FOWA 07: Mike Arrington – The Future of Start-Ups and Web Companies

I’m here today and tomorrow at Carson Sytems’ Future of Web Apps conference in London – they let me in so that I could blog it and provide them with summaries of each session for their site, so you’re going to see pretty comprehensive coverage. Enjoy!

Mike Arrington – The Future of Start-Ups and Web Companies

(Sorry, missed the first five mins of this.)

We’re just getting started, there is no bubble. Companies are failing early, which is how it should work.

it’s just that the best internet apps are still to come. Digg, and YouTube are not the epitome. Some of the companies launching in the next couple of months are good, and one will give Digg a run for a money.

What to focus on:

1. Have a good idea: Digg, Del.icio.us, did this – it was stuff that they wanted to do themselves. Once you have a good idea, to be successful either:
– invent a market
– destroy a market, which is a lot more fun

2. Have a business plan
It’s good to have a business plan, but some of the best start-ups never had one. YouTube ditched their original business plan.

3. Have a revenue model
Especially if you have costs. YouTube had a hideous bandwidth bill, burning a million dollars a month. You need a plan to make money.

4. Build it cheap, test the waters
If it doesn’t scale, that’s ok in the early days, but don’t build a fully scaled platform then hoping that the customers will come. Chances are they won’t.

5. Avoid a high burn rate.
Most dangerous time is just after a company raises a few million dollars. Want to avoid feeling of insecurity, so they start paying more than they should, travel more than they should, hire a PA or PR when they don’t need one. If you’re careful, 5/6 million dollars can last 5 or 6 years. Easy to get away with is, because there’s always a good excuse. Stay the wya you were the first six months when you had no money and spent no money.

However…

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YouTube
1. Threw away their original business plan and one found bailed out
2. Flaunted international copyright law
3. No revenue stream, and really still don’t
4. Spending more than $1m/month in bandwidth

Yet were still successful.

How?

1. They removed friction by providing a much needed service, IPTV, not user generated video clips. More about the Daily Show or BBC shows like the office. Ok, so 95% are UGC, but the top 100 almost all contain copyrighted content, e.g. music videos and clips for shows. Trying to do a deal so that they can avoid pulling a Napster, but
2. First to market – suddenly there are 250 flash-enabled video sites, but none will be as successful
3. So much growth that money poured in to cover the burn rate

MyBlogLog
1. Launched in Oct 2006
2. Acquired Jan 8 2007, Bradley Horowitz
3. Never raised a venture round

A widget you place on your blog and whenever a registered MyBlogLog user it records who’s come and shows their photos. Grew virally, from nothing to 10m users (NOTE: This figure should not be relied upon as accurate and may well have been plucked out of the air by Arrington or misheard by me – see discussion in the comments for details).

Amie Street
1. Launched mid 2006
2. Three university students
3. No capital raised
4. Can do to music industry what Digg did to news

People upload their music and people then downloaded, and the most popular songs are more expensive and songs go up as they get more popular, up to 99ยข per track.

Could be killed by the labels, but good chance they could be a winner.

Jingle Networks
Free business information (411); in US these average cost at $1.50, but their revenue model is that they place advertising in front of the number you’ve asked for. so if you call for Dominoes pizza, they give you an ad for Pizza Hut.

Shared attributes of winners
– Passion for what you’re doing
– Doing something extraordinary
– removing friction
– great founder dynamic
– never raised big money, or raised it after they won

Shared attributes of losers
– poor founder/team choices
– big ego, or after lifestyle of an entrepreneur
– raising too much money
spent too much money
over business planned
forgot about scaling (don’t be Friendster)
– had to try to hard at marketing – if you are harassing bloggers and journalists to get coverage and they won’t don it, it’s not because they have something against you it’s likely that what you’re doing isn’t interesting.

Buzz Factor
– Solve a real problem
– Do not be the 200th YouTube
– If you don’t have a blog, start one now. If you don’t have a blog where you write about people who write about you, you’re hurting yourself.
– If buzz isn’t happening, rethink your product, not your marketing

Areas of opportunity
1. Offline/online
– Apollo, Adobe platform, very important, new platform outside of browser that renders flash, Java, etc. so you can run apps offline as well as online. Can create, say, a mail app that’s the same online and off, stores data locally but also in the cloud. Think of Flickr vs. Picassa – why not have one app that does both online and offline?
– Firefox 3.0, rumoured to be working with offline systems too,
– File system + html/flash/ajaz

2. DRM and music/movies/tv
– Joost
– lots of opportunities for legally embracing audience for media

3. Data and service portability
– Teqlo, Ning, Yahoo pipes
– Important for storing users’ data

4. Mobile
– iPhone, more stuff happening in US now than before.
– GPS being built in, Helio integrates GPS and GoogleMaps. US is somewhat behind, need to find a way to win going round the carriers.

Questions from floor

US vs UK
Biggest issue, not the legal issues about creating a corporation, but in the US if you’re a VP at AT&T, and you wan to quit and start a new company, everyone in your family and social circle immediately thinks more of you, pats you on the back and thinks you have balls. Very true in Silicon Valley, to a fault. In the UK being a start-up entrepreneur doesn’t get you bonus points. May change over time, but it’s psychologically harder to do it here because of the culture. Also structural issues around funding.

Opportunities in content vs applications
Very different things. Talent plays a big role. Think of Hollywood. Same thing happens on the web. Every writer is their own brand. Early adopters had the best opportunities, but it’s harder to get established. Don’t have to convince someone else to publish your stuff, so it’s democratic, but you still have to get an audience which is hard.

What is ‘removing friction’
Think about YouTube, clicking on a video on their site is easier than finding the same clip on P2P or elsewhere. Skype removes friction from making calls, it’s easier to use Skype than a phone, plus removing friction always happens when you remove costs.

Look at what Gmail has done to Yahoo mail. Gmail is free, but if you want pop access on Yahoo, you need to pay a fee. There’s really no reason to charge for that, but they have charged in the past.

How do you monetise open source applications
You could ask for donations, you could place ads within the application itself. Talk to your users.

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