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TechCrunch | European Startups and the Cargo Cult Mentality

This guest post was written by Roman Stanek, the founder and CEO of Good Data, a cloud-based business intelligence startup headquartered in San Francisco. Roman has been a tech entrepreneur for almost 20 years. He was founder and CEO of NetBeans (acquired by Sun Microsystems) and Systinet (acquired by Mercury Interactive and later Hewlett Packard). Read Roman’s blog here.

When I met Michael Arrington back in April, I told him he was crazy to dismiss the possibility of a first-class technology startup coming out of Europe. I was born and raised in the Czech Republic, I’ve spent the last 15 years working towards building a global hi-tech company. So naturally I took it a bit personally. But I’ve been thinking about this quite a bit since then.

The story usually goes that Europeans just don’t have the drive and commitment to spend enough hours necessary to get a fledgling company to an escape velocity and grow it from there. Our love of the two-hour lunch and Augusts in Provence is the evidence most often cited to prove this theory. But I believe that there are some very driven people in Europe who are willing to put enough time into it.

My problem with the European startup ecosystem is somewhere else. I actually believe that it bears some signs of a Cargo Cult. Here is the definition from Wikipedia:

A cargo cult is a type of religious practice that may appear in traditional tribal societies in the wake of interaction with technologically advanced, non-native cultures. The cults are focused on obtaining the material wealth of the advanced culture through magical thinking, religious rituals and practices, believing that the wealth was intended for them by their deities and ancestors.

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http://www.techcrunch.com/2009/11/01/avoiding-the-cargo-cult-and-getting-the-trans-atlantic-startup-model-right/

The Wall Street Journal | MySpace Reboots Itself

The hiring of Nada Stirratt as chief revenue officer at MySpace marks the completion of CEO Owen Van Natta’s efforts to remake the company’s executive suite.

Mr. Van Natta was hired in April to revive the struggling social-networking site, which is facing a dropoff in traffic and ad revenue. Since then, he has attempted to remake the face and culture of the company into a hub for technology, as it tries to lure back visitors as a destination for music, videos, games and other entertainment.

MySpace is owned by News Corp., which also owns The Wall Street Journal.

That has meant largely reshaping MySpace’s employee base and ramping up its technology focus. Mr. Van Natta cut about a third of the company’s staff in June and has replaced nearly the entire executive suite. He brought on Dustin Finer, a former Fox Interactive Media executive, to be chief people officer, charged with reviving its culture and recruiting employees that fit the new strategy.

“Like any business looking to re-invent, it takes time and talent to get there,” says MySpace Chief Product Officer Jason Hirschhorn.

In addition to new finance and tech chiefs, other recent hires include former Microsoft search executive Bill Bliss, who is in the midst of remaking MySpace’s search technology, as well as former AOL, Amazon and Apple executives.

MySpace brought on tech industry veterans and brothers Ali and Hadi Partovi, founders of online music service iLike, through its purchase of the service. Hadi Partovi now is working as senior vice president of technology at MySpace, based in Seattle, where he is leading an effort to bolster MySpace’s tech presence. Ali Partovi will work as senior vice president of business development in San Francisco, where he will look for potential partnerships.

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http://blogs.wsj.com/digits/2009/10/15/myspaces-reboot-from-exec-suite-to-cubicles/?mod=rss_WSJBlog?mod=

The Economist | Subscriptions to the Rescue

VIACOM, a media conglomerate based in New York, has an unusual response to the downturn: it is launching a television channel. This month Epix will begin showing films from Paramount and MGM, as well as original programmes. It may get off to a slow start, since it has not yet signed up many cable and satellite distributors. But its creation points to one of the media business’s few bright spots.

Having fallen steeply after the collapse of Lehman Brothers in September 2008, the shares of all the big American media companies have outperformed the market since March. But recession has struck some parts of the industry much harder than others, changing its shape. As a rule, media products that are sold in shops—CDs, DVDs and magazines—have suffered. Advertising is showing only tentative signs of recovery. The kind of media for which people pay a monthly bill, in contrast, has not only held up better but has in some instances prospered through the downturn.

Cable and satellite television was a good business going into the recession and is now triumphant. In the year to June 30th Britain’s BSkyB added more subscribers, obtained more revenue from each customer and reported more profit than the year before. Discovery Communications, which derives almost all of its revenue from cable, notched up a 13% increase in profits in the second quarter. In the past year the fortunes of big media groups have depended largely on the proportion of their revenues coming from pay television.

Cable networks obtain about half of their revenues from advertising and half from carriage fees paid by the firms that distribute their channels, which in turn get paid by subscribers. In the past year increases in carriage fees have outpaced inflation, offsetting weakness in advertising. At Time Warner’s cable networks, for example, advertising fell by $30m in the second quarter compared with a year earlier. Income from distribution rose by $144m. “People would sooner unplug their refrigerators than their cable boxes,” says Craig Moffett, an analyst at Sanford Bernstein.

As pay television has soared and just about everything else has fallen, even the most diversified conglomerates’ accounts have been transformed (see chart). News Corporation’s cable channels are worth more than broadcast television, film and newspapers put together. Although an advertising recovery will rebalance such firms somewhat, the underlying trend is clear. Media firms are investing in pay-television markets in Latin America, eastern Europe and Asia, which can be expected to grow. The number of channels in emerging markets is rising so fast it is actually boosting the firms that own the satellites (see article). Viewers and creative verve are drifting steadily from broadcast to cable networks. On October 5th Disney appointed Rich Ross, who ran its cable channels worldwide, to head its film studio—an acknowledgment of their success in producing lucrative new content.

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http://www.economist.com/businessfinance/displayStory.cfm?story_id=14587429&source=hptextfeature

VentureBeat | Engine Yard Raises $19m in Third Round Funding

Engine Yard, a company that helps developers deploy and manage web applications built with the Ruby on Rails programming framework (which is popular for fast web development), has raised $19 million in a third venture round.

This brings the San Francisco company’s total funding to $37.5 million. As a point of comparison, to about 10 times the money raised by competitor Heroku. Both companies offer services to take the pain out of launching a Rails app after you’ve built it, in Engine Yard’s case hosted on its own private infrastructure or, more recently, on a service called Engine Yard Cloud that uses Amazon’s Elastic Compute Cloud. Both companies have described the difference as a focus on service (Engine Yard) versus a focus on automation (Heroku), though the Engine Yard Cloud moves further in the direction of automation.

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http://deals.venturebeat.com/2009/10/08/engine-yards-rails-app-support-gets-another-19m/

VentureBeat | Nokia Buys Dopplr - Travel Focused Social Network

Nokia has acquired Dopplr, a London-based social network focused on traveling, TechCrunch reports, based on information reportedly passed on by an anonymous source close to the deal. The deal continues Nokia’s fierce acquisition strategy, which has already rolled up small companies like Plum, Bit-Side and Cellity just in the last year.

Clearly, neither of the companies involved have confirmed the financial terms of the deal, however the TechCrunch post estimates the purchase price at 10 - 15 million euros — or $15 - 22 million taking exchange rates into account. Dopplr, backed by the Accelerator Group and a long list of angel investors that includes Del.ico.us founder Joshua Schacter, was in the middle of raising a first round of venture funding.

Dopplr is one of many travel sites that have tapped into social networking features to recruit new users and keep them loyal to the brand. On Dopplr, jet-set users can connect with one another to share their travel plans. This comes in handy when you want to send your itinerary to a group of colleagues or family members. It can also highlight which friends live in (or who are visiting) the cities or regions you are traveling to in case you want to contact them ahead of time for a visit or a place to stay. You can subscribe to your friends’ travel plans to stay up to date with them.

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http://deals.venturebeat.com/2009/09/23/nokia-to-buy-travel-social-network-dopplr/

TechCrunch | The European Silicon Valley - TechHub, London

Europe has no real equivalent to the big hothouse that is Silicon Valley, but it does have lots of tech clusters and networks. As recent research from the startup Seedcamp startup programme has shown, clusters of innovation are spread far and wide across Europe.

One place everyone agrees is a key cluster is London. It now hosts offices belonging to all the top-tier pan-European VCs, several new Seed funds, has a very active Angel investor market and hosts many major tech events.

However, largely because of its cost – everything is still expensive here – London remains hard for European startups to access and get into, even in a recession. It’s incredibly cheap to rent an office in Berlin, for instance. In London it can be double the price. And although European and US entrepreneurs often need to take meetings and work in London, they don’t always need permanent office space, which can be extremely restrictive to startups. Who wants to sign a huge lease before you’ve raised any funding? The preference is for working out of anonymous clubs, cafes, and perhaps sub-letting a single desk here or there.

To some extent events and conferences are great for networking. But when you can actually rock up to a space and see people in your community — well, it’s unbeatable. That’s what the vibe is in the Valley, where you can literally walk into potential partners, investors and co-founders. That’s what’s lacking here in London, a key, lynch-pin city on the European scene.

So there’s clearly a problem that needs to be addressed if the startup eco system is to develop in Europe.

TechHub (@TechHub on Twitter) is new project put together by Elizabeth Varley which will address just this issue. Elizabeth has been involved in the London scene for a number of years, organised London Twestival and has recently been developing the concept of a physical space aimed specifically at the tech community and particularly at startups.

TechHub will be a new, physical space for tech entrepreneurs, tailored to tech people, and providing all the things we really like: Super-fast Wifi, power for our latops, coffee and flexible, plentiful desk space. I understand there will be both permanent desks and a big co-working space.

I also understand it will be extremely affordable by average London standards. So affordable in fact that it will put some of these managed office which startups are forced to use to shame. That’s cool. Because startups rarely have cash to spare at the outset.

The location will also be pretty cool. It will be in the existing cluster around the Hoxton/ Shoreditch/ Old Street area which is already jammed packed with tech companies and has been named Silicon Roundabout and even has it’s own social network. So often, flexible office space is never where you want it. This will be at the heart of the London tech startup scene. It’ll be funded through membership, sponsorship and other partners. It won’t be an “incubator” or have it’s own venture fund or anything like that, it’ll just be a space. The first pre-launch partner is BookingBug.

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http://uk.techcrunch.com/2009/09/24/europe-to-get-a-london-techhub-for-startups-to-meet-and-work-in/

The Economist | Google and the Instant Operating System

NEWS that Sony would be installing Google’s Chrome browser on its sleek, if pricey, Vaio laptops instead of the ubiquitous Internet Explorer from Microsoft has prompted your correspondent to re-examine the internet-search company’s foray into the world of web browsers and operating systems. The announcement came just as he began to notice how the latest version of Mozilla’s highly regarded Firefox browser was dragging its feet.

From cold, it was taking anything from 20 to 25 seconds for Firefox 3.5 to load his home page. Even Internet Explorer 8 was five seconds nimbler. Opera 10, the latest version of an old favourite from Norway, was faster still. But Chrome 3 blew everything away, loading the home page in half Firefox’s time. Once they had been started from cold and had loaded their innards into memory, all four browsers could be restarted and load the home page in five seconds or so.

Of course, Chrome is still a bare-bones browser, while Firefox is a powerful piece of software that can be configured in a multitude of ways that make it safer and easier to use. However, to make the (admittedly unscientific) comparison more meaningful, all but a handful of Firefox’s add-ons and extensions were turned off. Even so, it was trounced by Chrome.

A ten-second difference in loading time ought not to matter. After all, most people these days keep their browsers running, open or minimised, for the duration of the session. But loading times say much about a program’s inner architecture, how efficiently it has been coded and the way it uses computer memory.

Loading times can also be a guide to a program’s robustness and resistance to attack. At the annual CanSecWest security conference in Vancouver last March, the year-old Chrome was the only browser left standing after stalwarts like Internet Explorer, Firefox and Apple’s Safari had been hacked to pieces—Safari in literally seconds—by security experts.

Throughout their brief history, browsers have basically done just one thing: serve up pages of information for people to read. But the web has evolved dramatically over the past two decades while browsers have lagged behind. Today, the web is about applications rather than pages. People use the web to play games, download music, buy things, make telephone calls, share pictures and inner secrets, watch videos and television and, oh yes, search for information.

To catch up, the first thing Google did was abandon the browser’s traditional architecture. Instead of uniting the user with the web in a single protected area, Chrome uses a “sandbox” approach that gives each application its own space to play in, which makes it harder for bad guys to wrestle control.

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http://www.economist.com/sciencetechnology/displaystory.cfm?story_id=14437676&fsrc=twitter

GigaOM | How Freemium Pricing Could Work For Your Startup

Earlier this year, I asked the readers of this blog and those who follow me on Twitter what the one app was that they couldn’t live without. Among the most common names offered up were Evernote, Remember The Milk and Dropbox.

Since then, those three apps have become indispensable to me as well. And they all happen to be benefiting from the business model championed by venture capitalist Fred Wilson known as “freemium.” They’re not alone — numerous companies have walked down the freemium path since he first wrote about it in 2006, among them Freshbooks,Jott.com, Box.net and of course, the granddaddy of them all,Flickr.com. More recently, San Francisco-based startup Xobni eschewed the ad-supported model to go the freemium route.

One of my old editors, Damon Darlin, now at The New York Times, over the weekend wrote about thesuccess being enjoyed by Evernote. And it in reading Damon’s article, the qualities of a successful freemium product finally became clear to me.

10 Commandments of a Successful Freemium App

1. Make sure that the usefulness and engagement of the app are in perfect sync.
2. Make your user value proposition a simple one.
3. Focus deeply on one single domain.
4. Clearly define what is free and what is paid.
5. Build a subscription service into your application.
6. Encourage your customers to use your application often, for the more they use the application, more likely they are to establish a relationship with your company and that means you can sell them something new (or an upgrade) in the future.
7. Data is the ultimate lock in. The more data that is stored inside the application, more difficult it is for customer to switch, because of the extra effort involved.
8. Free is free marketing. Instead of advertising, the service should sell itself.
9. Make sure what you started offering for free, remains free.
10. Ensure your app works across all platforms, including devices (such as the iPhone) preferred by your likely customers.

As Darlin notes, Evernote is making about $79,000 a month from its paid services –- not enough to turn a profit. And while just 0.5 percent of its customers convert to paying the company $5 a month (or $45 a year) within 30 days of signing up for its free service, that figure rises to roughly 4 percent if users have used the free version for closer to a year. Why? Because Evernote is a digital drawer of sorts. The more you use it, the more you cram into it until — sure enough! — you have to get a bigger drawer, and that costs money. Given how in harmony the usefulness of this app and its level of engagement are with one another, Evernore more than any other app seems poised to see its customers switch to the paid model. Now all the company needs to do is figure out how to make it even easier to digitally clip and cram content.

Remember The Milk, on the other hand, is a simple to-do list, albeit one on steroids. In other words, it has a narrow but deep focus on one single domain. Not only have the folks at RTM made it dead simple to add tasks and delete complete ones, they have seamlessly integrated the most important part of any to-do list: reminders. Remember The Milk will send you reminders of your tasks in the form that works best for you: via SMS on your mobile phone, IM or email. It even mashes up the location of your tasks with a map.

However when you use the app while on the go (such as when you’re actually out running errands), its utility grows exponentially. And that is precisely what RTM charges for: its pro version includes support for mobile phones such as iPhone, BlackBerry and the Windows Mobile devices. With it, you never have to wait to be in front of your computer in order to start making a to-do list. The difference between the free and premium offerings is very clear, which as a buyer makes your decision to pay up an easy one.

Finally there’s online storage-syncing service Dropbox. While it disobeys the most basic rule of freemium — “no downloadable apps” — Dropbox more than makes up for it by being easy to install and even easier to sign up for. You start out with 2 Gb of storage space for free, which doesn’t take very long to use up. At that point you have two options: switch to another offering or buy a premium package. But while the thought of paying $120 a year to upgrade to the 50 GB package may make you balk, chances are the $9.99-a-month subscription service looks pretty affordable.

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http://gigaom.com/2009/09/01/how-freemium-can-work-for-your-startup/

VentureBeat | In Tough Times, Seed Money is the New Series A ...

Seed is the new Series A for VCs – With the economy in crisis, VCs have been reluctant to put term sheets down on new investments. That’s slowly changing, but instead of using the Series A mold, many VCs are using ’seed’ money. Caine Moss, corporate and securities partner at Wilson Sonsini Goodrich & Rosati discusses how to protect your company.

Do the math: An easy formula to forecast customer growth - Before you have a shot at a capital injection, you’ll first have to provide firmly grounded revenue and customer projections. Loyalty Lab COO Michael Greenberg shows you how to accurately predict those numbers.

Four rules for running with the big dogs – Breaking into an existing market is tough, since many customers are loyal to an established competitor. Serial entrepreneur Steve Blank details four ways to make it easier.

Clarifing direction through strategic process management – Coming up with a great idea is one thing. Executing on it is another. Angel investor Sy Fahimi discusses strategic process management and the dramatic impact it can have on your business.

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http://venturebeat.com/2009/08/29/entrepreneur-corner-roundup-the-new-series-a-forecasting-customer-growth-and-breaking-into-existing-markets/

The Economist | Newspapers and Charging for Online Access - Options, but ...

IF NEWSPAPER bosses keep their promises, the next few months will see a decisive retreat from free news online. This summer senior figures at big media firms such as News Corporation, Axel Springer Verlag and MediaNews Group have all threatened to start charging. Companies representing more than 700 newspapers have expressed interest in the online-payment platforms being developed by Journalism Online, an American start-up.

It will not be easy. For ten years readers have been enjoying free news online, and the BBC, public-radio stations and commercial television-news outfits such as CNN will continue to supply it. A newspaper that tries to charge will jeopardise online advertising, which often accounts for 10-15% of revenues. But if the obstacles are many so are the potential solutions.

The simplest approach, favoured by a small but growing number of American regional newspapers, is to erect a pay wall around virtually all stories. Print subscribers are often—but not always—allowed to read articles free of charge. Everybody else must pay, often quite a lot. The Newport Daily News, a small Rhode Island newspaper, recently began charging $345 per year for online access to stories.

Few opt to pay such sums. Fully 170,000 people buy theArkansas Democrat Gazetteevery day compared with just 3,500 online subscribers. “It does not justify itself as a revenue stream,” admits Walter Hussman, the paper’s publisher. In fact, the Democrat Gazette’s pay wall is more of a revenue dam, intended to stop the flow of readers (and, thus, advertisers) away from print. Since 2002, when the paper began charging online, its average daily circulation has dropped by less than 1% a year—rather better than most.

The newspapers that have built successful pay walls tend to hold virtual monopolies over news in their region. Grupo Reforma, a Mexican newspaper outfit that has attracted some 107,000 web subscribers, is an important exception. It serves them not just news but exclusive job advertisements. Along with a weekly society magazine distributed only to subscribers to the printed version of Reforma in Mexico City, that helps the title cultivate an air of exclusivity.

Some publications have tried charging for a digital simulacrum of their print editions, with a more familiar design and layout than their websites, which can often be downloaded as a single package. The Süddeutsche Zeitung sells an “e-paper”, as does the New York Times, in the form of the elegant Times Reader. The latter is also one of the many papers that have created applications for Apple’s iPhone, Amazon’s Kindle and other mobile devices. Many publishers hope that people will come to accept the idea of paying for mobile news, as they pay for text messages. But the line between computers and mobile devices is blurring as new gadgets of varying sizes appear (see article).

Another option is to charge for just some content. In Britain, where fierce competition between national dailies probably rules out all-encompassing pay walls, newspapers nonetheless charge for crossword tips and participation in fantasy sport leagues. German newspapers commonly charge for articles from the archives, which may not be all that old. The theory is that a person who tracks down an out-of-date article or a crossword clue probably cares enough to pay for it.

The greatest exponent of the niche approach, with more than 1m online subscribers, is the Wall Street Journal. Roughly half of its articles—generally financial news and insiderish business reports—sit behind a pay wall, although they are free if accessed via Google News.

This approach is much harder to emulate than it may appear. Between 2005 and 2007 the New York Times charged a subscription fee to read the paper’s most popular columnists online. It ended the experiment because it seemed to be cutting traffic to the site and harming advertising revenue. The Los Angeles Timesdropped an attempt to charge for arts coverage for the same reason. A newspaper that wants to follow the Journal must produce copy that is both narrow in its appeal and useful.

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http://www.economist.com/businessfinance/displayStory.cfm?story_id=14327327&source=hptextfeature