China Arbitrage No More

Last year in march, Celsius Capital was formed to arbitrage innovation diffusion between U.S. and China. At the time it made somewhat of a sense. eBay was started in 1996 and EachNet was founded 3 years later in 1999 (I could be off a little bit) with almost exactly the same look and feel/functionality. Carlos Bhola of Celsius was an investor in EachNet so he obviously have a lot of experience with these type of investments.

However, like all arbitrage opportunities, this particular gap is closing in fast. Celsius has given up the arbitrage play (I assume atleast from China to the U.S.) with Burnham departing and is focusing exclusively on China. Private Equity Week has more. (wish them luck as I know one of the guys personally and worked with others)

The technology diffusion cycle between the U.S. and China is getting faster and faster. Almost any of the web2.0 plays have a equivalent “sister” company in China. Nothing was more clear to me than when I saw China Web2.0 Review’s coverage of OPML.CN in december. It used to be that people in China would wait until an IPO (eachNet) or series A (facebook/Xiaonei.com) to start producing similar plays but an OPML manager!!!! I haven’t even started using one and there is one in China already... my god... is this good or bad? I dont know...

SpotRunner: How Search Killed The Video Star Part II: Broadcast TV Stikes Back?

Broadcast advertising is a dying business... as would most of the blogosphere would like to posit.

1. rise of performance based advertising models

2. legitimatizing of direct marketing (highly correlated with pt 1)

3. shift of eyeballs from TV to Internet

4. TiVo

5. IPTV and associated convergence (brightcove, Google Video, Media Center etc)

I ran across SpotRunner’s press release and Silicon Beat’s coverage the other day but didnt think too much about it until a VC friend mentioned it to me again yesterday. My first reaction was “what the hell is a startup doing in broadcast advertising?, a dying business for sure.” The second thought was that coffee has been a declining business since the mid 80’s (and still is) but we all know how Starbucks has performed during that time. As long as the livesexchat market is big enough, and the idea revolutionary enough, the vision broad enough, declining market is not an issue. Companies with huge business momentum can eventually “jump the curve” and redefine its market as Starbucks has been able to transform itself to be much much more than just a coffee shop (its Cheers for the rest of us). (as Google is trying to do from its search beach head). SpotRunner is going to be a huge... just incredibly huge... IF they are able to make a couple of these curve jumps...

Fred and Marc Pincus had a debate last week directly related to SpotRunner. In a world where value containing objects are “microchunked” to the nth degree, commoditization might not be inevitable, but PERCIEVED commoditization will be. Consumer will have to rely on BRAND again as an ultimate arbitor of quality since most portion the value creation stack will be similar if not the same. (Brad Burnham has more, as does Umair ) The “success” of search marketing will eventaully force the pendulum backwards. I talked about this before here. Jacob Nielson too has highlighted a growing trend to view dependence on search engine as an the only advertising channel as unhealthy. (He uses a much harsher word :) ). In such a world, creating a brand will be incredibly important, but todate there hasnt been a channel that allows SME to do so effectively until SpotRunner. SpotRunner is bringing the best of google adwords/adsense to the brand world.

1. Self service

2. Menu(or auction) pricing (all negotiation does is slow down transactional velocity & scalability)

2. Mico-chuncked (buy as much or as little airtime as you want)

3. Integrated production (even john q public can create a adsense ad)

SpotRunner will become an incredible complement (and jasminlive competition) to any direct marketing efforts. (Read search advertising). Whether SpotRunner will become just another advertising agency or a huge game changer will be dependent on their ability to...

1. Move from broadcast advertising towards brand advertising across all channels - IPTV, Internet Video, TiVo etc

2. Add components of whats good about direct marketing - performance, accountability, trackability, and measurement

3. Automate ad targeting and datamining - which includes getting some demographic & behavioral data on their audience

Some of these will only happen if structural changes to madison avenue take place, with Google breathing down its throat, it might just happen... Adding more...

Did anyone see this...Google Agrees to Buy Radio Ad Company. A spotRunner for radio ads? Worth $1.2B... these guys are getting into the podcasting advertising game for sure... now they just need an video play... see the comment section of John Battelle’s blog (esp Henry Blodget).

Edge is the new Dot-com

Remember back in 1998 when all we have to do is add an “e” or a “.com” behind any business model to raise a few million dollar in venture capital? Pets.com, fork.com, drugs.com, grocery.com, etoys.com, eDiamonds, etc etc... well, 7 years later with almost all things already “e-enabled”, VC’s are being inundated with the same old business plans again with the only difference being the appending of “@ the edge”. (kinda like adding “in bed” to all the fortune cookie inserts)

So now we get reviews @ the edge, classified @ the edge, e-tail @ the edge (pet @ the edge? groceries @ the edge?), payment @ the edge, auctions @ the edge, video distribution @ the edge , VOIP @ the edge... ok you get the point...

Don’t get me wrong, the .com trend was/is certainly a game changing event (Amazon, eBay) for many industry as well as creating many incredibly profitable small livejasmin businesses (yes! selling pet supplies does work online ). “@ the edge” has just as much merit because the web is getting flatter (ie the tail is getting longer) and the walled gardened models has serious structural flaws. But as is everything, true innovation doesn’t come from following a macro-trend.

Everyone is already wise to the structural shift to the edge taking place. For every “@ the edge” idea, there are 30 teams, 10 business plans, and 5 VC/angel financed startups looking to enter the space. If your only competitive advantage is speed of execution, you are kinda screwed...

Page & Brin Get “Steam” Envy

I think both Paul Kedrosky and Nick Carr is right... that Google Pack is the pet project of Larry and Sergey and that Google Pack is a trojan horse attempt at disintermediating MSFT. (Michael Parekh have the best summary/analysis of the Gpack)

The software industry has consolidated so much that “publishers” don’t really play a huge role in the space as they did in the early 80’s. Today, Microsoft has essentially become the defacto publisher and producer of software through its “extend & embrace” strategy. However, the last 6 month has made it exceeding clear that there exist a huge demand for the long tail of software which had previously been under monetized due to Microsoft’s dominance. The current “tails” are inefficiently monetized because the lack of an efficient distribution and marketing channel which in turn force many tail-focused software developers to seek out the public domain or shareware infrastructure as an alternative.

One huge huge software market that remained fragmented with traditional publishers holding the power is in games. When the GooglePack anouncement first came out I couldnt help but think of Half-Life. Being a certified geek, I’ve spent a good portion of my mid twenties dedicated to the art of Half-Life Counter Strike. I suspect (:)) Larry and Sergey did too, and that Half-Life is their inspiration for GooglePack. Let me explain, Half-Life’s developer, Valve, launched Steam in 2002 as a method to distribute games directly from developer and gamers. Steam was so successful (after some hicups) that Valve’s traditional game publisher (Sierra/Vivendi) felt neccessary to sue Valve. ( More here on independent developers’ reaction).

Steam has evolved beyond just pure “pipes” to a full grown community with instant messaging, thirdparty software aggregation, and perhaps in the near future... a currency system and markplace for virtual goods. The obvious potential of having a direct to end user distribution channel is HUGE (not to mention anti-piracy implications). Furthermore, with SaaS being the hot trend, having such a “pipe” to and from the desktop is a prerequisite for building a metering and billing infrastructure for subscription based business models.

Steam got there because the first application which it was bundled with (Counter Strike) was “indispensable” - atleast to a particular segment of users. I’m not quite sure google pack as it currently exists fits that criteria, but Larry is sure trying. I wouldnt mind if the Valve guys start thinking a little bigger and create a sister system of Steam to take on Google... if there is a company that has more credibility with geeks/early adopters than Google it is Valve...