Benjamin Kuo’s Blog

There’s been a recent trend I’ve been seeing in companies that talk to me about being focused on building web traffic to their web sites. Inevitably, those folks tell me that traffic is more important than monetization, and that they are looking to gain scale first before worrying about their business plan.

That all may be good and well if that traffic results in concrete users to your service and/or website (ie, those are long term users of your web site and not just transient traffic). However, I’m often surprised by the lengths some of these companies go to — purchasing web links, gaming social news sites like Digg and Reddit, hiring firms to push up their web visits, etc.–to drive up traffic numbers, but not necessarily committed customers.

It may go without saying, but traffic is good if:

• The visitors who are visiting your web site are, in fact, real people (a great deal of traffic is generated by web crawlers and automated software).
•  Those visitors are visiting you because they’re truly interested in what you have to offer.
• Those visitors are likely to become long term users of your service
• and ultimately, if those visitors can be converted to customers — or, in the case of an ad-supported site, can be sold as an audience to advertisers.

Traffic is bad, when:

• You’re just trying to drive up the numbers with some wishy-washy formula for valuation (ie “X million unique users and pageviews = X million valuation”)
• It’s just traffic, not real users — ie you are paying a firm to boost your traffic, and it’s some software running on a server in Russia, a poorly paid fellow off the street in Mumbai, or someone clicking on your site to earn money from some SEO farm.
• That traffic is transitory — ie short term — based on people who click into a Digg story, from a mention on a trendy blog, or is someone who would not be interested in what you offer beyond that specific page.

Anyone who scans the many blogs of the “venture capital bloggers” is pretty used to glaring endorsements by venture capitalists of their portfolio companies. But sometimes, you see endorsements by venture capitalists of companies they are NOT invested in, which is usually a sign of bigger and better things.

I’ve noticed couple of recent VC endorsements of Sonos, the Santa Barbara maker of digital music hardware. Surprisingly, those have not been by investors (at least that I am aware of) in the firm, but just VCs who seem to like the company’s hardare. Sonos has a system which streams wireless music throughout your house.

Some examples:

• Seth Levine (Foundry Group/Mobius) - Sonos - how have I lived without you?!
• Fred Wilson (Flatiron/Union Square Ventures) - Bringing The Web Into Our Living Room, Sonos Rocks

(Sonos has received backing from BV Capital, and has been pretty mum about their firm’s other investors…)

Los Angeles-based Big Stage Entertainment, which is developing technology for creating 3D avatars, debuted its technology at CES at the Intel keynote earlier this week. Luis Villalobos, founder of the Tech Coast Angels, this evening pointed me to the webcast of the keynote for anyone who is interested in seeing the video of their demo. Big Stage’s demo starts around 32 minutes into the keynote, and goes for about 11 minutes. Their technology also powers the “virtual band” behind Smash Mouth singer Steven Hartwell later in the keynote. (Big Stage is a spinout of USC).

btw, Big Stage is getting some good mention in the “rest of the world”:

• Big Stage: Star in Your Own Movie (PCWorld)
• CIA Technology Willl Map Your Face (Rafe Needleman)
• Intel Continues with Big Stage avatar (Dean Takahashi, Mercury News)
• Intel’s Paul Otellini says let’s make the Internet personal (SFGate)

I chuckled a bit today when TechCrunch posted an item on Facebook, Google, and Plaxo joining the industry DataPortability Workgroup, an industry group working on sharing social networking data. I’m surprised the blogosphere is making so much of this.

As some of you know, in my “past life” I served on many a technical committee defining technical standards (for anyone who cares, NCITS T11.5 and the SNIA on the HBA API), and just “joining” a group doesn’t really mean anything practical, except perhaps some posturing that a company is involved and willing to interact in a public forum with other companies. In fact, in the majority of cases, it’s years (not months, years) after a group is formed that any kind of standard–even a straightforward API–usually is defined enough to be practically useful. In the age of the Internet, that’s a lifetime.

Standards groups are very important, but it’s important to note that, in the vast majority of cases: 1. standards are set by merit, not by posturing and hype; 2. standards groups are slow and methodical, and 3. open standards can sometimes (but not always) be trumped by “de-facto” standards from dominant companies in an industry (for example, Microsoft). I’d argue that in the case of Internet-based services (as opposed to hardware, semiconductor, or enterprise software) it’s easier to create a “de-facto” standard. Anytime you see companies talking about joining a standards group, I’d ask the following:

1. Are the companies actually involved in a leadership role in that group, i.e. chair, vice-chair, or other officer?

2. Is that company taking an active, supportive role in that group — for example, publicly taking the position as willing to work — and compromise — to develop a common standard, independent of the company’s current efforts?

3. Are the people involved in the group marketing, or engineering — and are the specific people involved the system architects and/or CTO of their respective companies? If the CTO or an equivalent isn’t involved, it’s unlikely the company is fully behind the effort.

4. Are the companies who are joining there to help the effort, stall, or to kill the effort? Standard groups are like the U.N. — often, a representative is in a standards group to delay or sabotage the effort.

Anyway, it’s one thing to announce that a standard group has published a standard, it’s another to say someone has “joined” a standard group.

In some local M&A speculation, the New York Times is reporting that Spark Networks, the operator of JDate and a number of other online dating sits — based here in Los Angeles — is looking for a buyer. Among the speculated suitors are Pasadena-based eHarmony and Los Angeles-based MySpace, in addition to Barry Diller’s Match.com and Yahoo.

Dan Primack over at PEhub is reporting that Southern California is number two in the nation, for the year, in terms of venture capital investments nationwide.

Dan, citing preliminary numbers from Thompson Financial, says:

In terms of geography, Northern California retained its crown. The upset – or maybe not, given all the press coverage – is that Southern California is up a couple of billion on New England for second place.

As a constant observer of the technology startup community, I’m often surprised how often I see startups who are raising capital to create companies which do the exact, or close to, the same businesses that were being created during the dot com boom. These aren’t the “me-too” copycat web sites, but sites where someone is truly doing something unknown and unremembered companies did back in the dot com boom.

For example, today an Israeli/New York firm, 5Min, just announced $5M in funding for a site where people can “share their expertise in various categories as well as find short video solutions for every practical question.” I recall back in 2000 talking with the founders over at a company called How2TV, which was doing almost exactly the same thing (albeit without the same user-generated component).

Another area which has been fairly active lately is the idea of angel-focused, deal-matching databases — ie online sites where the idea is any accredited angel can browse any random business idea/plan/etc. to decide if they want to invest. Current incarnations are GoBigNetwork, FundingUniverse, RaiseCapital.com, etc. are all similar to the (failed) Garage.com project from Guy Kawasaki. For those who don’t remember Garage.com — before the days of Guy Kawasaki’s Garage Technology Ventures fund — was an online site, where companies could post their business plans, with the idea of connecting those to accredited angel investors.

Don’t get me wrong–these new companies might have a better chance of succeeding where others had failed in the past–whether due to a more mature or better developed market, or through better execution. But, it’s interesting to see how often ideas are rehashed. (Heck, if anyone remembers the original DEC Altavista search engine, in 1995 it was as good a search engine as Google was. But–stifled as it was in Compaq–unable to capitalize on the technology, the firm missed the boat on context-sensitive advertising, and was sold through a series of buyers and eventually went to Overture.)

For those of you who know Jason Calacanis (formerly of Weblogs) you know he’s always great for controversy or at very least a good quote (the last time I saw him, at the Forbes MEET conference, the folks at Forbes were threatening to “tase him” for the questions he was asking of the panelists). He just posted some advice for Twitter about business models (namely, not to figure one out until you’ve reached “scale”):

Running a startup is NOT about revenue anymore–it’s about critical mass. It’s about scale. When you’re playing in the big leagues with unlimited access to capital you shouldn’t worry about revenue BEFORE you have critical mass.

Hmm…

Happy New Year to everyone, we’re back out of hibernation. We’ll be ramping up our coverage as people return from vacation (though, judging from our bounce/vacation notices this morning there are still a substantial number of people still traveling or out of the office!).

Top coverage today:

• Interview with Gene Alexander at angel funded firm MaMoCa
• A slew of merger and acquisitions: Twistbox/Mandalay Media, Managed Data Holdings/Data393, Gibbs Associates, plus three acquisitions for Teledyne