and software.
HireAbility announced the site’s launch in the monthly newsletter it sends to 35,000 recruiters. Several of its employees have profiles on the site, while others post questions on forums and answer members’ questions. Silverman says he’s happy with the response, but that launching such a site is like having a housewarming party before you have all your furniture—you have to trust that the guests have as much vision as you do.
THE WIKI AS ONLINE CONVEYOR BELT
Much as Henry Ford’s assembly line let him crank out the Model T efficiently, Dan Woods employs a strict division of labor at Evolved Media in New York, but with a digital twist. The $1.2 million, five-employee company creates technology-related books, guides, and marketing materials. Woods coordinates about 20 editors, writers, project managers, and graphic designers around the world.
He gets a big assist from a wiki, online collaboration software that lets anyone with access to a particular Web site edit content. Woods uses TWiki software (some Linux knowledge required) to create about 50 secure online workspaces since starting Evolved in 2002.
Woods divides a project into small chunks, and the wiki functions much as a conveyor belt. One person may conduct interviews and post digital audio files. An alert is then sent to the transcriber, who downloads the file, transcribes it, and posts the results. Writers then use that information to craft chapters, and so on. Clients sign on via Evolved’s Web site to see the progress of their project. TWiki can be downloaded free from http://www.twiki.org, but there are other costs. Woods’ server runs about $150 a month, and he has a systems administration consultant come in occasionally to check the wikis and deal with any problems.
Small companies that don’t want to run their own servers have other options. PBwiki and Netcipia are two free hosting services offering private wikis. Other companies, such as Socialtext and Atlassian, offer wikis for $49 to $449 a month with features such as extra security. “Hosted services are excellent for quick sites,” says Woods. “But I have multimedia files that are very large, and the access control [offered by hosted services] is not nearly as good.”
Now, with editors and contractors working together more efficiently, projects get published in a fraction of the time it used to take. Seven people recently completed a 452-page book in six months, instead of the 18 months to two years it might have taken in the past. Says Woods: “I couldn’t run my business without it.”
Christopher Penn belts out the news with the smooth delivery of a professional radio broadcaster. But he is actually chief technology officer of Edvisors Network, a 20-person, $6 million company in Quincy, Mass., that works with banks to market student loans. Nearly every weekday since 2005, Penn has recorded a 10-minute podcast about financial aid and scholarships for college students and their parents.
Each episode attracts about 3,500 listeners in the 90-day period Penn tracks responses. Edvisors earns fees by referring people seeking loans to banks, and Penn credits the podcasts with boosting revenues by about 5% last year.
Penn spends an hour a day on the podcasts. To record, he uses a MacBook Pro equipped with GarageBand podcasting software, broadband Internet access, and a $99 microphone from a music store. He has built an audience by e-mailing people who receive the company newsletter, and by setting up a blog, FinancialAidPodcast.com, on which he posts notes about each episode. The blog also helps people searching on Google to find the podcast, as most searches are built around text, not audio. Penn registered the podcast on Apple.com, so people can find it via iTunes. And in 2006, Edvisors started an affiliate program to syndicate the program to other Web sites. Penn also plays music from new artists at the end of each show. “When you promote someone else, they are likely to promote you, too,” he says, adding that 5% to 10% of traffic comes through links from those musicians’ sites. After about 550 episodes, Penn is going strong: “I still look forward to it, and I still have lots to talk about.”
THE LITTLE AD THAT COULD
Dirk slaps a post-it note on Brent’s backside that says “reboot.” Brent retaliates by stapling Dirk’s tie to the desk, causing him to fall backward when he tries to stand. So begins what the two twentysomething interns call Cubicle War 2006.
Dirk and Brent aren’t real employees, of course. They are characters in a two-minute online video promoting Boulder (Colo.) software maker Windward Studios. The video, posted on YouTube and Digg.com, has been viewed more than 2 million times since 2006 and won an award for creative excellence in advertising from the American Advertising Federation in 2007. David Thielen, CEO of 12-person Windward Studios, says the company had a 20% increase in downloads of its demo software in the six weeks after the video was posted. And 2006 revenues jumped 100% from the prior year, to $1 million.
Thielen doubts he could have achieved such excellent results had he used a traditional campaign. Aware that software developers are largely immune to direct mail or phone pitches from companies such as Windward, Thielen thought that a funny video would be a better way to promote his software, Windward Reports, which takes information such as customer names from databases and puts it into templates. For $2,500, Thielen hired Corner Booth Productions, a video production company in Spokane, Wash., to make a humorous video about what even he calls “the absolute most boring software segment in the universe.”
Thielen liked the initial script but surprised Corner Booth’s Luke Barats and Joe Bereta by saying it mentioned Windward Reports too many times. The final version included only one reference. Thielen posted the video on Windward’s site, and urged by the enthusiastic response, had it up on Digg.com and YouTube within a few days. Word of mouth took care of the rest.
Doing it yourself can be cheaper, depending on which digital video camera, computer, and editing software you choose. Posting a video is free on YouTube, Revver, and about 70 other online video sharing sites.
Cubicle War boosted the careers of Barats and Bereta as well. The pair signed a one-year development deal with NBC, and their rates are now well beyond Thielen’s advertising budget. Says Thielen: “Once we realized it was a giant hit, we should have contracted for three more.”
Source: BusinessWeek Online
The term “crowdsourcing” has the ring of a passing fad. But long before Wired contributing editor Jeff Howe put a name to mass Web collaboration in pursuit of economic reward, entrepreneurs and big businesses alike were starting to explore methods to tap the wisdom of the crowds to produce goods and services. “Is it jargon?” says Howe. “The phenomenon itself predates my article—it’s the application of open-source principles to fields outside software. There doesn’t need to be a profit motive, but it is a mode of economic production.”
And the trend is building. Six months ago, BusinessWeek‘s Inside Innovation brought readers the lowdown on crowdsourcing, highlighting several of the more interesting projects (see “Crowdsourcing”). Since then, several new crowdsourcing experiments have emerged. Here are five recent efforts that you should know about:
A Swarm of Angels
This British open source film project takes on Hollywood’s traditional business model, aiming to create cult cinema for the digital age. Subscribers—the “angel” investors that “swarm” to create the site’s name—pay roughly $50 (£25) each to join. The site aims to draw 50,000 angels to create a film with a $1.8 million budget. Project founder Matt Hanson has written two separate movie screenplays that will be edited and refined based on feedback from the subscriber community.
Eventually, the community will vote to decide which film will be made. Community members will be paid to handle the production, and once finished, the film will be released free on the Internet under a Creative Commons license. Viewers will be invited to watch it, share it, and remix it. So far Hanson and his crew have 800 investors. Advisers include sci-fi writer Cory Doctorow and musicians The Kleptones. Stay tuned.
This French startup plans to use crowds to develop and bring to market tangible, inexpensive, electronic devices such as CD players, joysticks for video games, and Web cams. The community will handle all aspects of the product cycle—its design, features, technical specifications, even post-purchase customer support. As with software start-up Cambrian House, community members will submit and vote on product and design ideas. The winners will be funded by community members and they will go on to prototype and beta-test the products.
A core CrowdSpirit team, along with a subset of community members and distributors, will have a final say on decisions. The hope, however, is that the products will be extraordinarily focused on the customer because the ideas are coming directly from the people who will use the products. In development since last September, the site will formally launch at the end of June, 2007.
Marketocracy’s Web site boldly announces a mutual fund that delivers higher return with less risk. Launched in 2000, Marketocracy aims to gather the collective knowledge of the best investors to create a highly successful mutual fund. Sign-up is free and anyone can run a virtual fund, starting with $1 million. So far, the site has more than 60,000 users. Based on the virtual investments of its 100 most successful members, the site launched the Masters 100 Index in 2001. The fund now has $44 million in assets and has outperformed the S&P 500 Index with an average annual return of 11.4% since inception. Five years in, that’s a decent performance, though not worthy of Warren Buffett.
Barack Obama all but announced his intention to run as a candidate for the 2008 presidential election on Jan. 16 (the official decision will come on Feb. 10), and already CafePress.com is peppered with t-shirts sporting his name and election slogans. This Foster City (Calif.)-based online retailer lets members create, buy, and sell merchandise. Entrepreneurs Fred Durham and Maheesh Jain founded the site in 1999 to let members—the site reports 2.5 million—transform their artwork and ideas into new products and sell them through an online storefront with no up-front costs or inventory to manage.
Members can also personalize their own gifts by adding touches to one of 80 available products. CafePress.com sets a base price on products and takes care of printing, packaging, processing payments, and customer service; sellers decide how much to charge for their products. The site got a big break in 2003 when Phil Collins, Jet Li, and Olympic Gold Medalist Tara Lipinski launched online stores through CafePress.com. Since then it has grown to 800,000 shopkeepers and 36 million products.
Among the largest newspaper publishers in the U.S., Gannett has said it plans to change its newsroom to take advantage of crowdsourcing, putting readers to work as watchdogs, whistle-blowers, and investigators. Already last summer, the Fort Myers (Fla.)-based The News-Press (circulation 100,000) invited readers to help investigate ongoing concerns over price hikes in their utility assessments.
The response was hefty. Readers got involved—organizing their own investigations, poring through documents, and connecting to inside sources. As a result of the investigation, the city cut assessment fees by 30%.
Source: BusinessWeek online
A Japanese paper fan unfolds across a television screen, mysteriously hiding the white-painted face of a woman. When it folds up, the face reappears, this time with theatrical green eye shadow. Fade to black beneath the slogan: Find color in confidence. L’Oréal Paris. It’s a flashy, high-concept ad that resonates with the consumer. It was created by a consumer.
If produced in-house, this ad could cost L’Oréal $164,200, the going production price for a glossy 30-second TV spot. Instead, the beauty product company turned to Current TV, the cable television station that relies on user-generated content for much of its programming. Current TV has built a social network where viewers can create and upload five-minute media segments, post comments on other viewer-made clips, and vote on which ones should be aired. This spring, Current TV opened the process to ads, posting assignments for people to work on. After making a sponsorship deal with Current TV, L’Oréal paid the ad’s producer, who uses the handle “spicytuna,” $1,000 for her creative endeavors. Do the math.
Companies have been outsourcing to India and China for years. Now they are taking it to another level by using social networks such as MySpace, Second Life, and a multitude of virtual communities to solve their most gnarly business problems. Business model innovation is happening at a lightning clip. First there was outsourcing, then open-sourcing, and now crowdsourcing.
Who’s into crowdsourcing? Getty Images recently paid $50 million for iStockphoto, a Web site where more than 23,000 amateur photographers upload and distribute their stock photographs. Hipster clothing company Threadless.com prints and sells t-shirts designed by people on its Web site. Linden Lab’s 3-D virtual world, Second Life, allows people to create and retain the intellectual property rights on new businesses, brands, and personalities. John Fluevog Boots & Shoes’ Open Source Footwear site invites fans to submit and vote on new shoe designs. Ducati Motor Holding builds fanatical brand loyalty and brings customer insights into designing new motorcycles through Ducati.com.
But in their rush to capitalize on the wisdom of the masses, many companies are making big mistakes. Kraft was lambasted on the Web for not really “getting” web collaboration when it simply posted a digital suggestion box on its Web site. Though Kraft said critics misunderstood their effort, which was part of a larger strategy of open innovation, the danger remains that companies will rush to set up consumer communities without carefully considering what they’re after and how they plan to use it. It is very easy for crowds to generate the lowest common denominator among solutions.
Smart crowdsourcing is about how we winnow the wisdom from the wash, and what we choose to do with it. Here are some key guidelines to follow:
1. BE FOCUSED Vaguely defined problems get vague answers. Current TV is explicit about the goal of its viewer-created ad messages (v-cam’s): to develop new advertising to run online and on the cable network. And it allows companies such as L’Oreal or Sony (SNE ) to mine the v-cams for fresh advertising ideas.
The more infrastructure you build into the creative process, the more success you will have. Current TV has clear rails to support social networkers. It provides a specific focus such as the one for Sony Ericsson’s Walkman Phone: “With a Sony Ericsson Walkman Phone you’re always connected to your music. The question is: where will it take you?” It also provides a Sony Ericsson logo and a smattering of graphics, as well as instructions that include a time limit — up to three minutes — and a deadline — September 8. Current TV also spells out directly in its rules that the network retains the power to reject anything that paints the brand in a negative light.
2. GET YOUR FILTERS RIGHT Crowdsourcing often produces a wealth of ideas, and companies need effective filters to pick the gems. Consider IBM’s (IBM ) innovation jam, a two-part brainstorming session launched in July designed to tap the collective minds of employees, family members, and customers to target potential areas for innovation. CEO Sam Palmisano will put $100 million into promising ideas.
IBM identified four large themes, providing interactive background information on each one, employing moderators to keep conversations focused, and setting a 72-hour time limit for the first session. By the end of it, IBM had collected 37,000 ideas. IBM will use its own crowd to filter the ideas. The company has made transcripts available to the 140,000 people who logged in to the first session and teams will review the posts. In early September, the company will host a second session, where everyone will again log on to the jam session to vote on the ideas with the most potential. Then senior executives will sift through this short list to make recommendations about which should be funded. Palmisano will have a hand in making the final choices.
3. TAP THE RIGHT CROWDS At YouTube and probably within any new social network, only 1% of the users are active content creators. Another 10% interact with the content and change it. The remaining 89% passively observe. Smart companies want to assemble the crowds with the most sophisticated knowledge about their business problems to maximize the impact of the small percentage of idea generators within them. Consider InnoCentive, a social network created by Eli Lilly (LLY ) where companies like Procter & Gamble (PG ) and Boeing (BA ) can pay a steep fee to post the knotty problems they can’t solve internally — like a process for the extraction of trace metal impurities, for example. The idea is that individual problem solvers — retired scientists, obsessive hobbyists, university students — might be able to lend a hand. If they solve the problem, they receive a hefty cash reward.
This network is dependent on a crowd of extremely talented scientists with highly specific skills. To attract them, InnoCentive recruits at universities, where young, smart minds have not yet entered the workforce. To date, the network has signed agreements with 25 Chinese universities, including the prestigious Chinese Academy of Sciences and the National Natural Science Foundation of China. The network also promotes itself at industry events and advertises in trade publications.
Also key, Innocentive’s rewards for solutions are sizable. Crowdsourcing is not cheap. Just as in corporate America, top talent is expensive, and companies will have the most luck when they are willing to pay up for the inventions that lead to potential innovations.
4. BUILD COMMUNITY INTO SOCIAL NETWORKS Cash is key to getting people to participate, but successful crowdsourcing taps into a well of passion about a product that stretches beyond monetary incentives. Cambrian House, a software company founded by Michael Sikorsky, relies entirely on crowdsourcing. Everyone who contributes an idea receives royalty points, which function as equity in the final product and can eventually be cashed in for stock. But Sikorsky has also created glory points, which reward members who collaborate. He says one key element in keeping people engaged long-term is for them to build friendships with other members. It’s not so different from the eBay (EBAY ) model, where buyers and sellers rate each other and offer commentary. These interactions foster trust and keep people active in the community.
Crowdsourcing is a new and nascent business tool for innovation. Used properly, it can generate new ideas, shorten research and development time, cut development costs, and create a direct, emotional connection with customers. Used improperly, it can produce silly or wasteful results. Crowds can be wise, but they can also be stupid.
If you’re an Internet entrepreneur in search of seed funding, Josh Kopelman should be high on the list of people you want to run into at a cocktail party. Kopelman is himself a successful entrepreneur three times over—most notably as the founder of Half.com, which was acquired by eBay in 2000 for around $350 million. Now, with his three-year-old early-stage venture fund, First Round Capital, Kopelman is putting his expertise to work backing Web software startups such as StumbleUpon—which was also acquired by eBay in May, for $75 million—VideoEgg, and Satisfaction.
Three recurring themes that Kopelman says he’s sick of seeing from startups—plus one thing he’d like to see more of.
1. Business plans that depend on getting acquired by Google.
There are more people that win $5 million in the New York lottery than get acquired by Google. I do not think companies should be built solely to be acquired by three or five companies in a quick period of time. I don’t think you should be building “hamburger companies” that are built to flip.
That said, it’s always validating when someone comes to you and expresses interest in acquiring your company early. You’ve got to give kudos to Facebook for turning down probably an awful lot of acquisition offers on the way up, recognizing that they’d create more value if they stayed independent. As a VC, I often now see young people who are in the mercenary mode vs. people who really are passionate about what they believe. The most successful entrepreneurs I’ve seen are really excited by what they’re doing—they’re not passionate about creating an exit.
2. Revenue models that revolve around advertising from Google AdSense.
Often the companies we see tend to say, “We think there are three or four different ways we can make money. We might not know which ones will work or which ones will scale.” We’re comfortable signing on to that kind of risk. But if a company comes to us and says, sort of, “The way we’ll generate revenue is by putting Google AdSense on our pages,” and really hasn’t thought through anything beyond that—those are the companies we tend to really pause at. We’re not looking for someone who can predict the future, but we do like people who are thoughtful and deliberate about how they’re going to build a business that solves an urgent and pervasive customer need, and also how they could maybe generate revenue from that.
3. Businesses that piggyback on Facebook instead of picking up where Google left off.
I think I’ve seen my fair share of white-label social networks, and I’ve seen my share of cute Facebook apps. We haven’t funded any Facebook apps since they launched. I think a Facebook application is now a necessary component (BusinessWeek, 8/22/07) in an online marketing and customer acquisition strategy—I just don’t know if you’re going to find venture-backable companies there. We like to see companies that offer the consumer real value. One could argue that amusement is real value, and I agree, but I’m not sure if today’s app du jour is going to be what does it.
Matching Interest to Offer
Amusement apps tend to be very faddish, and I also think those are the hardest to monetize because the use of those apps doesn’t derive from intent like a search query does. So, just because I super-poked you or bit you and turned you into a zombie doesn’t really give me anything as an advertiser to figure out your intent or something to target against.
What Google did a very good job with was to recognize that when someone is searching for something, they’re indicating interest. And if you can match interest with an offer, those ads are going to be far more successful than those that don’t. The advertising business is still an incredibly wasteful business. I don’t think the game’s over in that space. By looking at Google, you can see how someone who can create efficiency out of what was inefficient can create value. There’s real money to be made there.
Source: Business Week Online