Strategies for a discontinuous future.

Consulting & advisory, research notes, in the press, about bubblegen,
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Thursday, May 25, 2006

Market Update - Valuations and Churn

Mark recently commented about 2.0 valuations and churn. Which are two great topics for a quick update.

A general note - we can take a broad spectrum of recent transaction comps, as well as market comps of public net/media players, as a pretty good universe on which to begin 2.0 and new media valuations.

From there, we can fine tune along many dimensions, given the specifics of economics and potential business models for a set of plays - coming up with, in the end, a value of attention; or a rough average value of cashflows the market thinks will accrue to the attention economies generated by a given play.

When we do this, many interesting patterns emerge, which are beyond our scope here. In general, 2.0 and new media valuations have been inflating significantly; different markets track differently, but on average, the value of attention has risen by between 50-100%. The important point to note here is that traditional media valuations are, of course, mostly collapsing.

Interestingly, Bebo's recent funding points to a bit of 2.0 deflation - if Rafat's info about a mid double digit millions number is right, Bebo is undervalued relative to recent transactions quite significantly.

Is this due to higher risk in Europe for 2.0? Probably - but it's also a simple matter of supply and demand; there is much less capital chasing 2.0 in Europe than there is in the States, so valuations should be relatively deflated.

Now to churn. Recently, more and more analysts and observers have been talking about churn.

The problem, of course, is that few really understand the attention economies that lie at the heart of connected consumption. In fact, the deep economics of markets, networks, and communities tell us that they will be winner-take-all markets, which will see very little churn, and huge stickiness.

Unless, of course, you get the social value proposition wrong - in which case you end up with maximal churn (ie, burnout and defection). So what people are really calling churn is the market sorting itself out into extremes - winners like MySpace, and losers like Friendster.

As always, if you wanna chat more, drop me a line.

-- umair // 4:12 PM //

Wednesday, May 24, 2006


Tip: don't treat them as your enemies - an excellent post, highly recommended.

I love the phrase: "the audience is not your enemy", because it sums up with such incredible accuracy what's still happening in most media boardrooms (believe me, you would be so surprised).

-- umair // 3:29 PM //


Being an AC

Stowe has a great post on the perils and problems of dealing with clients as an AC. Highly recommended.

-- umair // 3:03 PM //


Next Big Things: Post-Branding

Lots of chatter about Google's foray into video pseudo-ppc ads, notable dissent Mike A (which is probably actually a very good sign for Google :)

What's the real game here? Simple: like we've been telling you, the next great media game is going to be squarely about making branding hyperefficient. Most of that interest is currently going to Fox.

So this move by Google is a tactic to draw more interest from branding guys, experiment to learn about how to make brands hyperefficient, etc. It's a first real foray into thinking strategically about how to disrupt, reshape, and rescale branding for the post-network economy.

Now, most of the chatter hinges on a simple and totally erroneous conclusion - people won't go for it, because they hate branded ads, and it will fail.

Certainly, that may be the case.

But that's either irrelevant, or it's actually a very good thing. Because Google's strategy is predicated on making millions of failures - amplifying the value of each. Failure is a deep source of advantage for players at the edge, because the marginal costs of experimentation are essentially zero.

Keep that in mind - because it's increasingly going to be what separates players like Google and MySpace from the rest of the pack (Yahoo/MSN/media players/etc), who don't understand the new rules of innovation.

Of course, if you wanna chat about what the brandscape will look like in coming years, drop me a line.

-- umair // 2:51 PM //

Tuesday, May 23, 2006

Bebo Miniprofile

Bebo at roughly 24m users/enormous views gets a $15m round from Benchmark.

What's the play here?

Well, here's a very nice quote from one of the Benchmark guys:

..."User-generated content is creating all these online communities. It is a huge market for online advertisers to exploit, particularly in terms of the profile of the users."

Bolding's mine. Basically, Benchmark wants to place bet on the new revenue streams social networks are unlocking, largely based around revolutionizing branding - which I think is a great idea.

But comparisons to MySpace are off target. If you don't already know, Bebo is more like Facebook. It's trying to leverage extant networks across colleges and universities. And this is the real source of it's advantage; the institutional structure of education is so different in the UK and Europe that Facebook would have a tough time cracking the nut.

Hence, a fairly good bet by Benchmark; more than likely to realize a very nice exit within the year to a major Euro media player.

But there's a lot not to like about this bet as well. For one thing, it's another me-too play in the vastly overcrowded social space. For another, Bebo hasn't really proven that they understand how to really tap the hypersocial or the hypercultural; they've had a good run essentially imitating Facebook, but how long can they continue doing that?

Finally, I think Benchmark sees this as a bit of a MySpace, but they might not be able to tap the revenue streams they want to tap on Bebo. On MySpace, the context for interaction is music; on Bebo and Facebook it's school-related stuff.

We've already discussed in detail why the market size for the former is likely to be much bigger; in short, because the number of students is limited, and because it's harder to make totally new connections on Facebook. Though you might use it scope out the hottie in your Latin 601 Seminar, odds are you would have met her anyways (you dog), and so social value creation isn't really that great.

That said, Bebo is ultimately an example of Euro VC at it's best - and worst. A good investment, but one predicated on imitation, rather than innovation.

-- umair // 4:07 PM //

Monday, May 22, 2006

Putt-Putt Tractors, Revved-Up Goals - Forbes.com

Putt-Putt Tractors, Revved-Up Goals - Forbes.com

While knowledge and IP driven sectors of India such as IT , pharma and entertainment gets a whole lot of mindshare, I think the real growth story in India is companies such as this one. It will be interesting to watch how the future of new manufacturing unfolds and especially how well India's homegrown and entrepreneurial companies taking on significant R&D risk as well as global competition will stack up against the organized and efficient, but mostly non-innovative mass manufacturing coming out of China.

-- Mahashunyam // 7:04 PM //


Edge Competencies - Prosper

Salon has a great article about Prosper (mostly) and Zopa (a little), with some actually quite good analysis of why the consumer finance space is so wide open to deep disruption, talking specifically about (my terms) plasticity and liquidity - highly recommended.

-- umair // 6:40 PM //


The New Economics of Brands

I'm going to kick off a new practice area - focused on how the deep economics of brands are changing, how meaning is commoditizing, how this is at the root of today's manifold financial and strategic problems with many brands, and how brand innovators are shifting from meaning to action.

At some point in the next few weeks, an introductory paper will be posted - if you're interested in a workshop, drop me a line.

-- umair // 6:33 PM //



Many of you are aware of this, I think, but for those who don't - now that I'm finishing up writing, I will be interviewing for spots at interesting banks, consultancies, venture funds, etc over the summer.

If you'd like to chat, or you've got a lead you'd like to share, drop me a line.

Yes, of course, I will still be consulting... :)

-- umair // 4:16 PM //

Sunday, May 21, 2006

More Denuo (By Denuo)

Tim from Denuo commented on my recent research note - I think it's only fair to give Tim some airtime, so if you're interested, click on over...

-- umair // 4:01 PM //



Jarvis has a very thought-provoking response to my recent research note. Highly recommended.

I won't press my argument, because I think Jeff's response is killer - I'll just make three quick points:

1) I don't see Fox as an owner; I see them as the enabler. I think the real owners of edge plays are connected consumers (of course).

2) The bigger point I wanted to make was that it's not technology, but the social and cultural that counts. And being social/cultural is vastly different in, say, cosmetics, than it is in sports. So I think generic infrastructure plays are the wrong approach.

3) I'm definitely not in love with Fox - in fact, I'm planning on doing a post on what's wrong their investment strategy soon. But I think they are the guys getting real results (if you follow the evolution of business model innovation in this space, you know what I'm talking about), because they understand attention econ.

-- umair // 3:16 PM //


Advisory Capital Network

A quick announcement - Stowe, Richard, and lil ole me are setting up a network for advisory capitalists, to try and give a bit more structure and definition to the emerging niche for advisory capital: the Advisory Capital Network.

More to come...

-- umair // 3:10 PM //



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