innovation playground Idris Mootee

Venture Capital Meets YouTube - Vancorps Launched Its Beta Today

When people asked me the question whether US and Canada are losing out the innovation game as industries becoming less competitive, my response was ‘no’, thanks to our capital system efficiencies (to some extent) and the venture capital communities, I think we are as competitive as ever. What you see in the picture up here is a new company that launched itself today (is in beta mode), it is called Vencorps. The idea is to being the idea of crowd sourcing together with YouTube and American Idol.  People pitch that ideas on a YouTube type platform and everyone can register as an investor. Vencorps is a multi-million dollar venture capital fund that leverages the wisdom and participation of an elite crowd to build better startups. Their target audiences include angel Investor or people with good business ideas. I like the idea but not sure how much traction that can have. It is a great idea but a lot of executional elements have not been fully thought out.

These companies that the VCs are funding clearly are of the main engines driving innovation and entrepreneurship, especially in the US where the concept of venture capital was originated. The Venture Capital concept is one of the best things that ever happened to innovation.  VCs realize that they make money by identifying promising innovations early, investing risk capital to develop the business, and supporting the entrepreneur with his or her business till a point when they need t exit.

Corporate venturing within a large organization has not been working. Transplanting the VC model into the corporate environment is not an easy undertaking. The conflict usually lies in the conflicts with the parent company and unavoidable disruption to the parent’s core business model. Changing these policies and organizational structures to accommodate the specialized nature of venture financing can be a pain.

I have been meeting with a dozen of VCs today and it has been a somewhat productive day.  One thing came to my mind when I talked to these people is there’s a lot of myth out there about how difficult it is to negotiate with VCs but many are not necessarily true.  Differing interest and divergent expectations often complicate these negotiations. These challenges can be turned into opportunities if we use these differences to drive deeper mutual understanding.  Alignment between the VCs and the Entrepreneurs is a key. Often both parties have different views as well as tolerance of the risks involved; you need to be creative to shift the risks to the part that has a bigger appetite and also more risk seeking.

One useful advise for you is to always have a Plan B, it is your source of power for negotiation.  Whether it is a different source of financing or another VC firm, make sure you have a Plan B otherwise you are not giving yourself any options. If you have one term sheet, you have zero leverage in your negotiation. Yes, you will spend 3x the amount of time on the process, but it’s well worth it (if you can afford it). That is  only if you business is attractive enough to attract a few good VCs.

And remember you should always be prepared to pay up for high quality investors or incubators. There is a world of difference between good VCs and bad VCs (both the individual partners and the firms) that will ultimately have a lot to do with how successful your company can become.

Corporate Imagination" And "Corporate Strategy" Are Inseperable

The lack of imagination in corporate strategy development is hurting many organizations. Many companies think by adding new product extension is the easiest way to jump on the innovation bandwagon. There's simply a lack of tools, processes and framework to incorporate "corporate imagination" into "corporate strategy". There are tons of books written on how to do strategy planning but almost all of them fail to do that. I think every company needs to revisit their planning approach.

There's lots of myth about corporate strategic planning. The challenge with writing about what works in business strategy and what doesn't is that the evidence is basically anecdotal. Business writers are impressed from time to time with particular companies / CEOs that have succeeded (usually on financial measures or market cap size) and with the theories drawn from their success. Often they have to backward engineer these theories of success. And then five years later, another writer will write about the fall of that once great organization. We should not discount the need to learn the underlying habits of success--the "good habits" of great companies as illustrated by Jim Collins . For very good reasons, they singled out certain companies as models of success--companies that, for very different reasons, have since fallen on hard times. I am more interested what practical approach for companies to sustain their leadership under disruptive competition. Let me throw a few questions out and try to ask yourself if you believe in the following:

- High performance companies often recruit people outside their industry rather than looking within their own?

- VCs are better at investing than any typical corporation when it comes to innovative products/services?

- No nonsense, plain-vanilla boring straight-shooting CEOs perform better than flashy charismatic CEOs?

- Companies that reply on acquisitions of innovation do better than those who focuses on their own R&D ideas?

- Companies that stick to the knitting (ie their 'core business') reward shareholders better than those which actively expanding into the adjacencies?

- The level and quality of skunks work correlates directly to the long term performance of an organization?

History tells us that setting up autonomous "skunk works" or similar "idea labs" doesn't not improve an organization's innovation capability.  Think about those all those lab (including the high profile Xerox PARC) that failed to have many of their great ideas commercialized. I believe the challenge is not on the R&D front, it is the integration of ideas generation and activation. This is where we add most value to large organization... active integration of imagination with operations. Organizations struggle to manage imagination and in fact, three generations of MBAs were trained on command and control concepts.

Corporate imagination and creativity needs to be the core any corporate strategic planning exercise. Strategic planning should be about anticipating big disruptive challenges and spotting important trends. Often strategic planning exercises are turned into a days long power point karaoke or rigid, data-driven operations planning or financial forecasting.  To improve the quality of any strategic planning process, you need to begin with deliberately and thoughtfully identifying and discussing the strategic issues that will have the greatest impact on future business performance. The need to avoid the trap that they blind themselves to disruptive competition... and not becoming arrogant, complacent, and far too dependent on their traditional core competencies. The starting point should be around a cross-industry scan (comparable studies as we call it) and deep customer insights (ethnographic exploration). The idea to identify the nature and extend of the shift between your organization's assumption of customer needs and the emerging unarticulated customer needs. When we work with our clients, we document these findings and allow executives to use them in their planning process to drive meaningful discussion of any key strategic issues. This way we can ensure that management does not waste time and energy on less strategic topics during the planning sessions.

"Corporate Imagination" and "Corporate Strategy" are strange bedfellows, by bringing the two together an organization can truly build an innovation engine to survive and prosper the next disruptions. Neither discipline nor imagination alone, however, is as effective as both are together.

Incubation Often Means Smart Ways To Exploit Mistakes (Preferably Others) To Create Superior Return On Investments

People ask me about why we do incubation because everyone thinks it is so hard.  I don't think it is hard if one can master the art maintaining focus but retaining agility. Incubation requires more than just general start-up experience or financial advice.  The financial piece is actually less important at this stage. The more important tasks are nurturing of ideas, creating tangible version of the future business (prototyping) and storytelling. Storytelling, to be a bit more accurate, it's all about understanding how to use the elements of stories and storytelling to bring out the business concepts. There isn't a business in the world today--large or small, high or low tech, public or private--that doesn't need to use storytelling to bring the purpose of business to the stage.Those are three critical skills any start-up folks need to learn but most likely need help.

I am never obsessed with where the original idea comes from, that detachment helps me to look at things from an open mind and therefore I am best poised to take an idea to a successful conclusion.  I am equally excited making other people’s ideas (OPI) becoming real but I still like incubating at arm's length. I get tremendous amount of satisfaction seeing these people succeed...more than the financial gain.

On average are seeing one incubation prospect every week. The first question I have us “Do they have an insanely crazy, kick-ass disruptive business ideas and they want to change the world with?” If yes, I go the second question, “Do they work well under constraints?”  I’m a big believer that constraints inspire creativity and it is a true test of strategy. It forces you to bring out the creative side. Think Flickr, " I think that had a lot to do with why we were able to iterate and innovate so fast.” according to co-founder Caterina Fake.

Big incubation set-up didn’t do well historically simply because they were big, such as IdeaLab and Internet Capital Group that raised hundreds of millions but didn't return anything close to what they were supposed to.  The role as incubator is not to provide seed money; it is about providing resources, advice and infrastructure to allow the idea to become investable.  Sometimes money doesn’t help and it pushes the business to the wrong direction.

First thing is raise less and spend less. The less money you spend, the less money you need to properly incubate. Testing ideas as cheap as possible reduces overall investment. Don't invest a ton in infrastructure and let your incubator provides them.

The second thing is to play fast and build fast. Visualize your concepts quickly and test them out fast. Being slow means competitors can get into a space before you have time to breathe. Also, the more ideas you can generate and play with, the more chances you have of hitting on something worthwhile.

If something is failing, change and adapt fast and don’t money at failing projects. Agility is the beauty of start-up, you must know how to use it to your best advantage.

Another on common mistake float at the creative, idea stage for too long and don't have what it takes to stay with an idea over time and push it to the next level. Discovering people who are like this is very hard, so beware. So another advantage of working with us as incubator is we relentless push to make sure ideas evolve and plans get executed. 

Incubation is sexy and fun. Generate innovative, cool ideas give people a mission in life. Create new businesses that disrupt the big guys is highly satisfying. Think about finding the next Facebook or FlickR. It is unbridled innovation … exploiting the full value of business mistakes. Incubation (for me) is the business of exploiting mistakes (preferably others) to create superior return on investments.

There is another reason I like incubation, it is the uncertainty and success depends so much on that uncertainty. It is a balance between making things happen (fast) and letting things happen. Great things unfold for smart people who are devoted to change the world (I am putting a team of smartest people I can find and afford). There is another side which is about letting things unfold in its own sweet way. While one door closes another one opens, once you let go of what you believe was the best, new space is created for something even better to come. Because every ending ushers in a brand new beginning. Did I sound too zen?

Workplace Interruptions - Another Service Innovation

I took this picture of the men's room in a Persian restaurant. I find that amusing that they optimize every inch of space with ads. I have not seen a public washroom like this, I was told they serve different ads everyday. Funny.

I can name dozens of organizations or non-profit agencies which I have no idea what they do and what are their missions. Here's one that has a clear mission. The Bureau of Workplace Interruptions is a time-stealing agency who work with employees to interrupt the flow of their workday.  Yes, from interruption to innovation, you wonder what's the connection.  The purpose is to invigorate some of the time people spend at work in order to create new experiences and possibilities outside the flow of capital.

Let's say if you're an employee who needs a break from the your boring routines you can apply for an interruption at the bureau's website. Go fill out a form and subsequently, they will do their best to find the right interruption for you.  When planning the event, they'll take your occupation, work hours, and the means by which they can contact you into consideration. The interruption can take place via mail, email, telephone or, if you're lucky, a workplace visit by real people that you don't know.

If you worry that your boss finds out, the Bureau of Workplace Interruptions will strive to keep their actions invisible to your employer. They have a strict privacy policy and the service is free.

If you think this service is cool, how about this one?

If you have recently failed a project, here; an interesting idea. You can now consider joining the Failure Support Group.  You will get five minutes to present your failure (no power point needed) to present your failure.  Any innovative and artistic projects fail a lot, particularly those that are participatory, public and/or social. They fail for different reasons and cause myriad revelations. Nevertheless, the structures that we use to talk about these works and contexts where they are presented often don’t leave room for discussing the failures plainly and objectively.

The Failure Support Group is an evening survey of failed processes and failed projects They explore questions such as 1/ Is there, actually, a recipe for failure?  2/ Are certain methodologies more prone to failure than others? 3/ How? What is at stake in acknowledging failure – in one’s process, one’s community, or one’s career?

Most people associate failure with defeat, but it shouldn't. How do you view failure? Do you see it as something negative that you don't want to be associated with or do you see it as something positive? Most people in the world don't like failure. And the fear of failure is the main reason why more than 80% of people in the world are not prepared to change their circumstances. Why do people fear failure so much? The reason for this is because people don't understand the dynamics involved in success and failure. VCs are the people who understand failures and part of their job is to manage them.

Everything we do in life has either a right way of doing it and a wrong way of doing it. When we do it the right way we meet with success. Needless to say that when we do it the wrong way we are unsuccessful. Understanding this is important because it puts failure in its proper perspective and removes the fear around it. When someone who doesn't understand this dynamic meets with temporary failure he gives up thinking that he or she is not good enough or that he or she will never make it. But is this really what it is? The fear of failing is worst than the failure itself.

Does the fact that you didn't make it the first time mean that you are not good enough? Does it mean that you'll never make it? Not at all! All it means is You did not have all the right elements yet. As the late Mr. Leo Burnett once said "When you reach for the stars, you won't find yourself getting a handful of mud." In this case, you will get a Certificate of Failure.

The Failure Support Group holds their meetings at the Democracy Center just off Harvard Square (Cambridge, MA) See you there soon.

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Revisiting The Question: What's The Impact Of A Soft Economy To Digital Media?

Came across this poster last week. I stopped for a couple of minutes to see what' was that all about but I didn't have time tor read on. I still think the best ad medium is outdoor, if only I can use my cell phone to scan soI can learn more about this once I get home or they can push something to me. That's experiential marketing.

Some thinks that it is safe to assume that as the overall drop in advertising activities would include online ads, but that's not what the data is showing. As the economy softens, advertisers will look even more closely at how well their ad dollars are doing.  Increasingly, marketers are looking to ad networks-vertical, behavioral and otherwise-to buy more targeted advertising.  Before we get into ad networks, here's a piece of interesting data, the North American videogame industry sold $1.7 billion worth of hardware and software in the month of March (a report by NPD Group) This represents a 51% increase from the same period in 2007. If you are in the gaming industry, you'd never know that the U.S. economy was under distress. There are many bright spots in the digital word. Videogame, Adnetworks and Social Media are booming.

That could be a boon to the likes of AOL and Yahoo, which recently scooped up a series of ad networks and exchanges in their bid to become one-stop-shops for marketers. According to Imran Khan, an analyst at JPMorgan Chase that covers this space, said that ad networks "are growing much faster than the general graphical advertising industry." Khan estimates that the top 20 ad networks earned around $2 billion in 2007, which accounts for 14% of the display market.

Why are ad networks thriving? Cheap, targeted advertising. Networks charge much lower CPMs (as low as $4) than giant Web portals like Yahoo and MSN ($40 and up). It's no surprise, then, that ad growth on premium sites has slowed compared to the overall Web economy. Margaret Clerkin, the chief executive of Mindshare Interaction, said it's about efficiency. "While the home pages (of premium sites) are still very effective media buys, the price tags on them have become a little outrageous for many advertisers...there are other ways to amass that type of audience fairly quickly that are more efficient," she said. NY TImes has the full story. As I wrote about this last week, there are still plenty of opportunities to jump into this space, but the entry cost is high.

Outside the ad networks, there are a couple dozens of stealth start-ups that can shape the future. One is 9 months old company with a super team from Google. The company , currently in stealth mode, is called Mechanical Zoo and is working on a social search applications. The privately funded company has raised about $750,000 in convertible debt from angel investors, including ex-colleagues and friends. Two institutional investors have committed another $1.25 million to Mechanical Zoo, but the founders may raise a series A round of funding in lieu of that money. The name Mechanical Zoo is an homage to the mechanical workings of its application, as well as several animal-named products that the company plans to introduce over time.

The interesting thing is these folks left Google because according to them it can be tough inside the search giant to make new, big things happen, as well as to marshal enough talent away from the company's main search and advertising products to build new services.  Yahoo fell because of that reason. That's a universal truth even with no exception to Google.

The End of Advetising Agency (Both Traditional and Interactive) As We Know It?

IKEA has outfitted a train in Kobe (Japan) with sofas and curtains—probably with names like Oompa-loompa, Frida, and Bucarest. Unfortunately, this is only temporary, to mark the opening of a new shop in the city. No reason why we cannot have Starbucks train cars or Muji train cars. This is the future of advertising.

IBM has published a new industry study apocalyptically titled "The End of Advertising as We Know It".. It is based on a survey of more than 2,400 consumers spiced with feedback from eighty senior advertising executives. The study predicts that over the next 5 years some 30% of global ad revenues currently accruing to traditional media companies - amounting to billions of dollars - will migrate to online ad exchanges such as Google and Yahoo. This is overly simplistic verdict and an unlikely scenario.

Here are some predictions from the report:

- As the advertising value chain reconfigures, broadcasters, advertising agencies and media distributors in particular will need to make a number of 'no regret' moves.

- The new technology and rising popularity of user-generated and peer-delivered content, and new ad revenue-sharing models (e.g., YouTube, Crackle, Current TV), now enables amateurs and semiprofessionals to create lower-cost advertising content.

- Advertisers are demanding more individual-specific and involvement-based measurements, putting pressure on the traditional mass-market model. Two-thirds of the advertising experts IBM polled expect 20% of advertising revenue to shift from impression-based to impact-based formats within three years.

- New entrants are making ad space that once was proprietary available through open, efficient exchanges. As a result, more than half of the ad professionals polled expect that open platforms will, within the next five years, take 30% of the revenue currently flowing to proprietary incumbents such as broadcasters.

There is no question that the future of advertising will look radically different from the past. The push for control of attention, creativity, measurements and inventory will reshape the advertising value chain and shift the balance of power. Disruptive start-ups will bring more chaos to this already vulnerable business model which is more than 50 years old.  Let's face it...no body even look at banner ads, press releases are nearly useless, TV commercial are entertaining at most but don't engage viewers, direct mail is a i the business of killing trees...what's left?

I wrote a lot about this on this blog, spoke at international conferences and frequently exchange my views with top agency executives, they are most curious of what I think the different models of agency and what likely scenarios will emerge? Currently there is multiple capability gaps exist in agencies, they are lacking management consultant’s type of business rigor, then the deep insight of product designers and the digital know-now of interactive specialist. 

In this world of cross-capability mastery, what does the agency of the future look like?  Agencies also have tremendous egos and cultural issue to deal, too much emphasis on “the creative idea”, it is such a thing of the 70s.  The quest for scale has reduced many great firms to either a creative factory or procurement shop. There is no room for walls and egos in a digital world.  Future agency success won't be measured in unit’s displayed or gross impressions, but the level of customer engagement.

From the end of advertising agency as we know it to the future of advertising, this week in Montreal I met with Jean-Francois, ceo and co-founder of Sid Lee (picture of their cafeteria above serving lunch for 200 plus) A creative powerhouse founded in six years ago by two students that never worked in an agency. They didn't really reject the traditional agency model, just don't give a damn about it (or know enough about it). The agency has a close relationship with Cirque du Soleil and came to flame with their work with them. I was very impressed with them when he explained to me their dream to build a new form of creative organization: a Commercial Creativity group. He told me his business is about “creativity”. I told him Idea Couture’s business is about “innovation”.  That was the beginning of an interesting conversation.

He gave Scott and I a tour of their offices, there so much creative energy in the place. In the Sid Lee mantra, advertising should be seen as a tool, as opposed to a toolbox. Rather, what Sid Lee calls "commercial creativity" is the toolbox? And it can include a lot more than just advertising, which explains why Sid Lee is now involved in such things as retail architecture, experiential marketing and industrial design. The idea is to be able to develop rich brand experiences in stores.

I think this company is on a mission. There’s a lot in common between our firms, while their core is in “creativity and design” and our core is “strategy and creativity” manifested in innovation.  Our focus is more towards digital. There’s something about the French and Japanese and creativity, although they are very different. I’ve spent a lot of time in Tokyo and Paris for both business and play.  And some of my most creative times and business ideas come around my visits to these places. The French publish utterly different magazines and books from the kind I find anywhere else in the world, and there is something about their perspectives. For Japan, I love to fusion of modernism with the spiritually ancient that expressed in design ethos focus on transience and the constant dynamism of change. There are agencies (for the lack of a better word) like them in London, Amsterdam and Barcelona all with a mission to change the world of marketing communications.  London's Monther is a good example. See picture of their workspace below.

Here's an old presentation which I posted here four months ago. Now is a good time to revisit it. If you know a company who is also on a mission to change the ad world, please share with us. Let's hope it will all happen fast.  Advertising needs a revolution, not repackaging.

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Can A Media Buying Giant Reinvent Itself?

This is a picture of my living room, I realized I have not been in this room for more than 4 weeks. You can imagine what's life is like. When I am at home, I usually spend time in study and then the kitchen and the bed room. I have not been in many parts of the house for a long time. I need a tour this week.  My last post was three days ago, it is not common for me. I try to do at least 5 a week but it is getting difficult. I had only 4 hours sleep the last three days. Anyhow I feel good. May be because spring is here.

I was in Montreal most of this week, met some very exciting people and had some productive meetings..from the top creative minds to VCs and bankers. Scott showed me this place that makes bagel by hand.  This city has so much to offer. I love Monteal, it is one of my favorite city. I used to visit there every week but it's been a while I get to see the city's best side.

Today's headline from an Ad Age story caught my attention: WPP's MindShare has launched a wholesale restructuring of its business splitting the agency into four distinct units. The idea is to move the shop beyond planning and buying to McKinsey-style business consulting.  According to their CEO Scott Neslund MindShare's restructuring--six months in the making--involved a complete reexamination of "what we were doing with clients,. -

He listed three key client benefits of the new agency framework:

- a more streamlined process of working with agency services

- the weaving of digital resources throughout the entire organization

- stronger, more creative media work.

He believed the company has implemented the "largest sweeping changes in the industry," and that those changes "will energize the next generation of media and marketing specialists." Looks like this media giant is finally waking up to what's going around them. The company was formed as a scale play through the merger of the former media departments of JWT and O&M. MindShare quickly became the largest of the new breed of media-only agencies.  MindShare ranked No. 1 among media agencies in the U.S., with $11.3 billion in billings during 2006. We all know media buying is a commodity business.

Neslund explained that the MindShare restructuring is to strengthen its emphasis on creating branded content, particularly for the new media space but also for TV, out-of-home and radio. But it's not only about creating content. The move is also a clear delineation of just what services are on offer, and a way to eventually get paid for those different functions by establishing the value of each discipline (much as the controversial unbundling of media from creative was a way to get paid for both those disciplines). This puts them in direct competition with Time Warner, Meredith or Redwood custom publishing. So now the agency is competing with the media and want to be paid for higher value services.

Here are my thoughts. Content development and content delivery are very different from marketing services. Although over the years these content providers try to provide branded content for their clients by working with the ad agencies. Now they are likely to do so if the agency is attempting to eat their lunch. I also doubt if they can build the digital capabilities needed given the tight digital talent market. Even the interactive agencies are struggling to fill these gaps, what makes them think a media buying agency can do that?

Their plan is to build a McKinsey type business-planning group that serve in a management-consulting-like capacity, focusing on solving issues most relevant to the CEO, rather than simply developing a media communications plan. I am not sure media and content are the most relevant to the CEO. Nor I think they can attract (or afford) talent of those calibre.

They will create an invention group who's job is to create content that reaches consumers in a way that meshes with a marketer's business goals. The group, which is defined as media neutral, will also handle strategic planning and contact planning. My question is since they have a media buying unit (name Exchange) and media buying is their core revenue stream, not sure how media neutral they can be. I personally think agency should not be in the business of content creation. Branded content does mean custom magazines and websites, the power lies in the innovative integration of branded content into the marketing strategy. The true power is to combine branded content with social media content and apply them across the customer life cycle. The combination can deliver credible, objective editorial content that appeals directly to your customer interests and concerns while building your brand image. It is definitely one of the most effective tool to drive customer engagement.

The only interesting play here is being an arbitrageur. They will be getting into the business of both buying and selling media. They will buy chunks of TV inventory, make it addressable and resell it to marketers. MindShare will seek out similar opportunities where it actually owns media space it can sell to marketers. At the end of the day, they are still a media buying company but instead of media planning and placement services, they are now into wholesale and repackaging business.

Print publishers are not doing well. Many believe that most dollars lost to the Internet will never return to print when the economy improves. The last time the economy went into recession, in 2001, employment classified spending in newspapers fell by about one-third from the previous year to $5.7 billion. While the economy rebounded, employment classified-ad spending has never reached those levels again and dropped to $3.8 billion last year, according to data from the Newspaper Association of America.

Publishers are seeing growth in their online ad revenues, that's unlikely in the near term to make up for what they've lost in print. They will turn to marketing services based on their content to make up for the lost. Even New York Times Co., which has been ahead of the game online, with 11.1% of its total revenue coming from Internet business in the first quarter, didn't see big enough online increases to offset its revenue decline. Goldman's  Appert estimates that industrywide Internet ad revenue eventually will grow enough to generate overall increases, but that won't be 4 or 5 years away. Publisher needs to look for new format. Unfortunately many cannot see beyond the storm.

Online Ad Networks Needs Innovation - Not Just A Scale Play

Weather is great in Montreal this week. I always love this city, it has many unique things that you cannot find in any other city through out North America. I am staying at the St Paul Hotel which is one of the best boutique hotel in old Montreal.  Lots of meetings here and we have to work some important game plan for the next 6 months.

The business of online ad network came up when I was talking to a many at the airport. He was saying how much money is being spent to acquire these networks and almost everyone needs to have one. Ad network is the most competitive space and the stakes are high because there is big money there.  I think we have about 20 to 200 ad networks out there depending how you define them.

There has also been a lot of deal-making in the ad-network space and lots of money changing hands. More than $2 billion was spent last year to acquire 10 ad networks and exchanges, and venture-capital investment in ad networks reached nearly $300 million, according to media investment bank DeSilva and Phillips. If you include the $649 million that WPP spent for 24/7 Real Media, the $6 billion Microsoft paid for aQuantive, or Google's $3.1 billion purchase of DoubleClick.  You add them up, you are taking about a market valuation of over $7 billion of these networks.

Now Disney announces that it has struck agreements with 45 smaller, separate Web sites that allow it to distribute content on them and, more importantly, sell advertising on their behalf. By doing so, it becomes a player in ad networks. The idea of distributing ads online is a no brainer and it is simply scale driven. It sound like a niche but it is not, it is an industry. The continuous M&A and new players will confuse media buyers as well as advertisers. No doubt there will accelerated consolidation and we should not see more than 3 to 5 networks with 2 dominating 70% of the ad space. The top-20 ad networks that sell display advertising earned more than $2 billion in revenue in 2007, or about 14% of the total graphical-ad market. 

Other than the top 2,  others will have to find a niche in order to survive. Some ad networks will need to specialize in a certain topic area, like health or phama and other financial services etc., while others cut across multiple subject areas. Some ad networks charge advertisers only when a consumer clicks on an ad or makes a purchase. There are still many opportunities for innovation if we stop thinking it as a pure scale play.  If we start looking vertical ad networks focused on specific market segments that aggregate mid-tier publishers, this can keep CPMs and brand integrity on the high side, and allowing publishers to focus on improving content and growing traffic. As these types of networks grow and are able to sell a higher percentage of inventory, the economics will begin to work in publisher’s favor which it currently isn't, relegating the super networks to selling tens of millions of untargeted remnant ads on lower quality sites. They will then come to you and write you a big check for your niches.  When it comes to ad networks, tt is good to be niche.

Newest Ventures - From Social Networks Search To Social Ventures

First day of a crazy week ahead. We'll start the week with looking at some news on latest venture funding for the last two weeks. Mobango received $5.7m for their mobile social network
. I was seriously exploring this idea with Keith Liu three years back but it was a little early because we're looking at GPS network deployment.

Another social network recommendations start-up called Redux just raised $6.5 m in series A funding from DFJ and individual Alsop Louie. They had previously raide $1.65 million in seed funding from two individual investors. Redux has created a social network with recommendations based on their unique algorithm and is creating a social network that helps people navigate through people, events, and other social network features and it learns about you by analyzing your profile and asking you a few questions. The more you use the site the more it can learn about your interests and social behavior. The algorithm also creates a relevance score for people that it believes you would most likely want to get to know and meet. They do the same for events and literally suggesting to you which parties to go to.

This is one of my favorite. Sellaband received $5m from Prime Technology Ventures.  It basically allows you to buy shares in unsigned bands and become a band investor (kinda like timeshare). They let you invest in the artist of your choice and they consider those that invest "believers". Each artist sells 5,000 $10 units. Once the $50,000 is achieved the artist receives professional studio time. After the studio time all the 5,000 believers will receive a Digi-Pack CD with the result of the artists professional studio-recordings. As a believer you will then receive commissions on future songs sold. It is a Dutch-based site and opened an office in New York late last year and since launch nearly two years ago has funded 18 recording artists from 11 countries. I love this concept. You can people you own a band.

Better World Books is a social venture to find literacy. They raised $4.5 m total in series A funding with $2.5m from the Social Enterprise Expansion Fund and $2m from 18 private individuals. The concept is simple, your purchases will be used to assist with literacy. On their site they discuss how three college friends formed this social venture, a business with the mission to promote literacy. They started with one book drive and have grown substantially since then.

Another one is TargetRX, a physicians and pharmaceutical community
 site that just received $9.6m aditional funding. They provides services allowing pharmaceutical clients to deploy better sales and marketing campaigns. TargetRX aims to determine the drivers of physician prescribing behavior which is obviously useful to the pharmaceutical customers. On the site it is stated that they have "developed a highly predictive, large-scale normative database of physician attitudes that it uses in combination with its patented proprietary analytic methods to provide pharmaceutical companies with powerful leading indicators of performance." The data is used to determine not only how they are doing but how they may perform in the future.

If you are planning to start a Web 2.0 video start-up, think twice. The online video category actually made up a smaller share of total U.S. Web visits year-over-year. According to new data from Hitwise, the Online Video category accounted for 1.09% of all U.S. Internet visits in March 2008, a decline of 7% compared to March 2007. I see more teenagers and teachers using it, but it is declining as a whole. Last month, YouTube accounted for 73.18 % of all U.S. visits to video sites, according to Hitwise. Still far behind, MySpaceTV received the second highest percentage of visits with 9.21% followed by Google Video with 4.06%. Hulu.com, which came out of beta the week ending March 15, 2008, was the 22nd most visited website in the category for March 2008. If you are thinking of video based start-idea, this is not the time yet.

Social Ventures And Emergent Systems

Last week we officially started our incubation program with a group social entrepreneurs, can't say more except that it is an innovative social venture.  They will be in stealth mode for a while. A little hint here, they are not in the business of producing climate change chocolate although it is a great idea (I bought that chocolate for myself).  Someone suggested I should be writing a book about it.  At least I should started keeping notes or writing a journal. That's an impossible thing. Today is Sunday and I have been working for 6 hours so to get a head start for the coming week.

On the topic of social ventures, many of today’s innovation are around networks.... all kinds of networks from system to social networks. There is a lot o garbage research on the commercial side of social networks which I am read you have come across. We all know that the behavior of these networks basically depends on whether they share a common interest or a cause and vision of what’s possible. Through these and networks and relationships, people slowly develop the new knowledge, practices, courage and commitment that lead to broad-based change. I think networks can be a powerful change catalyst.

Take a look at Kiva, the most notable example of social innovation. The non-profit organization with a mission to connect people through loans for the sake of alleviating global poverty. Leveraging the internet and a worldwide network of micro-finance institutions, Kiva lets individuals lend as little as US$25 to help fund small businesses run by low-income entrepreneurs around the world. The most unpredictable part is that all loads made on (0% interest loans) and have a historical repayment rate of 96%.

Kiva demonstrates the power of the innovation and made possible by the networks and communities. But networks is just part of the story, as networks grow and transform into active, influencing, collaborative communities, we discover how life truly changes, which is through emergence. What next for these  networks to become?

All living systems begin as networks, shift to intentional communities of practice, and evolve into powerful systems capable of global influence.  Social innovation can be taken to scale and provide solutions to many of the world’s most intractable issues and difficult to solve problems whether it is health, ecological sustainability and economic self-reliance. In a few years, these  “trans-local” active community will become the most powerful entities beyond goverments and large corporations. They will have the most influences due to the nature of connectivity and virality. I'd like to see a day when these "trans-local" can come together and get have economic influence over corporate policy and behaviors. The questions h

Look outside of today's social networks such as MySpae or Facebook, I am convinced that (social) networks are the new form of organizing and will be so in the future. We see evidence of self-organized networks is everywhere: social activists, web-based support groups,  political groups. Today we know so little about how network behavior evolves and what have no idea of what the future of network-based organizations (commercial or special interest of non-profit) would look like? There are many questions to explore such as:

- What are the conditions that support their creation and what trigger any acceleration?
- What keeps a network alive and what keeps members connected?
- What type of leadership is required and why do people become leaders in these networks?
- What types of network-based leadership iare effective and how does networks converge?

I wrote a book on emergent systems and its application on business strategy development ten years ago, I was trying to explore this subject but was struggling to find case studies in business. This aspect of emergence has profound implications for social ventures and entrepreneurs. Instead of developing them individually as leaders and business people, we would do better to connect them to like-minded others and create the conditions for emergence.  What would the right place to connect thee like minded people? The skills and capacities needed by them will be found in the system that emerges, not in better training programs. I think we can expect more and more social entrepreneur stars. It won't be long when B-Schools started focused programs such as MBA Social Ventures. That would be a wonderful thing. Come on, let's see which B-school's dean has that vision and the courage.

Your Avatar Can Now Go Partying In Facebook While You're Asleep

Just as you thought the buzz of avatar is over, a new app now allows your avatar to join Facebook.  Alter Ego was created by M iChameleon in conjunction with Coca-Cola’s digital team in London. It allows you to paste a photo of tyour face onto an avatar which can then be tweaked and customized with a selection of trendy threads. Your avatar can go partying with your Facebook buddies, or to go out and make some new friends at the Burn Alter Ego bar. The next day, photos of their (or rather your) exploits are automatically uploaded along with details of the evening, documented in a special blog. Cool idea indeed but not sure if your avatar would only be allowed to drink Coke on his/her night out.

You need to decide how often your avatar goes out to tear it up, however, as far as we are aware there is not yet a penalty point system in place for hangovers, so inhe more your avatar socializes the better. As your profile is boosted on the Burn Alter Ego scene, more souvenirs are provided from each night out, the more you hang out the more cool stuff you will get. This is probably most ambitious and technically advanced applications seen on Facebook to date.

The creator describes Burn Alter Ego as giving users ‘the freedom to maximize your social life beyond reality.’ OK, we are already getting all kinds of invite to join Facebook everyday and imagine if your avatar is an active partying animal, everyday he will bring you tons of new friends that you may not want. Partying has side effects too.

If you think you can escape the interuptions of advertising in the virtual world you're wrong. These virtual worlds and identities are designed to you escape the mundanity and viscitudes of real life about which apparently are lacking in excitement. Marketers are not giving up the invasion of this escapsim by real world hucksters.  Engagement in one environment does not translate into engagement in your environment. Interruptive marketing are here to stay, there's no escape.

Cubicles Are Anti-Collaboration And Is a Bad Social Design

Not sure you have heard about the concept of “social design”, which generally refers to interactions between the modern knowledge workers can support and stimulate innovation and  productivityl. It is almost universally accepted the linkage between interaction and creativity, research  explains a great deal about why there is a tremendous difference between interacting face to face and all other forms of interaction.  In 1987, Morgan Stanley economist Stephen Roach identifi ed a phenomenon he labeled “the productivity paradox.”. What he discovered was that although American companies spent trillions of dollars on information technology in the 70s and 80s, the productivity of those workers had not improved much. Productivity improvements are the fundamental reason for these IT investment, this research calls into question the IT strategy of nearly every larger organization. I think many of us has come to a point where technology is making us less productive. Think of how many emails coming in your mailbox and how often your browser distract at work. I think people were kind of feeling guilty 5-7 years back when they are browsing at work, today people just open their browsers and IM windws while trying to focus on work.

In late 90s, a team of HP employees were given the assignment of creating their own high
performance work space. Lots of freedom were given to them. All of HP’s engineers, programmers,  business analysts, and project managers were mixed together in the space that had proven tremendously effective at promoting interaction and high productivity. Given the need to reduce time to market and the complexity of the products, these people needed to work together in a different way. The result was a profound change in the way the team worked. Sharing of ideas and information increased dramatically, while the time it took to bring new project team members up to speed was reduced. Put the right people together so they collaborate creatively and intensively, and they can do wonderful things.

Open office has big proven benefits in our business where innovation and collaboration are our everyday work. Cross-disciplinary collaboration is vital and this can only happen in share space. Cubicles is anti-collaboration and so is private offices. We are a big believer in open workspace and it forges a culture of openess. The reasons for people to go to work has changed. It is not about producing a document which you can do that at home, they go to work to meet, to collaborate, to brainstorm, to share, to debate and not doing work in a traditional sense.  Simply put, cubicles are anti-collaboration.

Long before corporations became interested in creativity and collaboration and started learning how to promote it in the workplace--Mother Nature managed creativity through the process of biological evolution. An understanding of evolution won't help companies boosting creativity and collaboration, it does help them manage the unplanned.  The question is what is the best plan to plan for the unplanned?

Experience Design and Authenticity - Is There A Connection?

Is design being assumed to be an offshoot of visual arts of visual art is an offshoot of design? Or is interactive design an offshoot of theatre arts? There are many common grounds. No questions designers often draw inspirations from visual arts whether it is art book or galleries. There are also examples of artist look to commercial design and technology for inspirations. Let me think of one example.

I think good designers do not need to hang out in art galleries and museums. Just look around you and let everyday objects and experiences to inspire you. I know many see popular objects as tacky or lack of style. But sometimes this attitude blinds them from many interesting and inspiring solutions. I am not saying that style exist in all everyday objects of experiences, they can be a great source of ideas that can rival high style counterparts. IDEO's human factor leader Jane Fulton Suri published a book called "Thoughtless Acts" which captures many amazing and provocative ways people react or adapt  to things and the world around them. Cure little book with lots of pictures. The goal of the book is to inspire examples of intuitive design. This is an excellent example of how everyday things and actions can be a gold mine for new ideas. May be I should put together a book with my hundreds of photos on everyday service experiences. That's a good idea.

How do we celebrate everyday objects?  Often we don't buy these objects for their "design," but it's because of their design that they find their way to us.  They don't look pretty at first and somehow we get used to it. They may not be art objects but they represent elegant solutions to our real-world problems. You can buy them from Wal-Mart and marry form and function and make economic sense. There are plenty of examples.

How about everyday experiences? Often these little experiences (digital or real world) are not engineered to be great, but somehow they find a way to us and we feel comfortable with it. They don't appear to be great at first and somehow we get used to it. They may not be places for special occasions but they represent a third place we spend our time. People are friendly not because they are trained to act that way but they are simply who they are. It is called authenticity.  We can tolerate those long waits or any human errors because we know they are like us - being humans.  The questions why we do we tolerate these service hiccups in those places and get mad when it happens as a result of a service breakdown in a large company whether it is hotel, airline or retail chain? I think it has to be with authenticity.

A tales of two experiences: Mecca and Alinea. Both are my favorite experiences (photos above). 

Mecca, a small Indian restaurant in the Greek district of Toronto, it is one of my best places for curry. People there are enjoying Mohammad Miah's food the traditional way, delicately digging fingertips into the aromatic biryani. The scene is a lot like Miah's native Bangladesh. Nothing is staged and the lousy but friendly service is part of the character. Food is great. On the other side is Alinea in Chicago, unarguably the most designed or engineered restaurant in the world. It is where restaurant meets modern performance art. Everything they do was to convey the emotion, the expression, the essence of the restaurant. It is a hyper-experimental cooking style that pushes the limit of cooking and restaurant operations management. The two restaurants are drastically different in sophistication, scale, operations, investments and target market, but one thing is common. They are both unique and authentic experiences. One cost $8 per person and the other $250.

What are the world's msot authentic experiences? Here's a good piece from NY Times. Great lessons from India (one of my favorite places on earth). In India, visiting temples that pulsate with devotion will evoke a sense of the sacred, with religion is such an integral part of daily life, spiritual experiences occur when you least expect them. Here are some examples:

See Things As They Really Are (Vipassana Centers throughout India): Maintaining a strict code of silence with no sensory stimulation for 10 days may sound like a self-induced hell, but after attending a 10-day Vipassana meditation course, most people claim transformation and find the mental training invaluable. 

Hop on a Motorbike and Head for the Drumbeat (Goa): Once capital of the global beach party, Goa may be past its prime, but when rumors start that an event is in the making at a to-be-announced venue, keep your ear to the ground. Why? Because only in some deserted clearing near a golden Goan beach can you trance out with the nationals of the world, and find solace in the serenity of a rural villager's smile as she hands over cups of soothing chai for the duration of the party.

Worship the Sunrise as It Touches the Southernmost Tip (Kanyakumari, Tamil Nadu): You can't help but be moved by a sense of the miraculous when a simple daily occurrence is venerated by thousands of pilgrims who plunge themselves into the turbulent swell, believing that the tri-oceanic waters at India's southernmost tip are holy, while others delight in the glorious spectacle as if it's a major Bollywood (the nickname for India's booming film industry) premiere.

Lose All Sense of Reality in the City of Light (Varanasi, Uttar Pradesh): Drifting at dawn on a boat on the Ganges along Varanasi's bathing ghats (steps leading down to the river), against a backdrop of 18th- and 19th-century temples and palaces, you will witness surreal sights -- hundreds of pilgrims waist-deep in the Ganges cleansing their souls in its holy waters, while others pound laundry, meditate by staring into the sun, or limber up to wrestle. All the while, bodies burn on the sacred banks, thereby achieving moksha -- liberation from the eternal cycle of rebirth. P

Purchase a Pushkar Passport (Pushkar, Rajasthan): As you wander around the ghats of Pushkar, the beautifully serene temple town on the edge of the Thar Desert, you will almost certainly be approached by a Brahmin priest to offer puja (prayers) at the sacred lake. In exchange for a "donation," he will tie a red thread around your wrist -- the "passport" you can brandish at the next priest who approaches. This is the commercial side of India's spirituality, and one you need to be aware of.

Make a Wish at the Tomb of a Sufi Saint (Ajmer, Rajasthan): The great Sufi saint Khwaja Moin-ud-Din Chisti was known as "the protector of the poor," and his tomb is said to possess the power to grant the wishes of all those who visit. His Dargah Sharif is the most sacred Islamic shrine in India, second in importance only to Mecca but frequented by Hindus and Muslims alike. The atmosphere of pure devotion is both ancient and surreal; some pray fervently, and others tie threads onto the latticework while supplicating the saint to fulfill their wish, while throughout these activities, the qawwali singers seated in front of the tomb repeat the same beautiful, haunting melodies that have been sung for centuries.

Let me now if this inspires you to think about service design. Pls share your stories with us.

What Do I Need For My Web 2.0 Start-Up To Become VC Friendly?

I have lots of people asking me the same questions many times last two weeks. So I will put my answer here again. Not all Web 2.O businesses are suitable for VC they are only interested in those with a high up-side, clear exit options and a real market opportunity. An idea that can quickly turn into at least $50m to $100m in revenue. A strong team with both passion and experience. But most of all, what's the fastest way to get them the $50 or $100m. If you are working on a Web 2.O start-up that relies on ad dollars as primary revenue, you need to show them the calculation. Ad revenue is not an easy solution for not figuring the value proposition of your Web 2.0 site.

If you can get $25m in revenue, you are doing OK. But $50m is the number. $100m you're a player. There are a few ways to get to $50m in revenue as an online media business:

1/ Create a Web 2.O property with a very broad audience reach, say getting to the $1 RPM range (including all CPM, CPC, and CPA models). To get to $50m in revenue you would need 50 billion pageviews in a year, or just over 4 billion per month. This is tough.  Not a lot of properties get that.

2/ Create a Web 2,0 property with specific targeting (generally demographics). Let's use a $5 RPM. To get to $50m in revenue you would need 10 billion pageviews in a year, or just over 800 million per month. If you want to hit $100m in revenue, you are talking about 1.6 billion pageviews per month. This is not unrealistic if you do a couple of things right.

3./ Create a Web 2,0 property with fanatic stickiness which usually means association with a hobby. That would become a must advertise property for certain advertisers.  If you have a highly targeted audience (preferably with high income) that is interested in buying a specific product, you can get  double digits RPMS. Lets assume a $16 RPM. To get to $50m in revenue you would need  around 3 billion pageviews in a year, or just 240 million per month. Even to get to $100m you only need 480 million per month. That's a very achievable target.

Here's some ComScore data if you are interested.

For those who use Google Analytics, they just added a col feature, the ability to view benchmarking data across verticals. The idea is to allow you to compare your reporting to that of your industry as a whole or to other industries.  Context is very important to have or your web metrics are just numbers. So you can do competitive benchmarking easily.

Here's a quick how to if you're interested. First you need to enable it in your settings from within Google Analytics. The first page you see after logging in (which shows your profiles) has a link that says “Edit Account and Data Sharing Services”. After clicking that link, check the box that says, “Share My Google Analytics Data… Anonymously with Google products and benchmarking service”. Then click “Save Changes”. I believe it will take 3-4 weeks to take effect. You will know if it shows up by clicking the Visitors Tab from within Google Analytics and then the “Benchmarking (BETA)” tab. Then you can play with benchmarking your site. It is very useful.

Media 2.0 - Ready For The Next Game

I have been talking a number of senior executives of large media corporations and I really think it is an exciting business to be in. Take a look at a chart of EBITDA multiples versus EBITA from a Goldman Sachs research report on the media business growth rates tells us something. Look at the differences between video games and Internet versus newspaper. That tells you why media executives are up at night thinking about how to play the NEXT game.

An example is Hearst Interactive (the digital media investment arm of Hearst Corp) is incubating a Kindle-like e-book reader called FirstPaper. The stealth startup is based in Palo Alto and NYC and is working on a new device based on Linux and will have some variation of Mozilla browser or its underlying technology in it.

Hearst has also invested in E-Ink, the electronic display technology firm, so there might be some synergies involved. E-Ink supplies its technology to Sony Reader, Sony’s critically acclaimed e-book reader. In fact, Lee Shirani, the former head of Sony Reader’s e-book store, is now working as FirstPaper’s SVP.

They are planning to test-market a wireless online newspaper within the next two years, using E-Ink technology. But unlike Kindle’s small, hardback reader, Hearst plans to employ the technology on a flexible screen almost as big as a tabloid paper. The e-paper can be updated by simply touching the screen.  So kind of like a big mousepad that works like a screen in the size of Rolling Stone magazine. Touch screen functions and customizable column are what I predicted. This is an interesting one to watch. Who wants to read from your IPhone if you can have a digital tabloid.

The very nature of media has changed not only in the delivery format or medium; even it’s very nature. Look at what Youtube is doing for media activism turning it into a platform for democratization of media. Using a phrase from Jamais Cascio, this “participatory panopticon” creating the potentials of a world where people can use built-in cameras from their cell phones to tell the world what’s going on in any particular moment in time. I think we can expect more innovative platform as this behavior evolves. Both print and TV media is in a period of dramatic change as the democratization continues and mass audience continues to fragment into ever-smaller niche audiences and communities of interest, and new technologies shift control over the to media consumers.

The big question is how to transform the “passivity” of TV and print into “active engagement” that are capable of capturing and holding the audience’s attention, and effective at generating emotional investment. The single most important concept in this new industrial discourse is that of “audience“ or “reader” engagement”, a term that is now commonly and not properly used.