The coffee shops of Mayfair

The Unfashionable Web

We were recently shooting the breeze about what’s “not hot” on the web.  This was actually a refreshing topic as so often in VC and Techcrunchland the focus is on Hot! New! Cool!

A quick strawpoll around the office and we answers of “portals” i.e. Yahoo, Blogs (evidence this blog post frequency vs my tweet frequency), social networks (aka myspace not facebook) and “old-fashioned search engines”.

However, being a classically trained investor, I wanted to see what the market was telling us and it was very interesting.  The list is below, and it surprised me.

Internet and digital Media Public company stats from 28th January 2011

Enterprise Value / EBITDA based on 2011E. 

The Oscar for the most unfashionable online sector goes to...Multichannel retail 4.6x, 

Mobile and casual games 5.6x, 

On&offline media 7.3x, 

Personals 8.5x, 

Infocommerce 8.5x, 

Ecommerce 9.5x 

Networks 9.6x,

Portals 10.5x, 

Online services 10.9x , 

Digital marketing 12.5x, 

Marketplaces 13x

And finally the least unfashionable (AKA the most highly rated) is .....Online Travel  17.7x 

Update: just posted on Quora here: I wonder if there's a better way to analyse it....

 

 

Synchronous games: the investment case.

Much has been written about the genius of Playfish, Zynga and Playdom.  

Playdom CEO John Pleasants recently said he expected to see “synchronous gameplay as an extension of some asynchronous games”.   That struck me as interesting: not so much as an opportunity for FarmVille to go peer to peer, but for synchronous gameplay to evolve out of traditional asynchronous gaming and betting.

 

Let me explain.

The experiments of the social games companies suggests that getting a whole bunch of people to play games AT THE SAME TIME is so tough, you may as well focus your efforts else where. 

Well I believe there’s a future for games where you need an “appointment to play”.  This is the nub of the investment thesis for my investment in and ongoing support for PickLive.

So firstly to establish what I’m not talking about:

I’m not talking about a lobby system game like king.com or GameDuell.  Where users pitch up and are told to “hang on a sec, another user is joining your room any second now.”  These are true peer to peer games and synchronous but not event based. 

I’m also not talking about virtual worlds like WoW or console games with web connectivity like Halo.  Again these are synchronous but based on personal connection not events.

Clearly what I AM talking about is events.  But what sort of events?

Well, for example, during the recent British election we had televised presidential debates, and watching these on TV was OK but watching real-time comments over twitter made an enormous difference to my understanding of the event.  My experience of the event was better with a laptop open. 

And so to sports.  

Sports are the obvious events that already have passionate audiences of millions. Who come back every week. Big markets.   The idea of a web-game we can play in real time alongside these events is for me pretty compelling.  Especially when we consider two things:

1) The competitive landscape is weak.  Worldwide “in game betting" is growing fast but its not social, it is based on very weak variables and isn't really a game, more a grubby bet.

2) The iphone has changed everything.  People can play along in the pub while watching the football.  At the ground watching the baseball.  And the ipad will change everything again.  The ultimate sofa companion for your Monday night Football.

The issue.  The BIG issue. Is that events, by definition, have a immovable start time.  If you want to play along, you need to be ready at your iphone when the game is on.  You need an "appointment to play".  This is therefore not a casual game, but a scheduled game.  And this means that Picklive either need to register strongly in the mind of the gamer for them to "tune in" and / or develop a customer acquisition strategy embedded with the event or it's coverage.  difficult but not impossible.

And so I invested in Picklive. 

Investment thesis + great team. QED.

Multi-niche ecommerce: is it a business model worth the excitement?

Rumours abound of Hayneedle looking at an IPO.  CSN stores just reported a record quarter. 4 European multi-niche ecommerce businesses are getting funded (disclaimer: I have invested in one).

Why the excitement? Well, in short, the business model is working.  

The model is much better explained here, but in short, it is operating a ton of very specific retail sites rather than one big throbbing etailer.  For example would you rather buy tubchairs (yes, people do) from 

1. a specialist tubchair retailer which has with a huge selection in depth, specific customer service, and price range or
2. go to Argos.com and choose from a range of two? 

Even better, what if you found this tub chair specialist via the left hand side of google which you trust more than the right side? 

Well, irrespective of your answers to the above questions, consumers do like to buy from these specialists and the evidence is in their growth.

However, there’s another story here: most interesting for entrepreneurs and VCs: the business model. 

1) CoCA

Its clear to me that the scene of the fight for the next 10 years, for all businesses and in particular ecommerce is Cost Of Customer Acquisition.

If you’re an entrepreneur and you share my view on CoCA, then I bet that you’re focussing on a couple things: 

a)    smart web-marketing (SEO, adwords & viral) and 

b)    driving return / repeat visitors from systematic email marketing, offers, blogs etc.

Multi-niche ecommerce businesses have the benefit of customers who find the stores via natural search easily (Google recognises their depth and authority). They also benefit from high customer service expertise, which is (arguably) the single biggest driver of return repeat.  

These factors both reduces CoCA. 

All businesses have challenges and multi-niche retailers have to leverage their database of tubchair buyers to make inferences on sending them other offers.  Its difficult but can be done.

2) Stock costs.

All traditional retailers struggle from tying working capital up in stock.  From an investor or entrepreneur’s perspective, this is not capital efficient which is a BAD THING (I have another post on this coming).

Holding stock also means you are subject to inventory risk: buying the wrong blouses for this season, or not getting your channel working quickly enough to sell-through at top-price.

Multi-niche models are attractive because it also opens the door to drop-shipping directly from suppliers.  This is not simple: supplier management is not easy (who is going to recruit and manage all those dart-board manufacturers?). Operations and logistics can create some thorny issues around availability and delivery, but again, not insurmountable.

Taking a step back, most interesting for me as an investor today is that there are so many smart models around retail: all piggy-backing on ecommerce market growth BUT adopting smart strategies around CoCA and stock. 

Now I’m back in the blog saddle, I will write again soon on these.

On Behvaioural Economics, Creative Disruption, start-ups and VCs (phew!)

Thanks for all your comments on my recent post on Techcrunch.  Great to be part of this conversation.

Have had a few questions on the references I made. 

The first is Predictably Irrational from Dan Ariely. 

Recommended to me by DVC.

The Second is Technological Revolutions by Carlotta Perez recommended to me by my friend and fellow investor Nic Brisbourne.

And of Course the wonderful Mr Spolsky (though we differ when it comes to his views on venture captial) laughs in the video at Clotaire Rapaille. His  book I am reliably informed, is worth reading the introduction. And maybe a few of the highlighted passages.  I have not read it myself.

There's also a lot of facinating conversation right now about innovation and how we all as entrepreneurs, VCs and managers should be pushing forward.  Jason at 37 Signals makes a strong point for turning young innvoative comapnies into world beaters.  I suspect he's wrong about the VCs forcing an early sale (our economics focus us on building big businesses), but directionally he's right. Original post is here.

Someone worth reading on this is Umair Haque and his current riff on "awesomeness". Verbose, thoughtful, insightful and usually right. Haque is someone who has read a lot of Joseph Schumpeter, who in turn influences Perez, which sort of brings us full circle.

But maybe not full-full-circle.  Maybe Mr Schumpter was not the origionator at all. Jason quotes Thomas Jefferson as an early advoate of Creative Disruption!

“Periodic revolution, ‘at least once every 20 years,’ was ‘a medicine necessary for the sound health of government.’”

Mass Personalisation and Venture Capital: not just 3D Printers.

One of my Investment themes at Advent is Personalisation.

Why?

eCommerce is clearly one of the few bright spots right now and we’re still in the realm of simple investment stories around backing companies selling stuff online. The Chemist Direct  investment thesis?  The “Superdrug”  of tomorrow.  ASOS?  The Arcadia of tomorrow.  ChainReaction (my personal favourite) is the Halfords of tomorrow. Vente Privee the TKMaxx of tommorrow.  Etc etc.

So we’re getting better and better at selling standard product online.

However, there’s an interesting batch of companies who’ve been funded which I expect to see more and more money chasing: Retailers selling product SKUs of 1. A product that personalised and unique to each purchasers.

How can this stack up?

The web is one low-cost route to market and can be leveraged to offer everyone the tools to create their own products.  The challenge for businesses is getting the back-end right to be able to manufacture and fulfill.

On “simple personalisation” Europe has some excellent first-wave companies.  Spreadhshirt and personalised t-shirts, still growing nicely. Moo.com and cards. Graze.com and healthy food boxes.

What interests me is the second wave of far more complex manufacture & fulfilment or completely new products.  GlassesDirect is a great example: something made specifically for me. Not to mention the operational ball-ache of made to order glasses and the drop shipping challenges of fulfillment.

Tailorstore is another great example: We all want tailored shirts but here’s something made in Asia, and delivered to the UK via Germany, from a business based in Sweden.

There is real innovation here: at the technical, operational, manufacturing and financial level. This is a great playground for die-hard entrepreneurs: intellectual challenges, people saying “it can’t be done”, creative solutions and grinding out deals.

I would love to meet more companies in this sector.

There is also a level beyond this: companies coming up with products that are not currently available.  I love the idea of being able to design a new car online specifically for me or design a new gadget and get it made by a 3d printer.  It’s just I’m not yet convinced this is en-masse right now.  Tell me if I am wrong.

When personalisation goes wrong: an ecommerce story.

"A story of dried mangoes and split yokes"

A key investment theme for me around ecommerce is personalisation.  I have a new post coming on this but a quick bit of background on the sector by way of anecdote. Two examples from recent personal experience:

 

Graze have a beautiful box and bodenesque (innocentesque ?) branding for middle class brits. They also have a very comprehensive online form to fill out so you spend 15 minutes telling them exactly what you do and don’t like so they can tailor it for you.  However my first box arrived and I contained something I hate: Macadamia Nuts.  I cancelled it.  I am sure it was my fault.  I am sure I missed a tick box somewhere.  But the point is that if you raise expectations for a perfect product (which by definition a personalized product is), then too much choice can be negative.  

 

TailorStore solves my problem of over-paying for tailored clothing.  Which is a big problem for me. After a similarly convoluted online form-filling process (but this time involving a measuring tape, my wife, an old shirt and a mirror) I got a shirt ordered.  However when the shirt came, the shirt did not fit.  A bit of forensic investigation revealed an error in one of their pictures on how to measure for a shirt.  This was their fault and after an awful customer service episode I have a credit note, but the point here is that there is a now a useless shirt on my shelf that has pissed me off and destroyed the margins of Tailorstore.

 

As an investor this is another area of caution for personalisation businesses: Returns can completely alter the profitability of a standard ecommerce operation but when you can’t sell the returns on…

My twitter-stream now dominated by journalists and PR & self-promoters. Just as the big web cos redesign on status updates, it is over!

Sex on Google. When SEO goes right.

Getting a high ranking on Google is the holy-grail for most of the companies I am working with (even the software companies).  SEO is still the stuff of massively expensive agencies or wonder-employees who understand the direct monetary value of their magic.

(Over the last 4 – 6 weeks I know 3 not-insignificant web businesses who have had a hit to their top line due Google changing AGAIN.  My theory, backed by only anecdotal evidence, is that Google are finding times a little tougher and are clamping down in a multitude of ways to squeeze every last penny out of customers.  I digress.  The key point is that Google is hard to game, even if you’re kosher.

However, sometimes we get a pleasant surprise.  As my Friend Nic would quote, a black swan.

What is it worth to have an organic listing at sixth place for the search term “sex”?

What do you think all those wildy profitable “adult entertainment” web businesses would give?
I am sure there’s an agency out there who could give a tangible value to it.

Well that’s just what has recently happened to one of the portfolio sites of Mint Digital (Mint is one of my one of my personal investee companies).

Mint recently partnered with Channel 4 to create a site for the Sex Education show Sexperience.  I am sure there are lots of people who would claim to be able to tell me why or how it happened.  Intuatively it feels right but also completely wrong.

Now that they've got it up, I don’t suppose they'll be able to keep it up there forever.

In the meantime I can only wish is that 4 were smarter about monetization. No wonder they’re in trouble.

The British economy: no-one knows what's going on

An amusing couple of headlines that have to read together to appreciate, from this morning's news services on the UK inflation numbers.

I could launch into a rant on the "Daily Mailisation" of the BBC reporting, personified by the excruciating Mr Peston of the BBC.

A better message I think is that this is another example that no-one has a clue where it is going.  Having spent  the best part of the last 6 months with both corporate acquirers and investment banking, the only consistent theme is that no-one really knows what's going on.

Venture Capital into Ad technology reaches $580mn in 2008

I have got some research done for a speech at today's Ad:Tech conference to look at Global Investment into the online ad / technolgogy Category: I knew it was large but not trending to one billion dollars a year!  What's even more interesting is that this is only the disclosed data, and some of the deals that I know would push the total higher still.

Interesting to see that Europe accounted for $258mn of this which is 45% of the total. This is remarkable because European VC typically only accounts for around 20% of the USA on an industry-wide basis.  This just shows the strength of the European market for Advertising models.

Rather predictably, Ad-Networks was the largest sub sector by volume and value: partially explained by the sector being a little "mature " for VCs now and the best plays will have obvious scale.

Our recent investment round into European local advertising player Qype was announced too late to qualify as first half investment.  But Qype has a very innovative business model and is far more than just a UGC review site. There's been a lot of blog chat about Qype and I want to put forward our view in a forthcoming post.

I was also particularly interested to see five investments into companies who are measuring advertising effectiveness.  The great thing about the web is that it allows brands to quantitatively judge the success of campaigns.  We at Advent believe there is an exciting opportunity emerging for Advertisers to find out which half of their ad-budgets are being wasted.  We are very interested to see European companies tracking, measuring, analyzing, and quantifying online advertising effectiveness.

We're also excited to see companies who are helping brands develop new forms of advertising, especially online short form content, but more about that in further announcements...

Here is the powerpoint.

Ad Tech Paul Fisher

View SlideShare presentation or Upload your own. (tags: industry advertising)

Below is a list of the businesses and the amounts. If I have time (something my post rate will show I don't have lots of)  I'll add a little more "colour" to the list.

Ad Exchange   
AdJug             
AdGent 007      
ContextWeb     
TargetSpot      
   
Ad measurement                       
Digital Revolution Technology      
Vizu                                              
VoloMedia                                   
XPlusOne                                      
Integrated Media Measurement    

Ad network                
AdScale                            
Adconion
Mochi Media   
IGA   
Broadband Enterprises    
Demand media        
DirectoryM                  
Giant Realm               
Gigya                         
Graspr                         
Jivox                         
RockYou                    
SaysMe                         
Tremor Media           
Undertone Networks      

Ad technology         
Invidi Technologies   
Ads Clicks                  
Videoplaza                 
Keybroker                  
Coull                         
OpenAds                   
AdMeld                      
Click Forensics             
iBloks                         
Invision                      
Jobster                      
Kiptronic                      
MediaBank                   
MediaBoost                  
V Links                         

Agency                           
Uniteam Communication   
Bruce Dunlop & Associates   
i-level                               

Local Ads           
Local Labs           
Local Marketers  
WebVisible         

Mobile ads            
AD.IQ                  
Blyk                       
Acuity Mobile       
Ad Infuse               
mSnap                   
Ringleader Digital   
Smaato                  

Out of home advertising   
Ocean                              
Hanger Network                 
JobDig                               
SeeSaw Networks              

(Advent Ventures conducted the research using data from RealDeals and proprietary research.)