Where’s the Meebeef?

Three-person Meebo just got funded by Sequoia Capital at a $10mm pre-money valuation. From what I see, it’s a site that gives a web interface to IM. I think this an of itself is a really cool idea, but if I apply some very simple tests to it, it fails miserably:

1. No barrier to entry. If 3 ppl can create this, a small army of India programmers can too. Cheap.

2. No lock-in. If/when GYM (Google/Yahoo/Microsoft) launches something similar, what’s to keep the customer at Meebo?

3. No money. I didn’t see any apparent revenue model (other than perhaps seeing some ads) on their site.

Clearly, Sequoia is not stupid and they obviously see something I don’t. It will be fun to find out what that is. Right now, I can’t see how I would value this at $10M other than because they have 250k subscribers and delicious with 300k subscribers just sold for probably $30m. And if that’s the case, this is a case of more hot air inflating a bubble, meaning that one no-revenue company’s valuation is pushing up another no-revenue company’s valuation.

When you start seeing zero revenue companies getting $10m A round valuations, you can’t help but yell “Bubble!”.

Putting pants on one leg at a time

The next time you pitch to an investor, keep a simple thing in mind: this person is not a God. They are human and make huge mistakes just like you and me. The wisdom they do have (assuming they are experienced) is that they’ve seen many, many business plans and pitches cross their desk and have the experience of seeing many, many of their own investments take off and die.

This context gives them some insight to decide if they like you or not.

And just in case you ever think they are God, just read this article about the recent death of a Bubble 1.0 artifact. Read the big names. Read the big dollars invested. Read about the stupid expenses, then read about the big failure.

Then repeat the mantra: “They put their pants on one leg at a time”.

Bubble 2.0 building?

Congrats to the recent del.icio.us acquisition but I can’t but wonder: what does it indicate when a zero revenue company that has 300k hard-core geeks as non-paying customers is acquired for millions of dollars?

What kind of a signal does this send out to startup X that’s dreaming up stupid Web 2.0 app Y and pitching it to investor Z that just read about the Yahoo acquisition?

Here’s a cool quote from Paul Kedrosky’s blog that kinda says it all:

“What risk? If the company doesn’t work out, we’ll sell it for $150 million. If the company kind of works out, we’ll sell it for $500 million, and if it really works out, it’ll be worth between $2 billion and $10 billion. Tell me how that’s risk.”
— Geoff Yang, Redpoint (Fortune; 12/06/99, Vol. 140 Issue 11, p177-188)

Pricegrabber sold for $485M in cash

What’s impressive about this deal is not just the pricetag, but the fact that it was done without VC.

They hat $60mm in sales with $25mm EBIT. Nice work, ladies!

Opportunities in Search engines?

I’m reading Tech Beat, “Amazon Thinks Out of the Search Box, Again” and John Battelle’s “Alexa (Make that Amazon) Looks to Change the Game” and I’m thinking there may be some kind of an interesting opportunity here.

Alexa is essentially going to turn their whole model inside out and allow anyone to essentially pay for using their content and infrastructure. You will now be able to write code that sits atop their 100 terabytes of data and oodles of computing power to mashup your own search engine.

I can see this warranting some in-depth research for my search-engine impassioned client, for sure, and for anyone else that wants a potential piece of the current search engine frenzy market.

Update:

Then again, Here’s Jeff Clavier’s “Repeat after me: the index of a search engine is a commodity” take on it.

Don’t visit this site!

If you like coming up with good ways to spend a lot of time on doing basically nothing, yet feeling you’re getting something done, check out:

http://tones.wolfram.com/

where you can use mathematical formulas to come up with your own ring tones. Very cool.

Here’s what I came up with after “investing” 15 minutes:
http://tones.wolfram.com/id/GqAr7bT6K3NsPnBu23ZVHFEDYElwlwmdixIKNicWkRynse

Net TV startup a threat to BBiTV?

My good friends at BBiTV have a cool idea which, among other features, allows end-users to publish video content which is then viewed by other digital cable subscribers.

I just read about Brightcove, a $16M startup which is taking a slightly different spin in that it lets anyone syndicate their content and sell it. Brightcove inserts ads and earns a % of the total revenue. Check out the news.com articles, “Site will cater to offbeat films” and “Net TV start-up lands $16 million in funding” for more info.

I think Brightcove typifies the type of stiff competition that BBiTV will be facing. While digital cable is going to be around for a while, I think the key will be to tie the Web/Internet to my TV.

What I would DREAM about having would be a way to surf around the web, find (legal) videos, then direct them to be downloaded to my Tivo, which I could then watch at my leisure. And if the site has an RSS-type feed, let me subscribe to it, podcast-like, and get new videos sent to my Tivo.

Now you’re talking.

VC Competition

John Battelle’s blog is reporting that Yahoo and Google are effectively setting themselves up as VC firms, sorta.

The logic is simple: if they see a promising company that’s in their space, they have the expertise to do a good due-diligence, and they also have the cash to snap them up before VCs get to them and raise their valuation.

In short: Google/Yahoo are getting startups for cheap by getting in earlier than VCs do.

Now, we don’t know how long this will last, but you could do a lot worse than identify some technology that Yahoo/Google will want and then building it “real” enough so that you get bought out.

Startup rumored to be acquired for $60M before they even launch

Wow, talk about a great burger!

There’s apparently some hot and heavy rumors flying around the Valley that Riya, a cool company that can do facial recognition on your photo collection (Imagine searching for all the photos with “mom” and “baby” in them!) was acquired by Google for $60M.

What’s even more interesting is that they didn’t even officially launch the company yet! Apparently they are (were?) going to launch at a party this Friday.

Riya was started with $4M.

Hmm….invest $4M, flip for $60M. Not bad. Not bad at all (depending of course on the pre money valuation at which the $4M was invested). Some say they sold out too soon, and that may be true, but that kind of thinking is based on a belief in Scarcity, not Abundance. The Abundance way of life says there are many more Riyas waiting to be built. The Scarcity way of life says there’s only one Riya and it’s your only chance to succeed.

I believe in Abundance.

Hat Tip:

Nial Kennedy
Om Malik
Paul Kedrosky

There’s only one kind of marketing

…and that’s “Word of Mouth”.

I’ve been thinking about this for a while and this post from Brad Feld, “Are Customers Your Best Marketing?”, drove me to finally jot down some bullet points on how I feel about Word-of-Mouth marketing.

Here’s Kay’s law #21: “The amount of marketing dollars required to generate sales is inversely proportional to the product’s buzzability”.

Buzzability = ability to generate activity via word of mouth discussions.

Whenever I think about spending marketing dollars, I think about how much money Google spent to market their search engine: Zero.

I’ll bet you can remember exactly how you found out about Google and of course it was through a friend.

So what simple rules can we take away from the Google lesson that can help you figure out how to increase your product’s buzzability?

  1. Your product has to be superior to the competition. As superior as Google’s was over Yahoo’s (at the time).
  2. Customers must be able to easily (trivially, actually) describe what your product does and how their friends can try it. Your goal should be to come up with a single statement that you and your customers can use that instantly describes your product so that new customers “get it” immediately.
  3. New customers must be able to try your product with a near-zero effort (how much work did it take for you to try the new Google engine back then?).

Leighton Chong once made a point that many new inventions are really superior, but they take too much effort on the part of the customer and so they fail. One of the biggest problems I had with one of my previous companies was that our product rocked but was difficult to explain, hence customer’s couldn’t explain it to their friends, and so we had a big challenge in getting the word out.

You want success? Make sure your product hits those three points and watch your word-of-mouth marketing take care of the rest.