Monthly Archives: October 2011

Your Virtual Self: Who Owns it and What’s it Worth? By Nick DeMartino

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Each one of us generates vast amounts of data – email, phone calls, social networking, photos, text messages, videos, browsing, purchasing and more.

Our data create a new form of identity, what you might call a Virtual Self – a concept that will determine the future of the web.

This virtual identity, and all of the bits of data that comprise it, has become an incredibly valuable form of currency – it’s the way the web exchanges value.

Companies aggregate your data in order to deliver advertising, commerce, content, and services to you – worth billions of dollars.

But who owns this data? Who owns your Virtual Self?

Right now, the identity wars are dominated by Facebook, Twitter, and Google – firms that have become what Mashable http://mashable.com/2011/10/21/web-identity/  calls “large-scale consumer identity providers (a.k.a. IdP’s).”

“There’s a great burden placed on identity providers to police the media companies that connect with their users,” Robyn Peterson writes in a recent post. “There’s also a great burden on media companies to fulfill and not violate the trust of their end-users, and to behave appropriately.”

Right now, we’re all complicit in the creation of this Virtual Self — we use our Facebook or Twitter account to sign in to other websites, which in turn use the components of your identity to construct their content.

We do it willingly. In exchange for data about our friends, locations, interests, behavior, and preferences, we get content served to us that seems eerily relevant — courtesy of the companies whose algorithms process the bits of our virtual identities.

Of course we’ve seen flare-ups over privacy and identity, http://thenextweb.com/facebook/2011/09/26/why-i-am-not-paranoid-about-privacy-on-facebook-and-google/ but they haven’t changed the trend for consumers to share our Virtual Self, which is getting pretty comprehensive.

 

Owning Your Own Data

“It represents our actions, interests, intentions, communications, relationships, locations, behaviors, and creative and consumptive efforts,” according to The Locker Project, http://www.lockerproject.org/ a non-profit start-up unveiled last week http://www.readwriteweb.com/archives/singly_platform_launch.php  as part of a set of initiatives aimed at allowing people to have “ownership over their personal data and clear control over how it’s protected and shared.”

I love their slogan: “Data is Life. Own Yours.”

The Locker Project is sponsored by a commercial sibling called Singly, http://singly.com/ which publishes tools so that developers to create applications on top of your centralized personal data.

Even larger forces are at work in the geek community to organize around individual control of data, for instance, the Personal Data Ecosystem http://personaldataecosystem.org/, a consortium that is working on creating user-centric digital identity schemes, some of which were explored at the Internet Identity Workshop, http://www.internetidentityworkshop.com/ convened last week.

It remains to be seen whether these efforts to provide centralized data control for individuals will succeed, especially in light of past efforts like Microsoft Passport. http://www.zdnet.co.uk/news/it-at-work/2005/01/04/passport-failure-shows-the-folly-of-microsofts-ways-39183062/

 

Personalized media

A panel I chaired at last week’s Digital Hollywood about “personalized media” added some interesting texture to the conversation. http://www.digitalhollywood.com/11DHFall/DH11Fl-Thurs14.html

“The virtual self is statistically and behaviorally quite different than your physical self,” said Leonard Brody, President of Phil Anschutz’s Clarity Digital Group, which runs Examiner.com, http://www.examiner.com/ a hyper-targeted news site. Brody is writing a book on the “virtual self.” Too often we focus on the qualities of the real-world self, not the virtual self. One example is privacy.

“I think that privacy is a generational issue,” says Brody. “The way I think privacy will be governed going forward is in a much more personalized basis, much the way you handle your privacy settings on Facebook.”

Privacy concerns vary culturally, as well as generationally, noted Paolo Sigismondi, a USC professor whose book The Digital Glocalization of Entertainment was just published. http://bit.ly/oSw6t8 He notes that Facebook is being sued in Ireland over privacy issues. http://www.gev.com/2011/10/facebook-ireland-to-face-audit-over-%E2%80%9Cshadow-profile%E2%80%9D/

Adds Greg Duffy, CEO of Dropcam https://www.dropcam.com/ : “Facebook’s product is not its website, but the users who use the website, which they sell to advertisers. Facebook naturally wants to invade your privacy a little bit. The question is whether you care.”

Dropcam sells WiFi cameras to monitor one’s private life — kids, dogs, parents. This is content that people still want to keep private, at least today, he says. But cheap sensors, computing power, broadband and storage means that “Everything everywhere is going to be recorded,” adding massive amounts of video to an individual’s Virtual Self.

“Personalization and targeting is creating a shift from interruptive marketing to interactive engagement marketing,” says Justin Nassin, CEO of VideoGenie, http://www.videogenie.com/ a firm that matches consumers with relevant ad campaigns featuring videos of similar consumers.

Dirk Brown. CEO of Pandoodle noted that personalization is the engine that drives monetization for producers and distributors. “Advertising is becoming hyper-targeted. Our approach is to hyper-target product placement, rendering it very fast. The next generation TVs are Internet based. When you watch TV, the media experience will be hypertargeted, with brand placement inside the shows you watch.”

 

Predictive Markets

According to Brody, it won’t just be marketers who will use your data. Professional sports teams will shortly permit fans to determine in-game decisions via mobile apps, he says.

“30,000 heavily engaged fans making decisions about players, who goes in, who goes off, is statistically extremely relevant for things like what happens on the field, like trades and valuations of players, so I think you’ll see how user data will become incredibly valuable in professional sports.” It’s a statistical field known as predictive markets, and for sports, it could be like “Moneyball” http://www.imdb.com/title/tt1210166/ on steroids.

Brody noted that to succeed, there needs to be a very narrow and specific decision that generates large amounts of data. That’s why an attempt to fully “crowd-source” a UK soccer team called Ebbsfleet United failed. http://www.crowdsourcing.org/document/ebbsfleet-united–fan-owned-soccer-team/2381

Crowds are not a reliable source of data that drives targeting either, says Daniel Punt, VP at AnyClip, a company that serves up video and movie clips based upon links between a user’s data and the metadata associated with the video.

“User-generated data tends to be very poor for anything an advertiser would use. It tends to degenerates into name-calling, lots of spamming, and weird inside jokes. The data is not useful.”

Meanwhile, the tonnage of clicks and other actions we take online – sometimes referred to as “big data” for obvious reasons – drives innovation in digital content. Indeed, Big Data has become a buzzworthy market, as the NY Times’ Quentin Hardy notes here, and questions whether it represents yet another tech bubble.) http://t.co/XPDkMlEw

I don’t think so, if the range of start-ups leveraging data-mining algorithms is any indication. A good example is Sidebar, which is developing personalized TV experiences” driven by use of multiple streams of ‘real-time data.’ http://sidebar.com/

Sidebar CEO Patrick Kennedy, who used to run digital at Sony, is convinced that most people will welcome what he calls a “personalization engine” that can help make sense of the flood of content that’s available in an ever-expanding ecosystem of digital media.

So we are left with the digital age version of Hobson’s Choice. http://en.wikipedia.org/wiki/Hobson’s_choice If I want the convenience and delight of innovative, screen-based experiences, I have to get over my queasiness about surrendering data.

For most digital natives, and a rapidly growing number of the rest of us, I think that line has been crossed.

For others, like many of my non-geek friends, usually of a certain age, they’ll opt-out, or at most just tiptoe with great apprehension onto Facebook or the social web. Folks who dislike disclosure, sharing, transparency and living in public may never wind up sampling the tasty Kool-Aid of new media fun and wind up outside the conversation entirely.

As a non-native digital addict, I’m heartened by things like The Locker Project that want to provide tools for people to take control of their digital identities –  action, rather than just whining each time Facebook or Google go too far.

This strikes me as similar in spirit to efforts like the Electronic Frontier Foundation, http://en.wikipedia.org/wiki/Electronic_Frontier_Foundation the open source movement, http://en.wikipedia.org/wiki/Open_source_movement and Creative Commons http://en.wikipedia.org/wiki/Creative_Commons .

I for one am grateful to these idealistic geeks who formulate deep technical solutions premised upon user empowerment, rather than regulation or technophobia. They’re contributing something that the rest of us aren’t smart or visionary enough to do when we encounter the seemingly intractable problems of the digital era.

What do you think about the future of the Virtual Self?

Do you want to own or control your own digital data?

Or is that too much of a hassle compared to the astonishments that lie ahead, thanks to our digital Hobson’s Choice?

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A version of this article appeared on Tribeca’s Future of Film site. http://www.tribecafilm.com/tribecaonline/future-of-film/

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My friend and colleague Nick DeMartino is a consultant in digital media content and distribution. He founded Nick DeMartino Consulting after 20 years at the American Film Institute, most recently as Senior Vice President. For more information, or to access his blog and newsletter, go to http://www.nickdemartino.net

 

 

Early stage venture funding 2011: the kaleidoscope, part 1

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The markets for investments into early stage technology and digital media companies are kaleidoscopic.   With this in mind, last week I chaired two panels on venture capital investment at Digital Hollywood http://bit.ly/mZ7K5Y  & http://bit.ly/o9dJqx .  This is the first of several blogs on my findings there.

Here are the contrasting colors of the kaleidoscope:

Aggressive investment in early stage companies

We have seen so much investment activity for the past year or so from private sources (angels, super angels, boutique venture funds dipping into seed and early A rounds) that is it now being called a “bubble” and predicted to burst soon.  (see more on this at end of this blog).

This prediction is based on the exuberance of so many newly minted angel investors with relatively small Funds investing in too many start-ups.  This condition creates these troubles:

  • the Funds do not have enough capital to invest in a second round in more than a few of their portfolio companies.
  • Some of the many companies in the portfolio begin to fail, causing a pullback from the investors into new ventures or their existing portfolio ventures (the angels move from exuberance to caution).
  • And, investing in too many ventures prevents the angels from committing the necessary support that is needed for each venture to grow.

All this said, I also heard several comments that early stage investing has been slowing down since mid-year.

 

Cautious investment and stringent deal terms

That said, investors at every level are more cautious, and the deal terms more stringent, than we have seen in earlier periods.   This is because the U.S. and world economy is down, and the exit markets (IPOs and M&A ) are unpredictable.

One panelist remarked that there are more smart angel investors now:  many are entrepreneurs who have created wealth from their own successful exits.  But they can also ask for 10%-20% of your company for a seed round of $250K.

 

No commitment to next stage funding

No matter what kind of investor steps up to your current round (seed, A, etc.), you will not get a forward-looking commitment to a future round.  Even if your earlier funding has allowed your company to gain traction and early revenue, but you have not proven you can maintain “sustainable revenues” that can scale, you may never see your Series B funded.

I have seen this “gap” before during similar cycles, and you as the entrepreneur need to create your capital strategies to plan out how much funding you request and how far you expect it to take your venture to reach its next fundable stage.

I even asked a specific question about the future rounds being “benchmarked” (a commitment for future funding if the agreed-upon milestones are met) and three of my panelists snorted!

 

What’s an entrepreneur to do?

So, the kaleidoscope passes to you, the entrepreneur.  One investor suggested that entrepreneurs move quickly to get their capital closed while the investment market was hot.  Another recommended that entrepreneurs take their first capital as late as possible in their venture’s life cycle.  All of them noted that you should look to what you need for the follow-on round and not fall into the “gap.”

There is not much we can do about the world economy and its impact on investors’ behaviors.  But we can be wise about the movements in the capital markets.  And we can plan carefully to build a venture with a huge (or tightly focused and vertical) addressable market, to carefully focus its first target markets and revenues, and to choose the best capital strategy for launch, growth and exit.

 

On the Angel Bubble, see Jason Calacanis’ recent Launch blog, http://www.launch.is/blog/stepping-back-from-the-angel-bubble.html   and

Fred Wilson’s (Union Square Ventures in New York) response to the Wall Street Journal’s “Web Start Ups Hit Cash Crunch” here:   http://www.avc.com/a_vc/2011/10/what-we-are-seeing.html .

 

Ways to avoid a graveyard spiral by Megan Lisa Jones

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Spiral mostly seems to be a negative terms in a company context; the implication is a loss of control. In a “graveyard spiral” a pilot doesn’t realize that his aircraft is gradually adjusting down, until he reaches the point of no return called a “graveyard spiral”. The adjustment happens gradually; as long as the pilot can see the horizon he corrects naturally for it (add clouds and he won’t). A “death spiral” is a form of convertible debt that converts to equity upon certain conditions and usually results in management losing control. The gist of both is similar – a bad event creeps up on you until you lose the ability to correct it.

As a client of mine once said about the phenomenon, “you don’t even realize you’re dead until it’s too late.” He left his company shortly thereafter.

I have seen so many ways of “spiraling” a company to the point of no return; and below I’ll touch on the topic based on past experience but can’t list all of the possible ways to torpedo a company. The methods range from the dishonest, to the incompetent, to the innocent mistake.

1. The “death spiral”. I first heard the term as exploding warrants but whether the security is warrants, options or convertible debt is irrelevant. Essentially, companies facing difficulties in arranging financing agree to a security form that triggers if certain events happen (usually the company don’t meet certain result expectations, the share price falls a certain amount or they breach covenants). At that trigger, extra equity is issued (usually a lot) to the holder of the underlying security. This type of structure makes raising additional funds difficult (you may not control the company; the risk of dilution) and can result in management losing control of the company. Quickly. Watch what you agree to before taking such securities.

2. Sloppy accounting. If you plan on going public then the accounting requirements are much more stringent than they are for a private company. However, though in an M&A context you may get more leeway, if you sell to a public company you may not. If you want to be more than a privately run company don’t mess around with your books (I’m not opining on legality just on potential transactions).

3. Hiding material issues. I can explain a lot – as an investment banker – if forewarned. If a potential buyer or regulator finds it later, and it wasn’t disclosed. then you may be sunk. I worked on a potential IPO years ago in which the CEO had been arrested twenty years prior on a minor drug dealing charge. He didn’t disclose it and our lawyers discovered the felony conviction. His credibility was shot, he resigned and the company IPO was delayed.

4. Where is your equity? A difficult shareholder can cause major problems. Dissident shareholders can scuttle financings, IPOs, a company sale or an acquisition. Be careful whom you trust with material equity shares. This caveat includes difficult VC partners.

5. Keep the company IP and origins clean. Keep emails even cleaner. Don’t create the potential for others to claim company (origins or) ownership. If you don’t want to say it to a judge/jury don’t put it in an email.

6. Don’t pile on too much debt. If you can’t predict revenues don’t obligate the company to make consistent and relatively large payments to service debt. One hiccup results wise and you’ve got a major issue, especially in today’s tighter credit markets.

7. Don’t cut financing too close. The classic question in a fundraising is how much cash you have. The next one is your burn rate. Then the potential investor knows how long they need to string you along before providing funds. Remember, their fiduciary duty is to their shareholders and not you. Keep the process competitive and don’t cut fund raising too close.

8. Reverse IPOs…be careful and don’t believe everything you hear. You may gain some short term cash and the appearance of liquidity. You likely give up more. Typically, you have no trading or research support; thus most institutions can’t invest in your company and your funding sources are curtailed (pink sheet status, low volume and market cap, lack of institutional support, high fees, potential market manipulation, and more). I’ve written about reverse IPOs already so please see that post for more detail.

9. If you are cash flow positive none of the above should be a problem. Funds can be used to turbo charge growth at the expense of profitability. If you can afford that luxury. If not, make money and you can avoid making a bad long term deal just to keep the fires burning.

My close colleague Megan Lisa Jones is an investment banker who works primarily with companies in the digital media, technology, gaming and other emerging industries (formerly with Lazard Freres, Needham & Company and Merrill Lynch). Her investment banking blog is at www.ibla.us and check out her first novel, Captive at www.meganlisajones.com.

Stuck when writing the roadmap? Begin at the end, and write forward, so you can think

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Sometimes, a strategic consultant knows the answer to the client’s dilemma before having all the information.  Sometimes, what the client needs to do is obvious and driven by the marketplace.  The client is waiting for the “expert” to explain (or verify or prove) the details of the solution, and to build the roadmap to the destination that everyone knows the client must achieve.

The rest is all details — how much will it cost, who are the real competitors, are there other approaches (partnering, acquiring, a different revenue model?) that get us there more easily?

Once, working with a partner who was stuck in the writing of a strategic roadmap, I suggested she begin at the end, move to the beginning, and fill in the rest.  I am serious and not trying to be glib.  Sometimes the straight path in writing gets in our way and we need to scramble our minds a bit to get moving. Sometimes, writing the end first shows us where our thinking is faulty, and leads us to re-examine the premise and all the steps.  Other times it anchors us in our vision of the solution.

I want to share with you the message I recently found, that I had written to her:

“I believe you should write the concluding section first –the end, the results, the conclusion. It can be rough writing, but you should spend your time thinking it all the way through.  Don’t worry about the details — whom they might partner with, or advertise with, or acquire, or compete with.  Those are details.   We know the answer, and do not need the details to lead it to it yet.

“Next, write the beginning – the definition of the client’s current condition in the marketplace (and within the larger organization, if political or internal funding issues apply), and why the client has asked you to help.  Define in particular the revenue or margin issues, the financial “teeth” of the condition that made them pay you to find the resolution and build the roadmap.  This is the only foundation issue (unless there is a political issue).

“If you will anchor yourself and the writing to the roadmap and recommendations (you know what they will be, so start there), you will have your direction and your goal, and the less interesting and less-necessary parts of the presentation will fall away, or be simply written.

“This approach will focus you, begin to structure your time management of the project, and allow you to prioritize the other sections that need writing.  Outsource to a trusted adviser any research or data gathering that is not part of the thinking, concluding and writing.  Use the gathered information to think more deeply.  That is what you are paid to do, after all.

“Try it.  Wing it.  See what happens.  Don’t resist.  It is a good experiment, and may be a good solution:

  • Start with:  the conclusion, the solution…
  • Then go to:  the definition of the problem, the challenges facing your client, what they need to know and understand and then decide and execute.
  • Later, fill in the competitive analysis, the description of the marketplace, the ratatat-tat of research.

Good luck!”

On Steve Jobs

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Steve Jobs died yesterday, shortly after stepping down from one of the most innovative technology companies in the world, Apple:  a company he founded, and was fired from, and returned to, and then built into a new market standard.

And he built a second company, Pixar, bringing us breakthrough animation.  His direction to the team there, “Make it great.”

And he ran both companies simultaneously:  Apple Monday through Thursday, and Pixar on Fridays.

Why do we mourn him?  Besides our actual feelings about him (whether we knew him or not), and besides all the stories we know about how difficult he could be (and how compelling his courtship of partners could be) — we mourn what he represented:  the essential entrepreneur.

Why essential?  Because he never quit his dream. Because he succeeded, and failed, and never stopped.  That is the definition of an entrepreneur.

Imagine founding a company, relinquishing its control, and being isolated and fired from it.  Think about coming back from that experience.  Think about moving on and creating a new computer for education instead.  Think about returning to your first dream, and re-building your company to a market phenomenon, without becoming bitter.

Consider the joy that it takes, and the stamina, and the perseverance, to keep on keeping on, through the highs and lows, through a lifetime of always envisioning and then creating a next new thing, whether it succeeds or not.  And then making the next one.

A colleague of mine wrote me, “…very sad day.  He worked right up to the end of his life.”

What a blessing, to work right up to the end of your life, following your passions.  You know, we used to say, “He died with his boots on.”  Used to be a mark of pride.  Who wouldn’t want to “change the world [rather than]…sell sugar water to children”?

Bye, Steve, we’ll miss you.  I hope this next adventure is an E-ticket ride too.

9.1% Unemployment & Open Positions? by Amy Hirsh Robinson

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[In September] the Labor Department reported that America’s unemployment rate held steady at 9.1%, resulting in 0% job growth for the month of August. Yet for the same month, employers also reported a sharp increase in difficulty recruiting for open positions (SHRM Leading Indicators of National Employment).

How is it that companies can’t find the talent they need when so many people are looking for work? The answer lies in what economists refer to as “structural discord in the labor market.” Plainly put, the competencies of our current workforce do not match what organizations need to stay competitive in the new economy.

When the economy actually improves, companies will have an even harder time attracting and retaining key employees, especially those from younger generations who view their employers with a consumer mindset. As a result, many organizations are starting to define and strategically position themselves specifically for the talent they want to hire and keep. Often referred to as Employee Value Proposition, the perceived rewards and benefits employees get in exchange for performance is becoming a selling point and key business strategy for companies wanting to stay ahead of looming talent shortages.

Don’t let the unemployment statistics fool you. It will continue to be difficult to find good talent. Are you prepared? Do you know how to define and market your Employee Value Proposition?

My colleague, Amy Hirsh Robinson, MBA, is a leading expert on the impact of generational differences in the for-profit and not-for-profit workplace. She consults to C-level leaders on strategies to reduce attrition costs, increase profitability and create agile workforces able to adapt to ongoing change. See www.interchange-group.com.