BloGiza

The online year that was

As today is the last day of 2007, it’s a little hard to resist looking back at the past year and trying to sum it up. So, I won’t resist. Unlike last year, 2007 is hard to summarize with one handy tag such as “the year of online video” or “the year of social networks”. There was a lot of activity in a number of different areas, the rise of a major player in the social networking space, and the rise of a new form of communication.

So, herewith a few highlights IMHO of the online industry in 2007

Story of the year: The consolidation of the advertising industry
Y’all thought I was going to say Facebook, right? Now, while the rise of Facebook is certainly the most hyped story of the year, my vote for the most significant development  (not to mention the biggest source of M&A activity) is the rapid consolidation of the online advertising space.

During the last 12 months, Google bought out Doubleclick for $3B. Shortly thereafter, Microsoft acquired aQuantive for a staggering $6B. AOL bought out targeted ad firm Tacoda, as well as Quigo which. Yahoo acquired Blue Lithium, as well as a majority stake in Right Media. WPP bought 24/7 Real Media. And the list actually goes on.

The M&A hyperactivity in this sector is an indication of the fact that online advertising has reached a certain stage of maturity. Beyond that, the consolidation is likely to have long-term ramifications, especially in regards to the rise of Google as the behemoth of the information age as well as the development of new business models online. And that’s what makes this, at least for me, the biggest development of the year.

Phenomenon of the year: Facebook
Obviously, I couldn’t not mention Facebook which gained momentum extremely rapidly this year and became the go-to social network for those of us who aren’t musicians, 14-year-olds, or skeevy perverts. Facebook only opened itself up to the world outside the university sphere towards the end of 2006. I joined up early this year. Before long, almost every high tech-ist I knew (and many I didn’t) was on it. Lately, the sphere has expanded further and everyone, their parents, and their parents’ friends are connected. Clearly we’re on to something.

Of course, it will be interesting to see whether Facebook will be an ongoing concern for most people or just a passing fad. I like it for business purposes, as a tool for microblogging, and as the communications platform of choice for a number of my friends. On the other hand, I have a hard time answering those who complain that there’s nothing to do there. We shall see.

New technology: Microblogging
The rise of Twitter and its clones provided us with probably the only real new media form we’ve had in a few years, viz. microblogging. At first, the concept seemed a bit stupid. After all, why would I want to blog in tiny, one- or two-sentence bursts? But then you start getting into it and discover that Twittering (or updating your Facebook status, which I tend to do more) is a nice complement to blogging for those times when you have something small and/or clever to say but which doesn’t warrant an entire post. Plus, it’s the first Internet app that makes perfect sense for the mobile. It’ll be interesting to see who snaps up Twitter and for how much.

Interesting development in local tech: The renaissance of the Israeli internet scene
Three or four years ago, it seemed that the Internet industry in Israel was close to dead. During the days of the ’99-’00 bubble, the high tech scene was awash in Internet startups looking to be the next ICQ. Then the bubble burst and most of the companies went under. Worse, the VC industry was burned on the subject and it subsequently became almost impossible to get a new Internet startup funded.

As recently as two years ago I regularly had colleagues in the VC world lecturing me that Israel was incapable of producing Internet companies and, besides, these types of investments weren’t suited for VC anyway. What a difference a few years and a YouTube (and a Facebook) later make.

Once again, we are seeing dozens of new Internet companies each month. What’s more, there is a real feeling of an Internet scene here, helped along in no small part by Facebook, the work of groups like the Co.ils and the Geek Garage, and of course Jeff Pulver’s social activities. Let’s hope this continues to develop and mature.

Case of possible overhype: Online video
I’ll catch some crap from friends about this, but the online video space has become somewhat overhyped in the last year. Actually, that’s kind of unfair. What has happened is that in the post-YouTube age, online video has become ubiquitous. This has led to a lot of noise and a sense of, “Ok, what do we do now?”

Towards the end of last year, it looked like the field of mid-tail, independently produced video content (e.g. Ask a Ninja, Rocketboom, Ze Frank) would be the next big thing. As of now, that has failed to happen. There haven’t been any real breakthroughs this year. Even projects as big and as hyped as Joost have yet to take off as a mass-market application.

I still have big hopes for this sector, but it may have to wait until sometime in mid-2008.

Predictions for 2008
You’ve got to be kidding me. Only fools make predictions in this online age where what you write will forever haunt you. Still, I’ll make some safe and predictable ones for the upcoming 12 months:

• There will be a number of huge-size Internet exits that will have people scratching their heads
• The whole notion of privacy will continue to erode as Google finds out more and more about you
• Mobile internet will remain where it has for the last three or four years, i.e. tantalizingly around the corner as the Next Big Thing
• Some technology or company that you’re not thinking about will be the big story of 2008

So, for all my celebrating friends and colleagues out there, I want to extend best wishes for the new year and hope that 2008 brings health, happiness and success to us all.

The Great Vertical Social Network Shootout

I don't know about the rest of youse guys, but I'm beginning to feel slightly awash in a sea of social networks. Don't get me wrong, I'm all for vertical social networking and I see it as one of the logical developments of the MySpace revolution.

Lately, us Israeli Internet aficionados have found ourselves spoiled for choice when it comes to choosing a social network of our very own.
First into the fray was The Marker Cafe, an online spot where tech-savvy Israeli business types could get together. A couple of months after that, the iDrink guys rolled out their site, which serves as an online complement to the real-world Internet drinking club.

Now, our friends from The Coils have brought out the.co.ils Zone, which also provides an online space for Israeli Internet entrepreneurs (as well as us investor types) to meet, talk, do business, put up photos, share links, and all that other fun social networking stuff.

Hovering above this all, of course, is Facebook which has seen an incredibly quick uptake of Israeli Internet scenesters, and which already contains an iDrink group, a co.ils group, and numerous other groups related to the Israeli Internet.

So, the question now becomes what to do with all this activity. And frankly, I'm kind of stumped. iDrink is nice, but is limited in its functionality. The Marker Cafe has plenty of functionality. It is, however, in Hebrew only which cuts it off from the rest of the world.

The co.ils Zone looks like it has a lot of potential (assuming that Ning, the platform on which the Zone is built, gets their act together and deals with its recent outages). But it will be a challenge for them to get a critical mass of people actually using the site, what with all the competition from the other sites.

What do you think?

Guest post: China's Internet Scene

Note: earlier this year, Giza invested in Koolanoo Group, a Web startup which creates vertical social networks. The company maintains two sites: Koolanoo.com – the first social network for young Jewish professionals; and 360Quan – a Chinese-language site which offers Chinese Internet users a wide range of social and entertainment-related features (e.g. blogging, video sharing, music downloads, and many more).

In the few months since it launched, 360Quan has become one of the fastest-growing Internet properties in China. I asked O.D. Kobo, co-founder, Chairman and CEO of Koolanoo, to write his impressions of the Chinese Internet scene. O.D. grew up in Asia, and currently oversees the company’s operations from its Beijing office.

I am completely fascinated by China’s Internet scene.

The melding of the economic magnitude of China and the powerhouse that is the Internet, what a combination! I greatly believe in the Internet industry in China and how important it is to be there.

Einstein said, “Logic will get you from A to B, but imagination will get you everywhere”. Well, if he were alive today, he would re-phrase the ending with, “imagination will take you to China”.

China has approximately 150 million surfers online and by 2009 it will be the largest online community in the world. But here is the rub: CNNIC reports 142 million online as of January 2007, Morgan Stanley reported 152 million in their assessment, and Deutsche Bank analysts have said 160 million.

Why the confusion? Internet cafes and multiple IP’s. There are over 135,000 Internet cafes in China, and as a result around 40% of the traffic comes from multiple users using a single reported IP (i.e., 1 Internet cafe has multiple users but one IP for all of them). During public holidays when Internet cafes are closed the online traffic drops by 35%. Even reputable Web statistical companies such as ComScore do not have good enough monitoring mechanisms for China yet. However, with a 26% annual computer growth rate compared to USA’s 2.2%, things will definitely change in the coming years. It is very difficult to assess the traffic and the usage of users from foreign companies with outposts in China, I prefer the local companies and my experience comes from “being local”.

The Internet will change with the awakening of China’s Internet industry. Online advertising will never be the same. Traffic will be referred to differently when discussing China. It is the last online frontier and the greatest place in the world to run an Internet start-up.

The industry in China is still very much at its infancy though. Think 1996 all over again, but with bigger numbers. There are a few giants like QQ, Baidu, Sohu, Sina, and 163, but even they have not reached their maturity yet. Netease’s 163, a leader in Web mail, only adapted a full blown marketing team this year. Baidu is constantly expanding. Sohu are doing some really interesting things with news broadcasting. And QQ, wow QQ, I love QQ, my favorite site on the Web. It’s China’s largest messaging service, and boy do they know how to operate a website.

I have had meetings with many of the senior level executives of the large Internet companies, some I call close friends. I am a big fan of the websites in China and the way they conduct business conduct. China operates Internet the way it should be run: strong, passionate and aggressive.  Any other method is simply incorrect.

The users/surfers are the most fun. In the West, Internet users are spoiled with the vast variety of features and applications, everyone fighting over everything like advertising costs to bring traffic and sell space.

In China the issue is different. Sustainability is key -- staying in the game, because as the users grow so will you. If you operate a website in China and do not have heavy traffic within one year, you might as well go home. As most of the users online are between the ages of 18-25 (82%) most of the online activities entertainment-related as opposed to the West, which is information-related (Google, Wikipedia).

Viral marketing is still very fresh here, and the big sites do not make it easy for new ones to enter. But one of the biggest motivations for working so hard is to make a good product that you would want to use yourself. We thought we could contribute to the market. We at Koolanoo Group love great products, at our core we’re just a bunch of Internet junkies who want to create the best Social Network and offer it to our users.

360Quan recently became the official partner and sole Internet broadcaster of FTV (Fashion TV) for China. We believe it to be a landmark deal and a cool entertainment feature for our platform. This is a big thing, since cable TV is scarce in China. We are also implementing the mobile mapping feature this coming month. We are always looking to improve and add to our user experience. We’re a product company. We love great products, that’s what we hope to do.

As for the industry, well, it speaks for itself doesn’t it? China Internet, the sexiest two words in tech today.

A Digg for startups

I recently discovered an interesting Web site called Killer Startups. Their basic idea is to function as a social community for the startup space. Or, in other words, they are like Digg but totally focused on startups.

Entrepreneurs can submit their startups to the site. You submit a link to your site and your elevator pitch. The Killer Startups guys posit some questions and analyze why the startup might be a killer. And the users of the sites give votes to the startups.

Interestingly, there are four Israeli-based companies in the list of Top 10 Killers: SuTree, 5Min, MatchMyPet.com, and G.ho.st.

This could possibly be a good source of deal flow.

Web 2.0 in a Nutshell

This video was taken at one of the work sessions at the recent SXSW conference in Austin. In its snarky, cynical, humorous way it captures the essence of so many of the Web 2.0 companies we come across:

(Hat tip: My pal Ron Pick at Clickwise)

Is bad news the new good news?

I've been thinking quite a bit about a post that Michael Arrington had up the other day. Basically, Arrington was looking over his Dead Pool of recently closed Web 2.0 startups and addressing the Big Bubble Question (i.e. are we in a bubble again).

According to his analysis, we are seeing something akin to a bubble, but Internet companies have a much more solid basis than they did in the past. The main problem continues to be low barriers of entry and a difficulty in differentiating ones self.

Money quote (from our VC perspective):

So there are too many review sites (Yelp, Insider Pages, Riffs, Judy’s Book). And too many Q&A sites (Yahoo Answers, Live.com Q&A, Yedda, Answerbag, Askville, etc.). And too many customizable home pages (Netvibes, Pageflakes, Google, Live.com). And so on. Most of these will fail. Some will win. Hopefully, the total return on investment to the winners will be greater than the sum of all investments in all of the startups. If that ends up being the case, we all win.

As these companies fail, the markets take note. This lets off steam and settles things down. Venture capitalists are less frothy. Fewer investments are made. Valuations go down. Things equalize.

I tend to agree with Michael that the Internet scene today is a lot more sane than it was 7 years ago. But where he sees the positive side of Web 2.0 companies calling it quits, I have to look at it from the viewpoint of someone looking to invest in them. In which case, it ain't such great news.

Obviously, none of us has a foolproof solution to the conundrum of how to invest in Internet companies. However, as a general rule we try to look for a couple of things:

1. Users: How are you going to get users to come to your site/use your service? How are you going to keep them coming back?
2. Revenues: What is your plan for effectively monetizing the users you have? Do you have more than one revenue stream? (Multiple revenue streams is not a must-have but is always useful to see)
3. User Experience: Do you understand what the user wants? Or, if the user doesn't know what he wants, can you show him? Is your site/application friendly and easy to use?

In our opinion, companies that can provide good answers to all these questions have a shot at succeeding.