eBAY itself may have lots of woes, but it surely has empowered many entrepreneurs to build extremely lucrative small cash businesses.
These businesses do not qualify as Web 2.0. They should. They stay under the radar of Venture Funds and Angels. Some of them shouldn’t.
Read this article from Entrepreneur magazine about 10 eBAY Millionaires. From Diamonds and Jewelry to eBAY consignment shops, these businesses have been bootstrapped effectively, and are now creating great returns for their entrepreneurs.
Also, some books to read, if you are considering your own eBAY / Web 2.0 business:
1000 Best Powerseller Secrets by Greg Holden
Secrets of eBAY Millionaires by Greg Holden
What to Sell on eBAY and Where to Get It by Chris Malta
Read this analysis from JP Morgan on why Yahoo and eBAY should merge. I have been advocating YahooBAY for months. My first piece on the topic was written on October 26, 2005. A month back, WSJ did a lengthy piece on eBAY’s conversations with Yahoo and MSN.
I am keeping my eBAY holdings with the hope that this merger will take place.
Multi-Billion Dollar Question: Who is the right CEO for the combined entity? Probably neither Meg nor Terry … If there were ever a complex merger integration, this would certainly be one. Who has the experience to pull this off efficiently? I am sure Russell Reynolds et. al. are working out their prospective candidate lists …
Matt Marshall’s article Venture Capital Survey: Small Firms Make a Splash makes the case for small funds and Angels being the primary driver for entrepreneurship in Silicon Valley. This is roughly true, with a few exceptions:
– Not all deals offer leverage to the small investors. If a deal needs more money subsequently, the best way to get returns is by staying in the deal, pro rata, rather than getting forced off the Board, and worse, washed out from the deal via “restructuring” and “liquidation preferences”.
– This automatically means that capital intensive deals are not for small investors. The best deals for small investors, in fact, are micro-cap, built-to-flip deals. Google was an exception, not the rule.
The gap in the market, right now, is the funding source for big ideas that need big capital and high risk-appetite, but can open up big new markets. If small funds try to get into such deals, they will inevitably get washed out. An experienced entrepreneur, knowing the dynamics, will not try to bootstrap such a deal, as a similar level of dilution will follow, washing out the entrepreneur’s capital investment.
Investing in such ideas takes a style of vision and risk taking that John Doerr had mastered. It is the kind of investment that creates huge industries and lots of associated startup activity. It is, therefore, not viable at the moment to go for a $5-$6 Million Series A based on a powerpoint pitch & financial models. It was, however, very viable to raise substantial money on a powerpoint pitch in the late nineties. By and large, it is better this way, since the junk that got funded then was outrageous.
However, there are deals and ideas that still warrant financing in this mode. I’d like to see the next John Doerr step up to the plate. As it stands, large VCs are taking “wait-and-see” approaches to highly speculative deals, hoping that some idiot Angel investor or entrepreneur would jump in, help bootstrap, and take out the startup risks. And judging by the newly minted “Angel Investors” and their inexperienced investing, I am sure many such sitting ducks will lose their shirts in the process.
YouTube is all the rage these days and Sequoia is betting heavily on the company fetching them a large, portfolio-making exit. Not a day passes by without their video upload and viewership numbers being touted in the media.
This weekend, I did a small experiment on YouTube, to see how much of the content on it is garbage, versus, what is quality. To do this, I picked a genre that I know well: the Argentine Tango.
I found a few reasonable quality dance clips with famous dancers like Miguel Angel Zotto, Milena Plebs, etc. but conspicuously absent were , Omar Vega, Graciela Gonzalez, Cecilia Gonzalez, Nito & Elba … many, many others, except a smattering.
Here is the most beautiful clip that I found, though, of Natacha Poberaj and Jesus Velazquez from Miguel Angel Zotto’s Tango x 2 video of Una noche de tango. I also found a great animation clip of an Oscar winning Polish short film.
Out of 1002 search results that matched the “Tango” keyword, my guess is there are about 20-30 videos of any quality. That’s 3% at best.
The rest? Crap, of course.
How do you monetize crap? I suspect, the answer is: You Don’t.
So, from now on, whatever YouTube statistics I see, I will discount it by 97%, and see if the numbers still look interesting. And those calculating valuations should also use similar Crap Tests to adjust the traffic stats.
On the other hand, if YouTube decided to focus on building up high quality within each genre, and making appropriate copyright and monetization prospects viable, then this could well be a meaningful way to build up special interest groups aligned with their passions.
Advertisers love that!
Remember my article, Pulitzer Prize For Blogs?
Editor & Publisher is America’s oldest journal covering the newspaper industry. Read this article : Incoming Pulitzer Chair Steiger Wants More Web In Awards for an update on the current state of affairs.
Stating what he considers priorities for the Pulitzer board, which will meet again next in the fall, Steiger was clear that rewarding Web journalism was a key to keeping the awards relevant. “So much of our work continues to be online,” said Steiger, who was appointed chair earlier this week. “So much exciting stuff is being done online, and by essentially print newsrooms, that have made it a bigger and bigger adjunct of the newsroom.”
The categories for which the journalism prize is awarded are: (Source: Wikipedia)
1. Public Service – for a distinguished example of meritorious public service by a newspaper through the use of its journalistic resources, which may include editorials, cartoons, and photographs, as well as reporting. Often thought of as the grand prize, the Public Service award is given to the newspaper, not to individuals.
2. Breaking News Reporting – for a distinguished example of local reporting of breaking news.
3. Investigative Reporting – for a distinguished example of investigative reporting by an individual or team, presented as a single article or series.
4. Explanatory Reporting – for a distinguished example of explanatory reporting that illuminates a significant and complex subject, demonstrating mastery of the subject, lucid writing, and clear presentation.
5. Beat Reporting – for a distinguished example of beat reporting characterized by sustained and knowledgeable coverage of a particular subject or activity.
6. National Reporting – for a distinguished example of reporting on national affairs.
7. International Reporting – for a distinguished example of reporting on international affairs, including United Nations correspondence.
8. Feature Writing – for a distinguished example of feature writing giving prime consideration to high literary quality and originality.
9. Commentary – for distinguished commentary.
10. Criticism – for distinguished criticism.
11. Editorial Writing – for distinguished editorial writing, the test of excellence being clarity of style, moral purpose, sound reasoning, and power to influence public opinion in what the writer conceives to be the right direction.
12. Editorial Cartooning – for a distinguished cartoon or portfolio of cartoons published during the year, characterized by originality, editorial effectiveness, quality of drawing, and pictorial effect.
13. Breaking News Photography/Spot News Photography – for a distinguished example of breaking news photography in black and white or color, which may consist of a photograph or photographs, a sequence, or an album.
14. Feature Photography – for a distinguished example of feature photography in black and white or color, which may consist of a photograph or photographs, a sequence, or an album.
Read this article by Owen Thomas on why Sandisk should acquire Kodak. It’s a good analysis of what’s going on in the Storage market, and how they become some of the biggest beneficiaries of the digital entertainment book and the growing importance of digital photos, music and movies.
Also read this article by David Kirkpatrick on how Microsoft and Google are about to launch in a spending competition on server and storage hardware and network infrastructure to cater to the world’s hunger for software delivered as a service.
And of course, iPod has been a huge success in packaging storage as a sexy consumer gadget.
In light of all this, what is the conversation between Eric Schmidt and Jonathan Schwartz? Sun has some really sophisticated expertise in data center management and distributed computing. Perhaps, SUN’s return to glory would be in merging with Google, making McNealy’s dream come true by creating the first true challenge powerhouse against Microsoft that includes a credible Enterprise strategy?
Few months back I wrote YahooBay. In the last month, eBAY shares have dropped a great deal. The core auctions business is slowing, and under threat from Google. So far, Paypal continues to grow by 30%+, but if Google launches a payment platform, that business will also go through jitters. The stock will definitely tank further. Skype hasn’t kept up with forecasts so far, hence, has not been the white knight.
eBay needs to be in search & content, monetized via online advertising, but it isn’t yet. Instead, it pays huge ad dollars out to Google.
And for Yahoo, also, adding the stronger e-commerce business would be healthy, while keeping the huge ad revenue off Google.
And if not, there are literally dozens of search startups out there right now that specialize in this, that and the other kinds of vertical search. It’s time for eBAY to go shopping again.
They should also put in place an advertising business ASAP, which can tackle a lot of the growth concerns. Their merchants, to differentiate, should be able to buy contextual advertising a la Adwords. For this, they need an Ad Management system like Adwords, as well as an Ad Sales Force.
eBAY’s DNA is staying relentlessly focused on their core business model of auctions. All this other stuff, especially selling Ads, will require a shift. Can they do it? Unclear.
At this point, their story is no longer resonating with investors. Lot of questions remain. Long term, it’s still a good business, but to become an attractive investment, it would have to take some major steps into unknown territories. I would have liked to see the first real step they did take (Skype) to have been a different step. The money they spent on Skype needed to have been spent on building their online advertising presence.
As it stands, it looks like an expensive misstep.
A number of businesses have cropped up that claim to provide online tutoring. It is a multi billion dollar market opportunity with incumbents such as eSylvan, and upstarts such as Growing Stars and Tutor Vista.
My thesis: the service is only effective in a one-on-one mode, and the P&L, then, is only interesting if off-shore tutors are used (i.e. tutors from India, China, Eastern Europe). India may the best solution, because language problems may be more of an issue elsewhere.
Here are some questions to ask in analyzing a tutoring business:
– How many students are they tutoring?
– How many hours on average do the students use the service?
– Who are these students? Public school students? Private school students?
– Any ethnic bias towards kids of Indian/Asian parents?
– Any geographical bias? Which school districts are adopting the service?
– Experience with home schoolers? Is that a segment they serve? What percentage of the business is home schoolers?
– What subjects do they receive the maximum number of tutoring requests for? Algebra I? Calculus? Biology? Physics?
– Do they ever have missed appointments, whereby students skip their scheduled session?
– What kinds of skill-gap assessments do they do? How do they zero in on what to focus on?
– What content/syllabus do they follow in tutoring the students?
– How do they reconcile state-to-state and school-to-school variations in course material?
– What is the user experience like? Hardware? Software?
– What is the pricing model?
– How much have they benefitted from NCLB certification?
– How do they market the service?
– Do they have experience with advertising using the MySpace/Facebook communities?
– Do teachers recommend/use the service to help their students?
– What are the primary drivers of the business? Test-preparation? Homework help? Other?
– Any issues dealing with teacher’s unions (NEA, etc.) due to off-shoring?
Here are some facts to keep in mind on this market:
While the tutoring TAM is very large ($5 billion), online tutoring TAM is likely to constitute of students who are quite motivated, and omit the ones who are not. This may limit the market substantially, and precise segmentation is necessary to tap into the right set of customers for efficient scalability. In my assessment, Growing Stars, one of the earlier entrants to this market, is doing a miserable job of strategic marketing, and hence will have difficulty gaining any traction whatsoever in terms of growth financing. The one thing they do right, however, is have a 1:1 service, which positions them well against the 1:2 and 1:3 offerings like eSylvan. Personalization is key. They understand that.
There are a number of VCs looking at deals in the area, gauging from the questions I get. It was not so two years ago; this is a good sign.
I haven’t seen the “right deal” yet, though, that warrants financing.