If you haven’t seen it, Stocktwits just announced the close of its latest round of funding. Happy to add to my Stocktwits seed participation.

I like this company because it’s a real user-driven community based on top of the Twitter platform. And I don’t use the term community lightly - there is a social norm forming within the Stocktwits contributors that’s very warm and focused. I don’t see this kind of interaction in the other social networks. Credit to Howard, Soren and Phil.

And anyone who knows me know I am a big believer in the monetization potential of the finance vertical…

To read more, check out Roger Ehrenberg’s post, Fred Wilson’s post or the article in Venturebeat.

 Somewhere around 530 million years ago, Opie (opabinia) was swimming around on his favorite continental shelf; propelling himself with his fantail, perusing the scenery with his five eyes and munching on critters he had picked up with his articulated pinching claw-nose. There was a huge mudslide and, unfortunately, Opie and several million of his best friends were trapped in what would become to be known as Burgess Shale.

Burgess Shale is important because it’s the subject of criticism brought up against Darwin’s theory of evolution. Specifically, this fossil-rich rock contained greater diversity of life than ever seen before. So there’s no way that simple evolution could account for the explosion and contraction of diversity. Or could it.

Steven Jay Gould, an American paleontologist and Harvard professor, came up with the idea of Punctuated Equilibrium and published it in 1972.

The theory proposes that there are times of accelerated change, but they’re still driven by the scientific principles of Darwin’s Natural Selection.

I’ve been able to distill, from sources on the Web, primarily but not limited to Wikipedia, that there are three elements in the process that lead to this rapid adaptation:

1) Presence of enabling building blocks.
2) A change in the environment that facilitates thing that’s adapting
3) The recombination of existing building blocks into something uniquely suited to succeed or flourish

In the case of Opie and many of his frightfully mutated friends, the building blocks came in the form of millions of years of genetic changes that were ready to differentiate eyes, tails, mouths and claw-noses out of generalized cells. (HOX genes)

His enabling environmental change came in the form of new shallow waters on emerging continental shelves – created by the breakup of the supercontinent of Gondwana, as well as an increase of oxygen in the atmosphere.

So, with genes raring to go, the warm, oxygenated shallow waters of the Laurentian continental shelf gave the perfectly hospitable environment for an acceleration of diversity. Some with five eyes and claw-noses, some with poisonous spikes and wormy bodies and some that were three-foot-long creatures with pinchers and toothed sucker-mouths… The stuff of horror movies.

Good for us that the mudslide happened.

Interestingly, though, all of our current classifications of living things (Kingdom, Phylum, Order… etc) can be traced back to ancestors of the Cambrian period. So something lasting took place there.

Why the science lesson? I have found the pattern to be broadly applicable to lots of things.

Take the Renaissance. (Trust me, I will get to technology eventually…)

It all started in Italy somewhere in the mid-1300’s. The known world had been the stage for the Crusades. Medieval times, also known as the Dark Ages, were winding down. The Catholic Church was experiencing a decline and the Pope was losing power. Not much progress in terms of society, economics or knowledge had taken place for a while.

If you want to understand what the Dark Ages were about, take a tour of the Tower of London with a Beefeater. It was all about the chopping off of people’s heads, from what I can tell.

An interesting thing was happening, though. Northern Italy – specifically Florence – was a hotbed. It was on the trade route between the Eastern Mediterranean and Europe.

This trade route brought both economic benefit and a flow of knowledge through Italy. It created a virtual continental shelf, complete with sunlight and oxygen – in the form of wealth and knowledge.

The last piece of the environmental picture is that the Medici family took power in the 1360’s, and reigned until the 1730’s. The family is famous for its support of art and architecture. And, by chance, also had a big successful banking enterprise. See how the building blocks assembled themselves?

Then an interesting thing happened. France and England had the 100 years war, effectively ruining the Western side of the trade route. On the other end of the line the Turks took Constantinople and the Greek scholars fled to the West. Many landing in Italy. By 1453 much of the economic power from Europe and the brain power from the Eastern Mediterranean were concentrated in Northern Italy. It was a good time to be there.

So the selective forces of war and power concentrated wealth and knowledge in Northern Italy and the greatest diversity of Art, Architecture and, ultimately, Science was born.

It’s also interesting to note that the men who mastered the emerging activities of the day were deemed “Renaissance Men” and were skilled in all of the relevant fields.

One of the most amazing things about the renaissance time is that we currently live under the structures and celebrate the products of the period. Specifically, our current definitions of the Arts, Sciences and Architecture and Finance were defined then and there. The Renaissance men such as DaVinci, and Michelangelo gave rise to a new form of excellence and innovation that crossed boundaries. Gutenberg, Copernicus, Descartes and Galileo were all men of the Renaissance. It can be argued that there have been no equals to these characters. And there may never be. At least in those specialties.

Where does this leave us?
I’m going to make the case that we are currently experiencing a flourish similar to that captured in the Burgess Shale and the Renaissance.

Our building blocks are different in form but nearly identical in function. Our environment is no less rich than that of the continental shelves of the Cambrian or Northern Italy at the end of the Dark Ages.

Our expansion is different, too, yet very similar. Our lives and the lives of every human from now forward, have been fundamentally restructured by the developments of our age.

Out of this time we will define the structure for countless future generations. We will give the stage to our own polymaths and, ultimately, be subject to natural selection processes that dampen the flourish and determine the “winners” for the future.

Stay tuned to LuckyRobot.

I snagged this from Swivel.com. Great site for datageeks.

Interesting how Miles traveled is resilient to gas prices. Drivers have a high elasticity in gas prices… I wonder how high/low gas prices have to go to change behavior…

BTW, this data is a little old.

Also, I am crafting a new post right now. It’s required more research than I expected, look for it soon. As a teaser - it compares our conditions today to those that conspired to create the Renaissance… very interesting comparison.

*

In 2003 when I had been heading up AOL Search for a while, we began to bang structured data into search results pages on a query-by-query basis. We used pre-formatted javascript templates that were selected based on keywords, and filled from the freshest, most relevant data we could find.

In today’s parlance we had widgetized search. We called them widgets back then, too. The entire system had to be built from scratch, and it was both costly and time consuming to build.

It was worth it. For the user, this meant that a search for “Turkey Recipe” would pull up – amazingly – a turkey recipe right at the top of the page. A search for “Austin Powers” would take your zipcode plus Moviefone data and present you with reviews and showtimes with a single click to purchasing tickets at the theaters near you.

Users and press raved.

It really was a big deal. In fact, we had this “search programming” on 20% of all queries, across all known categories – sports, autos, entertainment… This was the “Google and More” plan that allowed AOL to go into a relationship with the future juggernaut with confidence – we were going to use real content and clever editors to build an experience well beyond what the bluelinks could provide. It was great being Google’s biggest partner as they entered the world of paid search.

This search editorial program wasn’t an accident. I, as well as several of my contemporaries had been working on the opportunity for several years by then. (In fact, you could claim that when Ram Sriram’s Junglee announced “the Internet Is the Database” this all began.)

It grew out of a few different streams of activity that had been going on – at AltaVista the Web Search team had been doing a small version of this and I was working on the getting shopping data into results completely structured and pre-widgetized. Lycos had been trying things out as well. (AltaVista and AOL people may remember our friend Tim Robinson who was a major visionary behind this)

This program is exactly why I went to AOL. AOL had just merged with TimeWarner and an entirely new range of content – content from a REAL media company – would be available for search enrichment. What an amazing opportunity. My biggest frustration at AltaVista was the lack of content resources to enrich the experience – to keep people from flowing straight through the system and out to the Web without adding real value.

To make an already too long story shorter, we (AOL) made a boatload of cash on search with Google and the TW merger cratered. I moved on to implement a similar vision within the bounded vertical of Finance and News. That left the world’s most evolved and enriched version of search – AOL’s Fullview – at the hands of aggressive costcutting and Fullview was determined to be off strategy. No sour grapes at all. Just a missed opportunity.

Since then, former colleague Jason Calacanis has gone on to create Mahalo under a similar premise, Wikipedia has evolved into an amazing resource, and Google is still pumping out bluelinks, plus just a little more.

Anyway, the title promises that this post is about semantics, and it is. This is just necessary background.

The opportunity is still there, whether in search or in the online world at large to create a virtual fabric of content that can be experienced (browsed and searched) – and even more importantly assembled on-the-fly - based on its relatedness.

What do I mean by that? Whether in search or in socially-relevant widgets or in feed aggregation, we need to link and connect content based on its MEANING and not keyword similarity. Specifically – When I am looking at a Microsoft earnings report and I see related links to “gates” I want it to be about the person, not the thing. The same applies to java, apple and about six million other things. We live in an ambiguous world.

For this to become reality, two things need to happen:

1. Content needs to be accessible in a format that is native to its type of data. For example, the fundamental information about Microsoft (P/E, market cap, etc) will be in fields, just like a spreadsheet. MSFT’s price history is going to be formatted into a huge list of Bid, Ask and transaction prices (gross generalization). News about the latest earnings will be in text blobs. You can’t index this data with a traditional crawler, and it can’t all be mushed into a single format without losing the unique value.
2. There needs to be a consistent way, across formats of data, to call out and associate similar items. MSFT is related to Microsoft is related to Steve Ballmer is related to Bill Gates. With this type of linking, we can then understand the interrelatedness of things. In its simplest form, this is semantics.

Now, to the point of this post.

If you look above, there are two things that need to happen for the content/information experience on the Web to be dramatically improved: we need content in a universally accessible repository (or repositories) and we need a technique for connecting it all together. Also, the web is evolving and we now have the challenge of making that all socially aware and realtime.

Let’s take those two chunks separately.

Big Honking Database of Content - In the last 18 months we have seen an amazing set of resources applied against this.

• Freebase is the first company of note. It promises to be a huge content stash in the sky and is funded to do it. Very very promising.
• Amazon released public datasets this week. So now if you want economics and scientific data it’s there. And you can make your own data available via AWS if you allow it to be freely accessible. This is a HUGE step.
• Fluidinfo and Terry Jones. It seems fashionable to say “I know Terry Jones” these days. Here’s why: Terry has quite possibly created the database to handle structured, semistructured, tagged and attributed, social and realtime data. In its native format. That’s why pundits like Tim O’Reilly and Robert Scoble are openly excited about Terry and Fluidinfo. Terry and I have spent many hours together contemplating this. (see, I know Terry Jones too!)

Semantic technologies – There is more work to be done here, but it’s on the way. First of all, to fit into the broad model I have laid out, the semantic tagging technology needs to be at the tool, or platform level. This rules out most of the activity in the Semantic space.

Here’s what I mean: If you want to create, say, a music fan-site application that pulls together artist bios, discography, tour reviews from the Web, user generated content and the ability to purchase both tickets and CD’s, you would assemble the content and then you’d need a semantic tool to tag and generate the connections between bands, releases, tour dates and purchasing.

You can’t do that with a semantic application that only provides related links or delivers search results on only the information in its own index/database. You need a tool you can run on all of the sources to generate consistent metadata. Not that Hakia, Twine, Powerset (now MSFT) and Zemanta aren’t useful, but they’re individual applications on top of a semantic engine. Builders need access to the engine itself in order to build a wide range of products and open up the power of the technology.

Unsurprisingly, I am highly in favor of the OpenCalais approach by ThomsonReuters.

The best part is that v 4.0 of Calais will be releasing the “Linked Data Cloud.” It goes after this in a truly powerful way, providing users not only the ability to get their own tags, but to see how those tags relate conceptually to other things in the OpenCalais data model. Rocket Science.

But this post isn’t about OpenCalais either.

This post is about finding opportunity in the world that is evolving.

If I haven’t lost you yet, and you can agree that content+semantic tagging is useful, you can see that there are some problems and opportunities.

• Completeness of data – DMOZ (aka The Open Directory) used to be under my domain at AOL. I never could invest in it because the community management model was flawed: communities only want to curate the things they’re interested in (thanks to Andrew Cohen for the analogy). Investment in the infrastructure was only going to feed the weediness and patchiness of the garden. Freebase is showing signs of content spottiness and AWS will too. It’s an issue of primary importance. So I think there is an emerging opportunity to provide curation on top of these open services. Like Redhat to Linux.
• Quality of data – Just like completeness, If anyone can publish to the datasets, there’s a risk of problematic information. This is where branding, and the associated quality control comes in. The opportunity is for companies who create content to establish and promote their brand as a sign of quality. Quality wins out over crap time and time again.
• Universality of tags – Zemanta is admirably trying to get a tagging standard adopted across semantic engines. Whether by agreement (standard) or market leadership (default) the emerging content world will benefit from consistent tags to operate on. More things will be “connectable.”
• Applications Applications Applications! – This is where I get excited. Really excited. After 15+years of helping people find what they’re looking for using technology, I scan the horizon and see the building blocks to finally get it done. We (the tech community at-large) now have raw content feeds, open and free databases, functionality APIs, open source platforms and development methodologies that free up our minds to think about how users really want their content. We are right on the edge of being able to build what we can imagine – quickly and cheaply. We’ve got the tools to measure it and the social context to present it in with personal relevance.

Jason Calacanis recently posted about the responsibility we all have to push forward through this downturn with 120% effort… The part I found specifically valuable was where he calls entrepreneurs and those with the resources to get out there and start something. I can agree with that.

So, the tools are there and hopefully I’ve given you at least one way to think about it… I am definitely making my bets on where this is going and will probably join in on the app-building side soon.

And yes, this ties in with the Splintering of Media. I’ll get to that soon…

(* Photo “Sound and Vision” copyright Rogiro from Flickr)

To start with – right up front – I am a minor investor in Twitter. Minor. Which means I am hoping for its success, but it won’t change my life either way.

That said, I am definitely very interested in what it is and what it can be. From an “evolution of media” perspective, we’re looking at a huge change and transformation. The solidification of a new media form.

It’s easy to find all sorts of opinions on Twitter. Like all good hype, there are kool-aid drinkers, naysayers and everything in between. Heavyweights are all over the board.

It’s perfectly clear though – this crazy, simple thing has hit a chord.

With media history as a guide, let’s look at the forest and classify the trees… Then you can be the judge.

Evolution of Media as a guide…
I could go into how expressions of individual status are the obvious and expected extension of publishing… one that started with Gutenberg’s press, carried through personal pages, through to blogging and ends somewhere with full-text brain interfaces. (I hope not…) I may dig into that topic soon because that trend alone justifies something Twitter-like and can provide a projection into the future of what is next on the trajectory. Not today though.

I could also draw the parallel to one of the oldest forms of communication and commerce – the town square/bazaar. We’re currently on a track with Twitter that provides a pretty good parallel to that. It’s the place where cacophony prevails and every little aspect of human need for social interaction happens. News, communication, transactions, influence
and even education. Again, that’s another fruitful line to ponder and it can lead to some interesting conclusions about where business opportunities lie.

More significant, however, is that the combination of those in real-time creates a new medium. Not an extension of print or a trip through the online town square.

Declaring a new medium is a pretty bold statement. I stand behind it. Whether the ultimate victor is Twitter, another company or a vibrant set of purpose-built competitors (e.g yammer, etc), this more than any other social tool marks the beginning of a discontinuous, fundamentally different era of social behavior.

Why is Twitter so different?
1) Simplicity – At the heart of this new medium is a clearly-defined standard: short messages. Nothing more. Those messages can come from any computer or device, flow to anyone and everyone.
2) Fidelity - The 140 character limit forces a type of message clarity that drives contributors to terseness and high-content expressions.
3) Platformity (sic) – Twitter is conceived as an enabler. An infrastructure for messaging. In fact, I believe that there are few real applications on top of the platform. Everything we see in terms of apps today is pretty weak.
4) Scale – Twitter, moreso than the other competitive services, seems predestined to achieve scale due to media and opinion leader attention.

Is Twitter really different? Haven’t other services achieved the same things?

Yes, it’s different. And no, nobody has. Short messaging has existed for some time. In fact, CompuServe had a status capability long ago. Yes, CompuServe. Since then Facebook, AOL, Google messenger – everyone has had the capability, but it’s always been buried within another value proposition. SMS is the obvious older brother, but scale is limited because it is tied to a specific type of communication device and its not free.

The brilliance of Twitter is that it’s so damn basic and universally adaptable to all types of messages, modes of publishing and methods of retrieval.

Where to from here? What’s the opportunity with this new medium?

To understand the full impact, we need to start with the most fundamental building blocks of human social interaction: News, communication, commerce and information exchange.

News - Twitter represents the biggest breakthrough in news since newspapers moved online. Short messaging with a global audience has the ability, hands down, to be the fastest most consistent source of breaking stories. In a world
measured in minutes, this medium can publish in seconds, and does so every day. And, instead of thousands of beat reporters, there are millions of contributing Twitterers who can act as sensors for the world’s developments, providing more granularity and authenticity to occurrences. The challenge and opportunity in news is to bring in traditional techniques for verifying sources and establishing validity.
In addition to timeliness, there are two other factors in newsworthiness: Overall significance and Personal impact. Overall significance is assessed by rankings technology (twitter trends) or by traditional editors. Personal impact is where my
Friends Timeline comes in. News expressed by a friend is automatically personally relevant at least to some degree. Both have promise in terms of sorting out the overwhelming volume of message flow.

Communication – Two words: public conversations. Since its inception the web has lacked social referencing with respect to intrapersonal communication. Twitter messaging doesn’t replace email or IM. There are things that are best to
stay there. In fact, you should be very careful about the direct messaging features of any social site. Personal experience. There is, however a natural part of our humanness that wants to discern who is talking to whom and what they’re saying.
This is a huge part of our social concept in meat-world and has yet scratch our human itch in a big way online. It’s a big part of what Social Media is all about but we’ve lost our way in a world of widgets, wikkis and web-apps. There
remains a huge opportunity to exploit this shortcoming within apps on the Twitter platform. The apps today just aren’t able to filter and sort conversations yet. I expect the simplicity and single-purpose nature of this open messaging system to prevail over a closed system (e.g. AIM, Facebook) over time.

Commerce – For the last couple of years, I have listened to CMOs and brand marketers talk about “the Conversation” with their customers. Honestly, I have felt it to be well intentioned but WAY off the mark. Measuring positive brand affect in a survey is not a conversation. Talking to ten customers in a focus group is not a conversation. That’s way too abstract. Reaching out to a customer who has expressed frustration during an installation-gone-awry, that’s a conversation. Especially if it is done real-time with all, not just some customers. Helping a user determine the right broadband package, even if it’s not from your company. That’s a conversation. The opportunity is to help marketers find ways to reach customers and initiate those conversations. Real-time interaction with customers in a public conversation is an entirely new phenomena and new venue for marketing. This is an opportunity that has never been met by traditional company-oriented destination customer forums.

There is a danger. The norms for commercial presence are currently only emerging. Perceived violation can have negative effects. Keep that in mind. Please ask if you need help.

Information – This one is a little more vague today, but it is going to evolve over time. I have mentioned in previous posts, the exhaust of news and communication messages in these lifestream updates creates a corpus. For the non-search-tech folks, that means a set of knowledge to search against. Google builds an index of Web pages. Search.Twitter.com (formerly Summize) builds an index of expressed, casual information. En masse this has huge informational value, even after its flash of real-time value has faded. When did the buzz begin about the new iphone? What messages received the strongest positive response in the election? Does Imitrex work? What’s on the daily special today at Nobu and is it any good? These are questions that should be simple for this search and costly/impossible for other approaches to replicate at scale.

How does it all add up and why is that important to me?
It’s simple – regardless of immediate revenue plans, technology stability and leadership changes, Twitter has a shot at fundamentally transforming the nature of social interaction on all four dimensions. This has historically big potential.
-   The opportunity for entrepreneurs is to take the stubbed out platform of Twitter and create better and better apps
-   The opportunity for companies is to engage with your customers in a real conversation
-   The opportunity for the media is to refine Twitter as a tool for harvesting news and
opinion

image courtesy of a guy named Somefool(matthewm) via Flickr

Twenty years ago today I was sitting in a mass media class as a junior in college working on my Communication degree. (I can hear the wheels in your heads clicking… next month I’ll be 41.) Me and 399 of my closest friends were learning about the Great Splintering of Media. I lifted my head off of the sliver of a desktop at my auditorium seat, probably drooling, and though “hmm… that sounds like a good thing to remember.”

For those not familiar, there’s a phenomenon that runs like clockwork: media becomes more diffuse and specialized over time. Maybe it’s the ever-increasing proliferation of content, maybe it’s the natural evolution of advertising spending and maybe it’s the appetite of audiences becoming more specialized over time. It could be technology too. Regardless, it is a fact. Death, taxes, media splintering.

GE bought Marconi’s company, American Marconi, in 1919, creating the Radio Corporation of America (RCA) and the race was on. (Actually, you can argue that Gutenberg started it all, but it doesn’t matter.) Later, when the radio pioneers turned to TV, media began to spread in local markets with the backing of national networks like NBC and CBS. NBC was the first to begin daily broadcasts in 1939. Then in 1944 ABC was spawned out of NBC by government intervention and we had the 3 major networks. These three essentially locked up the VHF spectrum and no major networks emerged. Public TV also lived on that fuzzy temperamental cousin of VHF called UHF, but not much was going on for a while until the Cable networks came along. Unless you like the old black and white I Love Lucy episodes, I guess.

What’s interesting is this: on April 29, 1961 Jim McKay led the first broadcast of ABC’s Wide World of Sports - remember? “The agony of defeat?” and it signaled an area of the big guys beginning vertical franchises. I could go on all day, but the important thing is that within the big networks they began to verticalize. This is the expression of splintering.

As all splintering does, it starts within the big networks and then, ultimately spawns independent channels. The advent of Cable TV technology was an unbelievable accellerant… Now we have the Golf Channel, Extreme sports channels, thirty-five flavors of ESPN, Speed, Adrenaline. Maybe we’ve got enough sports channels on cable now. Maybe not.

All just history. Interesting to me… maybe to you, too.

So, that’s the phenomenon. It’s been repeated in magazines, newspapers, movies. Clockwork.

Why do we care? It’s repeating itself right now. As we speak. The big “networks” of Yahoo, AOL and MSN are now experiencing the inevitable dis-aggregation of their previous value bundle. In non-MBA-speak, they’re getting picked apart by smaller, faster, specialized competitors. It’s a natural process and it’s been going on for a while - initially there’s utility for users in going one place to experience the content. As the user seeks more and varied sources, they branch out and ultimately have a menu of choices where they can get their guys-crashing-on-motorcycles fix.

What does it mean to us today?

Recognizing the trend creates opportunities. Historically, creating successful verticals online has been tricky business. Many fail. For instance, shoppers don’t necessarily go somewhere other than their usual search engine to search for products. You have to look deeper though because behaviors evolve. Users DO shop at shopping specific sites. Amazon. Zappos. There’s a microcosm of verticalization right there.

Where is this trend going? We already know that there are a few key modes of online activity: News, Communication, Information exploration. Think them through to the logical extension. There’s opportunity there - the emerging social networking sites (corollary to cable?) have made very little separation and specialization around those key dimensions. I see opportunity there.

If you look at it in retrospect, you can see broad evidence of diffuse and specialized media consumption. How about feeds? Mobile? Alerts? Interactive TV? The internet is already blasting apart into a million pieces and it’s not going to slow down.

Also, cycle time is a critical thing. Mobilizing to fill the gaps and push the splintering further requires rapid iteration and very sensitive feedback loops. Some of the insight we can gain from that is that a) platforms take a long time to build, only do it if you really need one. Customers and Users interact with PRODUCTS - put your time there as much as possible b) don’t skimp on business intelligence c) the old way of approaching the first two probably need to be updated to adapt to the realtime, or Now Web.

And business models… I’m keeping those thoughts to myself for now.

And, to bring up the obvious… what does the current economic situation do to the splintering trend? Not sure. I’m going to bet that it’s accelerated. Big.

I believe there is an entirely new way to conceive, architect, market and iterate products to meet the Great Splintering of Media. I’ll keep thinking. Let me know what you think, too.

To follow up on my posts regarding Smallness, it seems like an illustration may be really beneficial.

Enter Jim Kovarik and Cost2Go, with his initial offering Cost2Drive.com. I mentioned it in my post about winning investors. In fact, it was partial inspiration for the post.

Jim and C2G are the poster child for what I am talking about. If my theories are wrong and the company isn’t successful, I’ll be proven wrong. I don’t think so, though. Here’s why: Jim has shown an intuitive sense for building a simple, clean, scalable and profitable business. He’s done it to date and I expect that to continue. This should put him in a good position to adapt, adjust and take advantage of whatever comes his way. If funding is hard to get, he can stay lean and work on scaling traffic and revenue. If there is interest from the venture community, he is ready to go - he knows exactly what to do and when to do it and how to spend to get there.

To be transparent, I did know Jim form my previous life at AOL, but not well. Also, although I do want Jim to be successful and am talking with him about Smallness, I am not a shareholder in his company. But with his OK it probably won’t stay that way for long…

On to the case study.

As I laid out, there are a few basic principles:
- Clarity of Value Proposition
- Demonstrable market traction
- Existence of a revenue model
- Flexible decision making via scenario planning
- Clean funding

CLARITY OF VALUE PROPOSITION

Company Vision: “The vision of C2G (Cost To Go) is to make it easy for people to determine the costs of going places. These costs include monetary costs, environmental costs and personal costs (i.e., time).” I posted something before that was much more wordy - my own concoction. This is way better.

Another critical thing: Cost2Drive.com screams this value proposition through its simple UI/interaction model, uncluttered page design and zero-learning-curve features. To be clear - it’s not good enough to have a story about simplicity - the site needs to express that simplicity with high fidelity impact.

MARKET TRACTION
It’s early for C2G, so there’s not much history on the traffic side. The following graph shows a strong start.

There is a credible story that users are finding the site useful and are telling others about it.

Additionally, there has been a significant amount of market buzz. A writeup in CNet, a story from Kim Komando, and a lot of support for the idea in the blogosphere all add up to meaningful positive support.

It’s worth noting that there are good and less-good types of traction and it’s easy to get confused. The very best proof of your product has traction and market acceptance is a sustained and increasing number of uniques, visible through public reporting services like Compete.com or Quantcast.com. A line that shows the characteristic “up and to the right” trajectory will prove beyond a doubt that there’s something of value being created.

Less good traction… Blog and press buzz. Don’t get me wrong, it’s very very beneficial to get people instersted and talking. But that has got to translate into user acquisition and engagement or it’s fleeting. Journalists and bloggers are by definition fickle. They need to show the next new thing on a very rapid cycle. Exposure is great and necessary and the game can be won or lost here, but the effective company turns press visibility into retained users. There’s a lot of strategy about when and what to message. Big topic. Find someone you trust if this doesn’t come naturally to you. Also, be wary of SEO, same thing. Great to get it. Big part of the success story, but algorithms can be fickle. Google giveth and Google can taketh away.

Not good traction… SEM. If you’re buying a large portion of your traffic you have two complications. 1) If the site is good, people will tell each other. Clean feedback in terms of site usage is critical for measuring and refining your value proposition. A purchased link will cloud your metrics. 2) Buying retail (paid clicks) and selling wholesale (nascent monetization efforts) is a losing proposition. Nobody wants to fund Google via a startup.

REVENUE MODEL
This is where it gets interesting. And there’s a lot of conjecture. Sure, it’s possible to get a company up and running based on the idea of user attraction. While it can be done, it’s not recommended. In the same way it’s not recommended to do an appendectomy on yourself. Sure, it can be done, but you really need to know what you’re doing and have a lot of people around to help. In the midst of GMM (Global Market Meltdown) and on the heels of TM (Tech Meltdown) it’s unwise to wait to figure out the business model later.

C2G really lit me up. I was a skeptic. I didn’t see how this interesting little utility had a business model. Jim took me to school, pointing out that the underlying concept gets at the cross-section of two very interesting businesses: Autos and Travel. Autos from the perspective that C2G learns a lot about what people drive and can make suggestions about what might fit their needs next time they are looking for a car.

Travel from the perspective that people may need hotels, visit attractions, etc. So this little utility can actually be a category creator. The business model offers a nice mix of opportunities: Integrated partnerships, Lead generation and, to fill in the cracks, a little traditional display advertising. I have seen the projected RPM’s based on these and it’s respectable. Also, there’s the opportunity to optimize amongst various models for effectiveness. On top of having the potential for revenue, Jim is already out there signing up a few key partnerships who will grow with with the business as it scales.

SCENARIO PLANNING
I intentionally use the term Scenario Planning instead of strategy here because we’re talking about something very specific. Lots of companies plan for their exit. This is certainly a part of the strategic picture, but it should always be Plan B. Or Plan C. Plan A should be to operate the company to a strong market position and profitability.

Here’s what I suggest:
Plan A = The base case. What is the most difficult-yet-sustainable situation that the company should plan for? Low burn rate, adverse funding environment, slow partnership market and conservative revenue growth.
Plan B = The upside. What are the 2 or 3 things that could go well and what can the financial picture be if this happens? What needs to be done to achieve this?
Plan c = Acquisition. Who is the most likely suitor? What needs to be done to become and stay attractive?

Putting it into action - Plan A is your nut. It’s the foundation of the operating plan. Keep the lights on and build something valuable. Plan B contains the product features that you want to fit in and will accelerate yor growth. Lower priority in the feature-build process. Plan C takes Plan A and B and looks at it from a different perspective. Once you have a solid operating plan, do you have the right elements in place to command attention and a reasonable valuation should someone be interested. Get your plan C perspective and then put it away for board meetings.

This approach has worked with surprising consistency in the past.

C2G has inherently built itself on the Plan A-B approach. Burn is extremely low and the company can operate for an extended time while continuing to make progress toward its vision. To that end, the application of capital is to kick the company into Plan B - exceeding the basics. If it’s successful in building an engaged audience and monetizing it, Plan C may materialize.

CLEAN FUNDING
As I said previously, the key to clean funding is timing of milestones and application of capital. How much money, at what point in the life of the company, and what will each successive raise do for shareholders - existing and new.

Jim has done himself a huge favor by keeping the initial capital needs low as he builds value. The trick now will be to raise enough money that he can achieve the next milestone. This is where he’s spending his time now. He’s working the confluence of numbers, product features and market forces to estimate how much money it will take and how it will be applied to be at the front of the driving travelers mind as they plan their spring and summer vacations.

I look forward to seeing this company grow.

I had a bug that was making certain posts have the really cool invisible type style applied. I uninstalled that feature, so you with IE can see again.

G

I love to build things that help people become more informed, make life a little more convenient and make money.

It’s not hard to see why my list of employers and investments all operate in search, news, finance, local, semantics, etc. The common thread is that they all support my personal mission above.

With that mission (either implicitly or explicitly) in mind I have constantly sought companies and situations that will give me the best chances for making an impact. So, I have worked in both big and small companies.

That’s the catch 22, it’s always a tradeoff

Big companies have resources but they’re difficult to mobilize. Small companies are flexible but often lack even the most basic resources.

All things being equal, those tradeoffs of size vs flexibility balance themselves out and there is opportunity on both sides. For the foreseeable future, the pendulum is going to swing toward the small/medium company. Resources will be harder to deploy in the big guys. Here’s why:

1. Increase in government involvement in large business. Bailouts, increased organized labor, Sarbanes Oxley – all of these things pull Uncle Sam into the board room. He’s already had a board seat, now he’s aiming for locking up voting rights.
2. Market pressures. Large public companies have big fish to fry… like solvency, unsettled shareholders and executive retention. I think only Steve Jobs can claim the honored place of focusing on building great products for customers when the company is under fire. Most others succumb to distractions of re-org, unfocused cost-cutting and seeking media favor. That can lead to greater constriction on resources.
3. Availability of capital. When you’re big and challenged, there are only a few honeypots big enough to borrow from. Uncle Sam (see above), your competitors, China… You get the picture. The key thing about this situation is that each possible source has highly unfavorable conditions attached. Strings all over the place. Not that it’s too much better for small companies seeking capital, but at least your backers’ primary motivation is your success.

“The ball’s coming your way!”

How can small and medium business take advantage of this? In my “Winterize” post I laid out the idea that it’s good to prepare your resources for opportunity. This is the general picture as I see it: Traditional market leaders are going to be distracted and unable to respond to advances by companies that are more nimble. Why? Their great advantage, resources, will be locked away.

It’s a real David and Goliath situation.

To make this concrete let’s take one of my favorites, the Auto Industry. The big US manufacturers are distracted. Sales are lagging, they have old technology, huge balance sheet burdens and increasing pressure from unions. GM has an ace up its sleeve in the form of a new mass market green lineup. The catch is that they, along with the other US mfrs only need a small amount of $50B from the US government to go after it. (Truth: $25B of that $50B is actually slated for pensioners). This is MESSY.

Enter Tesla. This company has the opportunity to bring green cars to the US. I really hope they get their winterizing plan in order because the future of the US auto industry may depend on it.

Does this apply to the Internet and technology (non manufacturing) industry? I think so. This principle operates on a continuum. Big is relative. For example, Yahoo is distracted. The door is open for competitors to create and market a better photo sharing service than Flickr. Or a better finance site than Yahoo Finance. Those are both powerful leaders, but it’s pretty clear that Y! would have some trouble investing in their product heavily and quickly enough to protect those businesses if a new site gained momentum.

These are the kind of upsets I believe we can and will see in the coming couple of years.

Is Googoliath distracted? Is there the same opportunity there? Certainly not like GM and Ford, but it’s clear that there is a lot of activity going on and focus seems to be fuzzy at best. I’d love to see someone make a bet that they are distracted, at least in delivering the next generation of core information search. That one is a good bet for a future competitive beach head.

I said small was good, what is this about competing with big businesses? Remember, small is not a measure of revenue – it’s a measure of clarity, strategy and operating focus. Upsets are frequently led by the single-minded company on a mission. IBM was distracted and both Microsoft and Apple were born. AltaVista and Excite were distracted and Google was born. Who’s next? If your company, division, or project can follow the Small principles you’ve got a shot.

In my last post I shared my experience with what I call a flameout. We hit the wall at 100 miles an hour and went poof.

In contrast, there’s the idea that small may be a better approach. Great. What does that mean? This post is to answer that and offer guidance to entrepreneurs who are taking this down-market opportunity to start or grow their businesses.

Being small may mean something different to others, but to me it’s a way of operating that relies on simplicity, clear strategy and shrewd decisions.

The following may sound like a VC’s perspective. I can guarantee you I am not a VC. A few of my heroes are VC’s* and I have ultimate awe and respect for them but I am an operating person at heart. So I look at things a little differently. (*Definition – Gerry’s heroes include people who build networks of strong relationships and facilitate great products while making lots of money)

Why should you listen to me? I’ve built profitable businesses, invest, have been in corporations and led the acquisition of several companies and have helped sell a few companies. I have occasionally failed and learned, too. I am intimately familiar with all sides of the transaction.

So, small is a philosophy. It’s an approach that permeates your business. To remain small you need to have sharp focus on your goals and the critical factors for achieving them. Ultimately, that sense of clarity is expressed to all of your constituents – investors, customers, partners and family.

This philosophical approach shows up in several ways:

Clarity of value proposition – What is the problem? How many have it? How does your company solve it? These are critical questions. If you can’t answer these with simplicity and in a single sentence that passes the obviousness test, you probably have more work to do.

For example – Summize searches Twitter’s public timeline so every Twitter contributor and lurker can instantly sort through the overwhelming mass of updates for things that are interesting to them.

Another example – Outside.in assembles hyperlocal information in all major US markets order to tell you what is happening not in your zipcode, but within 1000 feet of you.

Third Example – 88% of all consumer travel is by car. Cost2drive.com can tell, by car make model and year, how much gas will cost per trip so drivers can budget accordingly or select an alternate car.

If you think this applies to only early stage companies, think again:

Apple makes computer and entertainment products that everyone wants to have because they are simple, reliable and elegant – Three things the competition does not have.

Market Traction – Ideas don’t find support in tough markets, working products that can demonstrate customer acceptance do. In fact, even in good markets ideas don’t seem to get much play.

It’s critical that a product can show increasing usage and/or a growing customer base, without artificial buoyancy from advertising (e.g. SEM).

Otherwise, to an investor it’s like buying a car that doesn’t run. You may know it just needs a little gas, but it really could be anything from gas to a bum engine. A huge number of problems are sorted out through successful market trial. The other point is that, as an entrepreneur, you are in a much stronger position when you have that momentum.

If you have a clear value proposition without market traction, get busy. Get the product out there. Find the users who like your product and enlist them to help you make it better. Also, look for some distribution partnerships or API deals that will put your product in front of more people. In addition to having partnerships to bolster you, you’ll be getting invaluable feedback on improvement. If at all possible do this before seeking funding.

Revenue model – Have one. That goes without saying. Aggregating users as a primary business driver has gone away for the second time now. There’s more though. At this point in time, especially with the softening of advertising markets, advertising is not a strong foot to put forward. Unless you happen to have a new ad network - but then that’s a different discussion/challenge.

Tim Chang of Norwest Venture Partners has a particularly dim view: “Advertising is the lazy entrepreneur’s answer to a poorly, thought-out business plan.”

What are the alternatives? Licensing, subscriptions and revenue generating partnerships, primarily.

Licensing fits best for distribution (B-to-B) or for software sales (B-to-C).

B-to-B licensing: A partner company or network will pay you some sort of committed fee to distribute your product to its users/customers. This is a good model in some ways because, with the right partnerships, a broad audience can be reached. It’s limiting as these deals can be hard to find and execute.

B-to-C licensing: End users pay to get your software and updates. There is a lot of psychology around how to get people hooked before committing to buy.

Subscriptions work where there is recurring value – e.g. new content, ongoing service or operational support, incremental usage… lots of variations here. The challenge is that users are very slow to commit to subscriptions. If you want to sell content, you should probably forget it. Even the biggest players have to give that away now. There is, however, a very positive emergence in subscriptions. Users are willing to pay to enhance their presence. Similar to the way sellers can embellish listings on eBay, Photolog has enabled a sort of paid decoration that is creating real value. There’s an opportunity for other subscriptions, too. Room for creativity.

Revenue generating partnerships – sounds like advertising, huh? Not really. If, for instance, you have a site that’s all about travel and you have an integrated partnership for selling hotel rooms and prepaid attractions, that’s not advertising. That’s a transactions business and it’s very appealing at scale. Again, room for creativity.

Scenario planning – Always have plan “A” and “B.” It seems to me that usually this comes out to “A” = go it alone and conquer the market and “B” = target an ideal acquiring partner. It helps as decisions are made about the strategy and future of the business. More about this another time.

Clean funding – this one is tricky. A company with several rounds of investors, all at different valuations with different interests/motivations is the definition of hairy. As in a hairy deal. Not easy for investors to join in because there can be many voices and many conflicting agendas. The result is that the company loses the ability to be nimble – the single most appealing feature of smallness. A company in this condition is far more difficult to acquire, too. I have some war stories…

It’s tricky because no company ever sets out with the intention of being hirsute. Many have it thrust upon them by market conditions, delayed market trials, extended time to revenue generation. It happens.

This is where a good entrepreneur can make all of the difference. The ability to grow a company’s activities while timing capital needs is a true art.

There are a few ideas that might help: 1) Bootstrap as long as you can - get your product as close to revenue generation as possible before accepting (more) money 2) Don’t underestimate future product development time 3) Plan in the time to explore revenue model implementations, and prepare data/business intelligence tools to do so systematically 4) When looking for money, make sure the amount will get you to the next phase of growth. Looking for money mid-phase is the root of many hairs.

You may be thinking “I though this post was all about being small. There’s more here than small-ness…”

Yes and no. Follow me on this… If you can cover the five points above, you have a very simple, clean and small conversation. It might go like this:

“I have a company with product (X) that appeals to (Y%) of the people online today, all of whom can’t get (Z) done without my product. We’ve already got (M) thousand users, growing at a rate of (O%) per month organically. As soon as we get to (P) thousand users we will launch our licensing and subscription model which should allow us to break even in (Q) quarters. At that point we will have a good market position, but might entertain offers. We’ve bootstrapped to this point with a seed round and I’m currently looking for a round of ($A) which will see us through revenue trials. Do you want in?”

It seems like a lot, but the above paragraph includes all of the key strategic, product, operating and funding information anyone needs for cursory evaluation. It’s the elevator pitch - 100 powerpoint slides in a single breath.

Maybe a long breath… but the point stands. If you can talk confidently about your business in those terms, your likelihood of achieving the support you want is greatly improved.