I've been involved with a few companies who are riding (or fell off the horse) in the relatively new Discovery space. Over the past 15 years consumers and businesses have derived great utility from search, a function which enables people to find information about what has happened or what was posted, frequently days, months or years previously. Businesses also received great rewards by advertising against the keywords used for these searches. More recently, and certainly the combination of mobile geolocation with sites such as Pinterest. WeHeartIt. Twitter a firehose of data around what IS, vs what WAS is now available for Enterprises.
All this data, which I call the Social Highway, has many on and off ramps. The on ramps include countless blogs, data streams, photo streams, commerce streams, etc.; all delivered in real-time. Compiling the data is relatively easy, turning it into actionable information is much more difficult and is the secret sauce behind companies which built solutions optimized for real-time big data sets to measure and analyze:
Buying intention
Customer support
Brand health
Influencers (positive and negative)
Psychographics
While this information is powerful, the real impact will only be felt as Enterprises adjust their business processes to direct the information to the right people, put in place processes for institutional learning and retention, and do this in a cross-silo manner. Unlike today's Enterprise, where each department has its own information silos, supported by people and processes, the Social Highway's on and off ramps do not respect traditional turfs. Customers may simultaneously require support, sales and marketing assistance. Influencers (and their minions) can be instantly pinpointed for special treatment, akin the TSA fast-lanes and be couponed, receive priority support and surveyed, all in one interaction. And all these interactions are no longer asynchronous.
Enterprise structure will have to be more elastic. It's a revolution in the making.
I had the opportunity to spend some time with Irving Wladawsky-Berger the other day. He's been a forward thinker in the industry and, before retiring, led IBM's e-busineess and cloud computing strategies. Now, he is assisiting Citibank with their digital money strategy and, in his spare time, lectures at MIT.
Irving was sharing with me his insights into big data and the primary point he was making is that big data arereally HUGE data sets and it's still quite easy to make bad decisions using big data (note to self...think of this when folk cite the 'wisdom of the crowd' religion). We are still way early in providing proper toolsets to harness and highlight what's really important within these data sets. When we do, it will prvide huge value for users and corporations. I've seen the early value for customers of tracx.com and the prople there have great plans to take their social media management application deep within the Enterprise. In many ways fulfilling the promise CRM left unfilled.
This brings me to the deeper point which I later gleaned from Irving's blog. He spoke about the major change in scientific perspective from Newtonian physics, where objects exhibit deterministic behaviors, that is, if you apply the same forces to the same object, you should yield the same results to a new world where Quantum mechanics and relativity rule the day. In this bizarre world, counter-intuitive behaviors abound.
When you use these theories as a background, it seems as if investing in young technology companies is much more like embracing quantum mechanics than following Newton. Meteoric rises by companies such as Pinterest, Zinga and Groupon have not been duplicated and, I am confident, that duplicating most, if not all their 'magic' will lead far different results. Being a follower is fraught with danger in technology. Though, it's not the point of who gets to the market first, nor is it necessarily that the 'better' product wins. I do think, however, that the management of the companies, through incremental tweaking of their products can, and do, match their solutions with an unmet need/fascination which the market embraces. Or, bold entrepreneurs go against conventional wisdom in designing their products in a way which people suggest are doomed for failure. For example, Google had a stark homepage while Yahoo embraced ad and content clutter (and early revenue). Today, current darlings Box.net, Evernote and Dropbox were all founded when the conventional wisdom was that forcing the consumer to download a client was a non-starter and the kiss of death. I suppose that it was....until it wasn't.
We live in an era of uncertainty where the answers obviously change...as do the questions. Let's all try (just a little bit harder) to be just a little bit different.
Being a part of the explosive growth in earned media through SparkRebel and tracx has been exciting. I've now also joined the board of advisors for one of the fastest growing companies you may never have heard of, WeHeartIt (WHI).WHI, with more than 1B montly page views and a commanding position in the under 25 year old female demographic is an explosively growing company in the social curation arena.
I love the company's devotion to the simplicity of their user interface, with the minimization of clicks to get things done. It's one of the key principles which has made Amazon so successful.
Tradionally, brands and agencies focused their efforts on helping clients gain attention through two major media outlets; paid and owned. A thrid wave, buoyed by the rise of social networks, earned media is the core of the creative and technical internet commerce and discovery wave.
A paid outlet is where a brand pays a provider to deliver impressions to a consumer (or 'user'). TV, newspapers, billboards and radio are the most popular paid outlets. Most of the paid money is delivered to the provider who delivers the impression (has assembled the audienc). While agencies and other helpers recieve a relatively small share for planning, creating, and measuring the results.
Owned media represents a brand's own assets, a web-site, mobile application, or newsletter. The primary cost here is assembling a relevant and meaningful audience for the produced message
Earned media is the fastest growing segment. While traditionally focused on public relations, the growth of social networks, especially vertically oriented ones, has created places where consumers are now the creators of 'earned media' (e.g. Starbucks now has more than 10mm likes on Facebook). Posting content which is automatically shared with friends, discovered by people with similar tastes and acted upon by those with similar budgets reflects dramatic change. Leveraging these channels has greatly expanded the role of agencies and creation of firms which provide the front-end infrastructure (e.g. Pinterest) automated tracking, analysis (e.g. tracx), or security and placement services.
Here's a nice chart from Forrester Research
McKinsey Quarterly argues that five forms of media exist, adding Sold and Hijacked (when people hijack the comments on your site), to the aforementioned categories, need to be managed.
Though these three areas are distinct, by no means are they separate. Just look at Sunday football commentators now publishing their Twitter addresses, or billboards promoting company Facebook pages. Earned represents the most dynamic ecosystem that, for now is additive to the other two. It is possible that they coopt them too.
A few months ago I posted about an investment round in Tracx and its participation in what we expect to be a fast growing market; social media management. In the 5 months since we closed the round, the company has performed quite well. However, quite recently there has been a huge upheaval in the surrounding competitive environment. Oracle acquired Collective Intellect, in response to SalesForce acquiring Radian6 and Buddy Media, which, of course is an area which SAP is dabbling in via its endorsement of Netbase.
Odds are that at least one of these transactions will not proffer the returns which the acquirer hopes to garner. Nevertheless, no doubt that the product, customer value, and distribution dynamics within this early stage market are in disarray. As an investor, I am accustomed to early stage companies making a 'left' turn as they discover the real market opportunity is a 90 degrees adjustment from where they were heading. It's not too unsettling to see the value proposition, which customers need to evaluate suddenly change too.
This is why I think it's essential to have faith in the team you back. Markets, competitors, and your target customers change oh so quickly. The team is my port in the storm.
I am often asked about the theme around my investments and for the past couple of years have answered that I invest in great people in emerging growing areas and the rest takes care of itself. Based on the quizzical responses, that explanation has been inadequate. As I use this forum as a way to flesh out my thinking on points and as a way to communicate with others, here's a stab at a deeper and more nuanced reply to the 'what areas are you investing in' question:
As an overview, the other day I was on a panel with Lawrence Lenihan of FirstMark and in response to a question about how things are different today from five years ago, he said that the entrepreneurial paradigm has switched to 'it's now easy to start a company, yet so hard to scale it'. He's so right and that remark set me off to thinking much more deeply about what's driving some of the fundamental changes in the market. To illustrate his point on scale of users and infrastructure, here's some recent statistics showing 60 second activity across some major sites:
Facebook 695,000 status updates
Skype: 347,000 calls
Craigs list: 12,000 new ads
Twitter: 98,000 Tweets
Tumblr: 20,000 posts
As a frame of reference, ten years ago investors and entrepreneurs were broadly categorizing their companies as being B2B, B2C, then a hybrid B2B2C. In the last five years, however, the social, broadband, mobile and visual waves have upset many entrenched players (e.g. Yahoo), while driving extreme user and shareholder satisfaction (e.g. Instagram). Thinking about what's behind this has led me to a conclusion that the fundamental market and technology trends have opened greenfield C2C and C2B opportunities. YouTube really was the first notable example of a firm that was born around the recognition that aggregating consumer files, to be distributed to other consumers, could be a massive market opportunity. The founders of YouTube did not have traditional broadcast experience or capabilities, instead, they took an outsiders approach to disrupt an existing market. They validated the notion that there's an opportunity in building consumer to consumer platforms, where the value-add to users is easy self-expression, psychic rewards, and entertainment. For the business, it's a new channel to reach millions of consumers with like interests/demographics, or a vehicle to gain instant insight. Insight is really important as, I believe the John Wanamaker quote of 'I know 50% of my marketing dollars are wasted, I just don't know which 50%' is no longer valid in a world where you can sample
More instances abound, for example, when you hear about 'big data companies', most often the conversation points to an entity that aggregates (FacebookAirbnb or LinkedIn) or creates (Instagram) massive amounts of unstructured data and distributes it (Youtube), or analyzes it (Tracx), redirects it (Pinterest), or adds value to it (BillGuard) in a way that could not have been done a scant few years ago. The initiation of the value chain is with the consumer, a solitary individual, when massed together has incredible value. The difference in the technology necessary, the road map of key success factors, and capital capital deployment differ markedly from the prior generation. In fact, given the state of technology deployment (smart phones with cameras, social deployment, and 3G, these companies could not have existed five years ago. For this reason no entrenched competitors exist in an opportunity that has sprung up overnight and is tremendous.
As Lawrence so rightly pointed out, building the technology behind these firms is not a herculean task, but scaling the traffic and the systems when you deal with hundreds of millions of identities, or records, is indeed huge and the scaling, not the starting, is what can get to be capital intensive. The good news is that, it does not take that much capital to know if you have caught an express train, and when you do, it's not that huge a risk factor for the follow on investors either.
Yesterday, Tracx announced that it raised its first institutional venture round. Led by two quality venture firms with complementary experience; Flybridge and Revel Partners and joined by Crossbar and existing investors. Over the past twelve months, the company has literally come from the garage to securing more than 100 Enterprise and Agency customers.
Tracx has built a service which enables Enterprises, in real-time, to monitor what people are saying about their brands. Amongst its many attributes, it lets them identify sentiment (+/-), influencers, and trends. It helps firms filter the 'signal from the noise'. Looking at the market, here are the reasons why I am bullish about the opportunity:
In an era of instant communications ranging from customer support, to sales, to marketing messages, all brands will need to have a component of their behavior to be like media companies. Today, they don't have the tools or experience to actively manage real-time communications involving millions of comments. Specifically, today I see; pent up demand, home grown patchwork systems, and many disparate point solutions cobbled together to address the growing issue. I've seen this happen before and know these quick solutions often don't scale and integrate well.
Community management is going to be an essential part of the brand
The opportunity is Global and knows no geographic boundaries
Technology can be a real differentiator when you need to scan hundreds of millions of conversations and categorize the data to present cogent information
Enterprise web presence now extends beyond their web sites, beyond Facebook, Twitter, Tumblr, Pinterest, Instagram etc. Brand content is everywhere, placed directly and re-purposed by the public and edited with a human element. There is no control over content, but there is a response to it.
User generated and re-purposed content is not controlled by the brand, but it's essential they know it's there, who are the key positive and negative influencers, and the trends associate with their actions.
Crisis Management. It's essential to get a handle on issues, when they are still small, and get insight into the one's which spiral (e.g. McDonalds and the spilled coffee scandal)
John Wanamaker said that he knows that he wastes 50% of his marketing dollars, but he didn't know which 50%. With real-time data, there is now no excuse for such a high ratio of wasted resources.
Companies need a common framework to communicate progress, best practices and challenges across various divisions
Of course, the Management team, led by Eran Gilad, is a huge part of any investment. They see the potential to seize a market leading position through product innovation, which has the potential to fundamentally disrupt the competitive dynamic within this nascent, but potentially huge market.
