BIA / Kelsey Group ILM West 2011 LiveBlog Thread
MIHMORANDUM NO. 1043 | December 12th, 2011
Hey hey! I’ve arrived at ILM West (albeit about 15 minutes tardy) and will be blogging sessions throughout the next couple days. Looking forward to the conversations in the comments and/or on the ol’ Twitter. (@davidmihm)
Opening Keynote: Bob Pittman, CEO, Clearchannel
The opening presentation from Bob Pittman is, unsurprisingly, broadly focused, and more so on traditional media and brand-type awareness, impressions, etc., as opposed to search or even online media. Funniest line so far–”everyone’s hobby is TV-watching.” Some on Twitter have been calling him out a bit for skewing too heavily towards traditional media.
Pittman’s take on the Daily Deal space: “Consumers love curation [of deals / advertising],” and ties that to their preference for curation on radio. Pittman sees Clearchannel’s REACH as its differentiating factor. They have the subscribers/listeners/etc. that Groupon is paying so much to acquire. Peter Krasilovsky: ClearChannel has a partnership with LivingSocial already; how do you balance that relationship with your own innovations in this space? Pittman sees ClearChannel primarily as an advertising vehicle.
Kara Swisher, AllThingsD
Kara has increasingly been focusing on the Local space. Companies have been trying Local since way back in the AOL days with Digital Cities. “Nothing new under the sun.”
One of the reasons that Kara left WaPo and went to WSJ is that WaPo was so dependent on classifieds and she could see it going digital. People are not using these local sources digitally the way they used them in print.
Q: Is there a place for Yelp in the world of Google?
A: Google is not perfect. They are not going to be good at everything. They’ve had quite a few screw-ups over time. Issues with Yelp have to do with Yelp itself–whether they can sell advertising, continue to be a sustainable business.
Q: What about Groupon?
A: Kara likes Andrew Mason–quirky company, lots of energy. Problem with Groupon is that they are doing it in so many markets & they aren’t the best on execution. Fatigue is another issue; you train consumers to want discounts; there’s a limit to so many deals. Kara gets 16 Deals every morning and has bought ONE this year. Groupon is having trouble figuring out the next market–GrouponNow has been a rough go.
Going forward, everything has to do with the mobile phone. Eventually it will be like electricity, where it’s just always on, and it just knows where you are and what you like.
Q: Will the Check-in guys (4sq, Scvngr) be able to leverage this behavior?
A: Conceptually, Kara thinks yes, if they know enough about you. Plenty of benefits from things that you actually like.
Q: Will Facebook be able to do better with Gowalla than Gowalla was able to do?
A: They’ve hired them for design. It was a beautiful product, and just didn’t catch on.
Q: How do you compare the cultures at all these Valley companies?
A: Zuckerberg RUNS Facebook. Most internet companies, in fact, are still being run by their founders–harkens back to Hollywood, Ford, etc. Jobs was running Apple, Larry and Sergey are running Google, Bezos is running Amazon, Ellison runs Oracle, etc. They all have overwhelming personalities. Zuckerberg has the most vibrant / paranoid mindset in terms of moving quickly to stay ahead.
Q: Is Amazon a sleeper in Local?
A: It’s not a secret. They’ve been playing there a long time. Bezos knows a LOT about Local transactions because of where they send them. Obviously they have a big investment in LivingSocial. The new big play is in entertainment distribution. KindleFire, etc.
A9 directory was late to the game; behind Google. Being #2 in the search business loses a lot of money (see Bing).
Q: What about eBay? Milo acquisition, etc.
A: They’ve also been Local for a long time. People have been creating stores for years. Their issues have more to do with pleasing their merchants and getting drowned out by all the other ways to buy on the Internet. Their greatest acquisition was PayPal.
Q: Are you impressed by any newspaper companies by what they are doing online?
A: Boston Globe, NYT, WSJ. Not any local ones, really. “Sticking it to consumers with classifieds” — that whole business model is over. Craigslist didn’t just destroy it, it collapsed it. San Francisco Chronicle was $200 Million. Craigslist put them out of business AND took the market to $60 Million.
Traditional classifieds and Yellowpages are miserable user experiences. “My kid said–what’s that [asking about the Yellowpages]? And I said…don’t worry about it.”
A: Patch: Not making money, not going to make money.
Q: Is there any synergy between AOL, HuffPo, Patch?
A: Kara is not too bullish on that. There is a lot of spin on that. “Declaring victory and then doing the hard work.” She just doesn’t see people consuming news and finding out about new stuff via those sources. Twitter is where she gets it.
Q: How do you compare East Coast to West Coast cultures?
A: In the Valley, “VC’s are like teenage girls chasing Justin Bieber.” There is a lot of energy, and there is something to be said for the analog 1:1 face-to-face meetings. Vibrant scene in NYC, some in Boston, some from Chicago, DC has been back-and-forth. China, Russia, lots of places outside the U.S. could be the NEXT Valley.
Q: OK, what about Asia?
A: Up to now it’s been a lot of copying…create the “Groupon China” etc. But now there is too much money over there and too many interesting entrepreneurs. More innovation in the future. Lots of interesting stuff happening in Korea.
Q: The power of games. Zynga, Xbox, etc.
A: People like games; we’ll always play games. Friction happens when you try to layer game mechanics on every single thing. Sometimes you just want what you want and you don’t want to play games while you are getting it.
Q: The next big thing?
A: Screen technology. Minority-Report-type stuff. Touchscreens, screens everywhere. Some of what she has seen in Asia is paper thin.
Q: Subject switch: can Microsoft get back into media?
A: Into media, possibly. Connect is a cool product.
Q: What is your sense…are we in a bubble?’
A: Kara doesn’t know…it’s limited partners’ money. There aren’t enough ratholes to shovel the money down in Silicon Valley,” but if they get one WIN, say, the next Facebook, it works out. Pinterest is the big trendy one now. She thinks in general this kind of model does foster innovation.
Back to the content…Steve Marshall, Head of Kelsey Research
Just coming out of a meeting…VERY interesting stats:
- only 13% of SMB websites have a phone number
- only 24% have an email address
- only 64% have more than one page on their site
SMB’s think best quality leads come from…
- 64% phone calls
- 54% website contacts
- 42% in-person visits
- 28% Facebook responses
Over 50% of SMB’s are already doing self-serve (36% with operator assistance, 17% without). (That seems CRAZY high to me) 23% from Yellowpages reps.
Most important thing an advertiser can provide is a self-serve option. Only 11% of SMB’s say an in-person salesforce is important in purchasing online ad products (but what about phone? If all of these stats are true, why isn’t Google’s Adwords Express campaign going unbelievably, phenomenally well.)
Younger businesses spend much more of their ad budget on online media; older ones are more traditional (not surprising).
Who connects early with SMB’s? Domain registration folks. 2/3 of GoDaddy’s domain business is “new” businesses (0-3 years old). Also many of them are “first touched” by companies outside the traditional Local space (things like banks and merchant processors.)
Michael Yang – Comcast Ventures – Currently manages over $1Billion.
Rick Blair – Angel Investor. Formerly at Examiner and AOL among others.
Gregg Johnson – BIA Capital Strategies – over $300Million.
What makes a good investment?
1) Market opportunity. How big is the market?
2) Team. The right team is going to find the right opportunity?
Harder and harder to build unique, protectable, IP. Most of the game is execution. Seeing who your co-investors are is also important. Who has momentum behind them? Comcast does seed to late-stage investing. $1Million – $2Million starting.
Can the product be a game-changer?
Who is leading the charge / CEO? Do they have a success rate that is applicable? Are they a serial winner?
He likes to get involved in the companies he works with.
Last year and a half we’ve seen things like Y Combinator really pop up. There is talk that these groups are taking the wind out of the Venture business…thoughts?
They’ve actually invested in a couple Y Combinator companies. Two types of entrepreneurs:
- Newbies (tech background, wants to do their own thing)
- Offline refugees (seasoned careers in offline media ? Local media)
Comcast is looking for a cross-fertilization of these kinds of sources.
- BIA/Kelsey is picking up companies that are 2-3 years into existence. Branding: who has a sustainable niche / customer base. This is what gets them excited.
- Blair: Many companies need cash just to stay alive. Concern on their part is whether they’re going to be there to “play another day”…the concern is not really around valuation. Most deals he does involve 5-10% of the company.
- Yang: Price is set whenever the price is agreed upon. Angel stage: 5-10% is reasonable. Seed: 15-25% is more reasonable.
There are micro-markets in Local. If you’re in the market with a SaaS channel play, that might be very different than Daily Deals, for instance. Important to have a more long-running view. “You never want to get ahead of your valuation” — you don’t want to do a “down round” later (Matt Booth, Kelsey).
- Johnson: Valuations are not a function of any one metric. “What is your buyer someday going to pay?” OR “Somebody has to start generating a profit.” Valuation is predicated on what someone else can generate. In terms of percentage, the market is going to tell you what percentage is fair.
Matt Booth (Kelsey): Most investors are willing to give the management team upside in order for them to stick around / stay committed.
Booth: – Valuation multiples in Local are all down in the last 12 months…he doesn’t necessarily believe this.
Johnson: How many other companies are in the same sector…where there are a lot of companies there, there might be a bit of a bubble.
What sectors do you like?
Blair: Gamification and crowdsourcing. Provides breadcrumbs for people.
Yang: Back to the “bubble” — the public and private markets are not necessarily in sync. Most big tech companies are sitting on a lot of cash because they are cautious. At a seed/angel level, there is surplus capital coming in. They are increasing the volume of companies getting funded & also the amounts of those fundings. On the late-stage side, lots of the funding is being consolidated in to a dozen or so funds. He thinks 2011 WAS a bubble and is looking for more measured valuations in 2012.
Johnson: Lead generation. Where you have a category leader that can drive critical mass. Cooking.com is a recent investment for BIA/Kelsey and is now branching out into additional areas.
What is “mezzanine” level investing?
BIA gets involved with companies that already have quite a bit of equity. Augmenting equity that is in place but counts as “junior capital.”
What are the 2012 trends
1) Business plans, pitches, that speak to merchants and SMB’s. Retention and Loyalty
2) Tablet-related ideas.
Who is actually standing up for the merchant in this Daily Deal frenzy?
Tools that help the in-person sales process more efficient and more successful?
Communities being completed and formed around mobile, wireless… Booth: there are a lot of indications that self-serve is actually working. Training would be helpful for SMB’s.
See some consolidation around smaller businesses in a number of segments.
Coopetition is a horrible term, it doesn’t work…the exception, however, is for people that are building large platforms. These can work on a plug-and-play basis.
Blair: People will be investing above the angel level more in 2012. When the money is tight, entrepreneurs have to spend SO much time going out to get it.
Yang: Would like to see more consolidation happening in Local. Talent-based acquisition. Product acquisition. Segment leaders who have scaled.
Johnson: Companies will have to drive down their cost of capital. Banks will not be returning to this space in 2012. Companies will have to be more creative in attracting capital sources.
The Newspaper Business Model
John Paton, Digital First
Are Local news and local sales broken? No. Newspapers still have reach as well. Communities still trust newspapers as messengers.
In Torrington, CT, Digital First has literally opened up the newsroom to citizen journalists. The digital audience is 5x the print audience. Digital revenues are only 30% of total revenue, however.
They have centralized non-Local content production and this has reduced costs by 50%. They strive to allocate their internal resources to the areas that are growing (mobile and search) as opposed to print.
They are experimenting by selling one new product per week–trying a bunch of things and seeing what actually sells. They already have the scale for these kinds of tests.
$130Million in Digital ad revenues nationally out of a total of $1Billion. In Q1 of next year, they are launching DigitalFirst ventures to find and fund new partners to grow this even more.
Clark Gilbert, Deseret News
New market growth: most growth in an established industry happens outside of that established industry. Newspapers so far have been trying not to lose their existing business, rather than trying to win the new one.
Deseret IS trying to do the latter, rather than just saving print. In their business model they are preparing for a world without print, where only half of revenues are from print. And profits will need to be 75% from digital.
Newspapers have become no longer the best in so many niches–and these audiences are getting dragged to sources that covered those niches better. Deseret has focused on six core areas to focus on (family, faith, education, financial, poverty, and media values). They’re getting costs down in as many other areas as possible. They are actually growing their national audience as a result of choosing to focus.
Deseret is pitching its focus on digital as a way to attract developer talent.
Biggest areas of audience growth are referral traffic from other sites, search, and social media. ‘Pornography addiction’ search phrase brought over 6-weeks of #1 position in search to one of their reporter’s pieces, and tons of national referral traffic.
Their UGC targets their faith/family-oriented audience as well (example: getting audience to rate movies themselves). This is actually lower-cost than having someone write these movie reviews editorially. They are now licensing this to other publishers.
Content is not enough; business model innovation has to occur also. Newspapers are fundamentally a marketplace business.
Digital is now a standalone business for Deseret. Very few legacy businesses will survive if you don’t embrace both content and business model of digital.
Paton: People (journalists) really are becoming their own brands. Understanding what the best kind of content is to put on particular platforms is very important. For students coming out of school, people are stuck with the idea of repurposing content, rather than creating new content.
Gilbert: Storytelling and investigative work are still extremely important. A different skillset is to know what is happening across the country in a particular topic. More of a curator/editor mindset.
Paton: Used to be you had advertising- and subscription-related revenues. Now newspapers are looking at ~100 avenues of revenue.
Gilbert: Classifieds used to be 60% of profits anyway…why can’t newspapers recognize non-content-related revenues are key in the digital age as well as print. And in some cases, Marketplace content in-and-of-itself can be compelling.