The Next Net

Eyeballing the Value of Web 2.0 Startups

So how much is a Web 2.0 startup really worth?  Everyone is wondering that these days, especially since there are so few acquisitions or IPOs by which to measure them.  That's why I like the slide below created by eSnips CEO Yael Elish.  It gives an approximate value for many high-profile Web 2.0 sites by correlating publicly available Alexa Web traffic numbers with the value of known deals like YouTube's.  This slide is hardly accurate for many reasons (see below), but it does help you visualize how one company may be doing against another.

By her count, Wikipedia, YouTube*, and MySpace are in that rarefied realm of Web 2.0 sites worth more than $1 billion.  Just below that are Flickr*, Facebook, and Hi5. In the $100 million to $500 million range are LinkedIn, Bebo*, Digg*, Feedburner, Last.fm*, and Technorati*.  And just below the $100 million mark is StumbleUpon*, Slide*, and Netvibes*.  She values eSnips on the chart at about $30 million.  (The asterisked names made the Next Net 25 either in 2006 or 2007).

There are lots of problems with this slide, the first being the accuracy of Alexa's traffic data, which is highly disputed.  But as long as Alexa is equally wrong for every Website, that shouldn't too big a deal, especially if all you want to know is the relative value of one site over another.  The bigger problem is equating eyeballs with dollars. Not every visitor is worth the same. 

For instance, it is possible that social network Hi5 may be worth more than Facebook, but is Google-owned Orkut really worth more than either one of those?  I doubt it.   And Wikipedia might get a lot of traffic, but it is really not worth as much as YouTube since it is a not-for-profit  that has no intention of ever displaying ads.

You can quibble with the exact placement of any of these startups on the slide, but eyeballing it as a whole it looks like most of the startups are in the right ballpark.  Comments are open for anyone who wants to tear it apart or suggest improvements.

 

A JibJab at TV News

Another instant classic from JibJab (What We Call the News):

What We Call the News | Send To Friends | Funny Animations at JibJab

(Not So) Lonely Planet TV

Lonely Planet, the publisher of budget travel guides and a Website, is now getting into the Web TV business. Check out Lonely Planet TV, a beta site about to launch officially on April 2 where you can see three-minute video guides of Berlin, an encounter with jumping cats in a Burmese monastery, or an 8-minute-and-34-second rumination on the bleakness of the Falkland Islands.  Lonely Planet TV is launching with six channels of about 50 professionally produced videos, but viewers can submit their own travel-related videos for submission as well. 

Says Lonely Planet exec Blake Hutchison:  "They can watch the videos, produce their own, and embed it on their blogs."  But, please, no Thai massage exposés.  Each submission is reviewed before being posted on the site.  Viewers can rate the videos, comment on them, create playlists, or subscribe to channels and tags.  The whole back-end is powered by Reality Digital, which also does the same for Viacom's AddictingClips.

Ads run in front of the videos produced by Lonely Planet, but not the ones submitted by what was formerly known as the audience.  Those videos, though, are organized on the various channel pages, which do have sponsors.  "I think they see it as risky," says Hutchison of advertisers' attitude toward being too closely associated with videos uploaded by random travelers. 

But those videos may be exactly what other travelers want to see when trying to figure out  where to go on their next adventure.  And it's the type of thing many people would like to share.  It's not too personal, but lends an aura of sophisticated worldliness to the uploader.  It also makes traveling less lonely if you can share your experiences with the world.

For Lonely Planet, there is no downside.  They get free travel videos aimed smack at their audience because they will be made by that audience.  And they can supplement those with high-quality videos they produce themselves (akin to what you might see on TurnHere, except more global), which also serve as examples of the craft to the videographers in the audience.  Now, how long will it be before the best submitters start demanding a share of those ad revenues?

MOG 2.0: Better Music Through Blogging

As I am posting this Wednesday night, music discovery and blogging site Mog is getting a major redesign that combines elements of Last.fm, MySpace and MTV.com.  So far the site has only been able to attract about 250,000 visitors a month, mostly hardcore music fans who write about music and upload songs (legally). Some rock musicians have tried it outtoo, like Death Cab For Cutie's Ben Gibbard, the Roots drummer Questlove, and Mike Watt (now with the Stooges).  The Mog community, aka Moggers, write about 3,000 music-related posts a week.  But the site has been poorly organized and hard to navigate for the casual user.

Founder David Hyman previously started was CEO of Gracenote (the music database that iTunes uses to look up the name, artist, and album of each song on your computer).  He came by my office earlier this week to give me a preview of the new Mog.  "Today, Mog is a circle jerk of music geeks," he admits. (The screenshot at right is Mog 1.0).

The most popular part of the site was something called the Mog-o-sphere—a river of all the music posts across the entire site written in one of the 50,000 individual Mog pages on the site.  But as Hyman soon realized, "most people don't have the time to go through 300 posts a day."  That is going away.  In it's place will be more fine-tuned filters.

Mog's redesign does a lot of smart things to surface the best music posts, shared MP3 streams, and music videos from YouTube in a way that is customized to your personal music collection. Mog is a place where you can blog about your favorite music and shows you've seen.  What makes it cool is that you can upload the song you are talking about into your post, where it is available for others to listen to via streaming.  (According to Hyman, this is not considered radio, and thus he doesn't pay any royalties, because you have to click on each song separately to listen to it, whereas online radio is a continuous stream of songs.  Only one song upload is allowed per post and each one links to iTunes or Amazon).  You can also embed videos from YouTube, where there are a lot of music videos and concert footage.

The Fathers of the Air Taxi

In our April issue, I have a feature on how Eclipse Aviation CEO Vern Raburn and DayJet CEO Ed Icaobucci want to democratize personal jet travel.  DayJet is poised to become the largest air taxi service using Eclipse's planes (whose design has been approved by the FAA, but Eclipse is still awaiting a final "production certificate" for its manufacturing processes).

To report the story I went down to DayJet's headquarters in Florida and to Eclipse's assembly plant in Albuquerque, where more than 50 planes are already under construction.  Excerpt:

Births are never easy. But Raburn and Iacobucci, two computer industry veterans, are about to deliver to the world a new model for the airline industry: the air taxi, which is to a commercial airplane what a shared car ride is to a Greyhound bus. Raburn is building the planes, and Iacobucci is going to use them to create point-to-point air service between small cities ignored by major airlines.

How big is that market? "The only thing you can say about predicting the size of new markets," Raburn says with a shrug, "is that you will be wrong." The forecast for PC sales in 1982 was 50,000 units, notes Iacobucci, a large Santa of a man with a short gray beard and a baseball cap. "Do you know what they actually shipped?" he asks. "Three million."

One of the things I found most fascinating is that whether the air taxi industry flies or not might depend more on breakthroughs in scheduling software than in airplane manufacturing:

Of all the air-taxi startups, DayJet has the most radical business model. While the others are chartering entire planes, DayJet will be selling individual seats. "In the traditional airline model," Iacobucci explains, "you build a schedule and market the seats." With DayJet's air-taxi service, by contrast, "you build no schedule as long as you can, until the very last minute when you file your flight plans."

Behind this reservation system is really complicated mathematics. It's basically a resource-allocation problem. Given a certain number of planes, routes, and existing reservations, what is the optimal way to reconfigure DayJet's network of air taxis to accommodate each new reservation request?

"We'll have to evaluate billions of options and come back to you with a yes or no answer in five seconds," Iacobucci says. Even a supercomputer would have trouble doing that.

Instead of a supercomputer, Iacobucci has two Russian mathematicians, Eugene Taits and Alex Khmelnitsky, stashed in a windowless room down the hall working on an algorithm they believe will solve the problem. . . . To test this algorithm, Iacobucci is working with some operations research scientists at Georgia Tech who do have access to a supercomputer. It takes them 24 hours to come up with the same answers DayJet's optimization algorithm comes up with in a few seconds.

In another office farther down the hall (these have windows), Iacobucci keeps his ant farmers. They are complexity scientists, originally from the Santa Fe Institute, who have created a massive simulation of the entire U.S. transportation system. They've mapped travel patterns into 10-square-mile blocks, complete with income levels, demographics, historical driving patterns, airport drive times, and airline schedules and fares.

"It's like Sim City on steroids," Iacobucci says.

Microsoft Spin-Off Develops Its Answer to the iPhone

A new startup called ZenZui is licensing user-interface technology from Microsoft Research (MSFT) to create a new way to navigate data, images, and other Web-based information on mobile phones.  Like the approach that Apple is taking with it's yet-to-launch iPhone, ZenZui's answer is to push the data to the phone in the form of little widgets, or "tiles," that people can subscribe to.  Unlike Apple, though, ZenZui is not actually making it' s own phone and actually will have fewer restrictions than Apple on who can create the widgets.

There will also be fewer restrictions on where the widgets can be seen.  At first, they will work only on Windows Mobile phones. but by the end of the year ZenZui's service will be available on any Java or Brew phone.  Subscribing to widgets should be a fairly easy way to personalize your mobile phone, and in effect create your own mobile portal.  Anything with an RSS feed can become a widget—from blog and news feeds to Epicurious recipes to Flickr photos.  Shariff Mansour, senior manager at Microsoft's IP Ventures, explains what ZenZui hopes to accomplish: 

Imagine being able to carry around your Internet on your mobile device, having access to all the content important to you at any time.

Well, that's always been the dream of the mobile Web.  But mobile widgets could be a step in the right direction.  With ZenZui's "zooming interface" you are two clicks from tile to data, and since you pre-program the widgets you want on your phone, it should be all relevant.  Says CEO Eric Hertz:

The key is to take away the painful experience of getting content today, and make it two clicks to get fresh data. 

ZenZui will make this service free (not any time soon, though—an invite-only beta doesn't start until the summer).  And Hertz expects to make money from advertising—either sponsored widgets or little ads at the bottom of each tile.  (Can you say mobile clutter?). 

The startup raise $12 million in a round led by Oak Investment Partners.  Microsoft owns a minority stake.  Something tells me this is not the last widget phone we will be hearing from this year.

Flickr Photo of the Day: Mossy Crossing

A Snass Creek Moment, originally uploaded by justb.

The Music Industry Continues to Go Up in Smoke

smokestream2
Originally uploaded by r_smarte_pants.

The music industry just can't seem to make a smooth transition to the digital age. The WSJ report:

Digital sales of individual songs this year have risen 54% from a year earlier to 173.4 million, according to Nielsen SoundScan. But that's nowhere near enough to offset the 20% decline from a year ago in CD sales to 81.5 million units. Overall, sales of all music -- digital and physical -- are down 10% this year. And even including sales of ringtones, subscription services and other "ancillary" goods, sales are still down 9%.

Of course, those 81.5 million CD units translates to more than 815 million individual songs, for an apples-to-apples comparison. CD sales are going away, and legal digital sales are not going to replace them anytime soon.

Being disrupted is never any fun.

The Warm LED

Light-emitting diodes (LEDs) are getting warmer.  LED-manufacturer Cree (CREE) today introduced an LED that produces warm light instead of the typical harsh white glare of most LEDs.  The company hopes this will open up new markets for interior lighting.

That would be good.  LEDs are much more energy efficient than regular incandescent or even fluorescent bulbs.  Now they just have to get the costs down.  (See earlier post).

2006 Web 2.0 Fundings Doubled to $844 million

Venture capitalists poured $844 million into Web 2.0 startups last year, according to Ernst & Young and Dow Jones VentureOne.  That's double the $406 million they invested in 2005, and up from the nadir of Web 2.0 investing in 2002, when they put in just $32 million.  From last year's total, 83 percent went to 126 U.S. deals, including Facebook (which raised $25 million), Zillow ($25 million), PodShow ($15 million), Zimbra $14.5 million), Veoh Networks ($12.5 million), Six Apart ($12 million), Kayak.com ($11.5 million), and Revver ($10 million).  The average valuation of a Web 2.0 company prior to these financings was $6 million, which is still one-third the  so-called pre-money valuation that was the median for all venture-backed startups.

Overseas, some Web 2.0 financings included NetVibes ($14.4 million), Where Are You Now? ($9 million) , and Toodou ($8.5 million).  Worldwide, there were 167 Web 2.0 venture deals last year, up from 95 in 2005 and 35 in 2004.  The most active venture capital firms in the Web 2.0 space were:

VC Firm                                                Number of Web 2.0 deals

Benchmark Capital                            13
Draper Fisher Jurvetson                    10
Sequoia Capital                                   9
Omidyar Network                                8
Accel Partners                                      7
General Catalyst Partners                     7
Kleiner Perkins Caufield & Byers           5
IDG Ventures China                             4
Index Ventures                                    4
Mayfield                                              4
Storm Ventures                                   4               

(Source: Ernst & Young, Dow Jones VentureOne)

At this rate, counting Web 2.0 deals will soon become meaningless because all Web startups will be Web 2.0 companies.  You could argue that is already the case.  The number of Web 2.0 startups out there is much greater than these numbers may suggest, because many of them are self-financed or take on only angel money.