The Black Liszt

Tag: Demand Media

  • WSJ: Oak Investment Partners’ 22 $100M+ Revenue Companies

    The WSJ had another article
    about venture capital, this time focusing just on Oak Investment Partners, the place I work during
    the day (and at night and on weekends…). The whole article, “The
    $100M Revenue Club: Oak Investment Stocks Up    ,” is well worth reading. Here
    are a couple of highlights:

     

    “Companies with annual revenue exceeding $100
    million rarely used to show up within venture capital firms’ portfolios.”

    …

    “But few if any firms have as many of them in their
    portfolios as Oak Investment Partners,
    which has 22 private companies that generated more than $100 million in revenue
    in 2009, according to information gathered and confirmed by Dow Jones
    VentureWire.”

    …

     “Thad Gray,
    who is a managing director with fund-of-funds Abbott Capital Management and
    sits on Oak’s Valuation Committee, has become a strong believer in the venture
    growth equity investing model … Gray said Oak has found success thanks, in
    part, to having partners who are recognized as sector experts in complex areas
    including health care information technology, financial technology, digital
    media and energy technology.”

    I have already posted about a
    couple of the companies in the list of 22, including Kayak.com, iCrossing and
    Demand Media.

    In the quote above, Thad
    talked about Oak’s “venture growth equity” investing model. This is a
    relatively new model of venture investing, and Oak is demonstrating what it is
    and how to do it. It combines important aspects of traditional venture capital
    with some aspects of private equity. Since it’s relatively new, it’s worth
    explaining.

    The popular image of venture
    capital is early stage investing. You might think that the internet would favor
    early stage companies, because it is so relatively easy and inexpensive to get
    a web site and make it not only viewable, but findable (as I discussed
    previously) to anyone in the world. The bar is low, so the start-up
    entrepreneur with his genius idea can get it going with a little seed money
    from a savvy early-stage investor and watch it rocket to success. It’s all
    about having the break-through idea; you need hardly any capital to make it a
    reality. Right?

    Let’s take that idea and
    apply it to baseball. Suppose we find a couple of guys who have a terrific new
    approach to pitching and catching. They’ve got it working in the “lab.” Now
    they’re ready to go for it, and they look for a savvy VC who recognizes their
    potential. If they get funded, the money will come from a traditional
    early-stage VC. A VGE investor like Oak will pass; the opportunity is too early
    stage. We don’t invest in individual players, regardless how good they are; we
    only invest in teams that have found a way as teams to compete
    and win in their league.

    The way we see it, when the
    VC invests in the pitcher-and-catcher novelty act, they’re going out and
    competing in a playing field (called the internet) against full teams. Like it
    or not, those two will be “taking the field” against teams that field nine players
    and have a deep bench. The pitcher-catcher combo may be unbelievable, but they
    are sure going to have to be, given that they have no one playing first base,
    no one in right field, etc. Then of course when it’s their turn up at bat, their
    batting order consists of two players – perhaps not so good…

    Demand Media, for example, is
    a full baseball team – they are literally “covering all the bases.” And they
    have a deep bench and value-adding back office. It’s hard to figure out how a
    couple of individual players, regardless
    of how talented and hard working those individual players might be    , could
    possibly compete against a whole baseball team, particularly when so many of
    Demand Media’s players are all-stars.

    Let’s just take a quick romp
    through the Demand Media “player roster” to illustrate all the different roles there
    are in a fully-staffed team:

    • A design team to
      make their web sites look good.
    • A sales team to
      craft the kinds of advertising deals that fit their content.
    • Separate teams
      for each individual property (golflink.com, ehow, Livestrong, Cracked, etc.)
    • Strong
      non-consumer technology-centric efforts (Pluck.com, enom).
    • A creative,
      numbers-driven and results-focused research effort.
    • Strong technology
      driving a leading-edge business model (Demand Studios).
    • Major value-adding
      data center operation.
    • A group that can analyze
      huge traffic (many tens of millions of uniques a month) and optimize.
    • Unique technology
      derived from the huge volumes that increases effectiveness (this is
      purposefully vague).
    • A sharp finance
      operation to help keep cost focus.
    • Strong,
      charismatic business leadership.

    When the baseball team is a
    bunch of has-beens, you can imagine being just a couple of stand-outs and
    competing against them. But on the internet, you end up competing against teams
    of the best. The scale is so large, like it or not, it takes a team to compete
    and win. That’s why the Venture Growth Equity approach makes sense, even on the
    internet (actually, once you understand the issues, it’s particularly on the internet).

    Like with any venture, there
    are also intangibles, the kind of thing you feel when you’re on site with the
    people, as I was last week with Demand in Santa Monica, along with my buddy
    Ranjan Chak. I seem to feel good every time I visit, whether we’re celebrating
    the good things that have happened or we’re grappling with challenging issues. Or
    both. The attitudes, levels of engagement, and sophistication of approach are
    just outstanding. Above all, they are a nerd-fueled enterprise (a subject I’ll
    go into sometime soon), which by itself puts them at a different level than most
    companies.


  • Everything is Media!

    We think that "media" is a small part of "everything." But that's changing. Everything is turning into media: the world is becoming "media-ized."

    Here's a framework for understanding what's happening:

    First, we have broadcast media, the "original" media

        The information flow is one to many

        Examples: newspapers, TV

    Second, we have communications, one person interacts with another

        The information flow is one to one

        Examples: face to face, phone, individuals talk

    Third, we have transactions, a person goes to a merchant to get or do something

        The information flow is many to one

        Example: go to a store and check out
     

    If you think about life in the distant past, that is in the pre-internet era (if you are old enough to remember that long ago), you can recall how very different those three categories were. 

    Sitting down and talking with someone is clearly communications (one to one). While you're sitting down, you may agree to listen to the radio or watch TV. Then the two of you are consuming media (the media source is the one, the two of you are part of the many). You may see or hear an advertisement on the media. Later, you go to a store and buy the item (you are one of many people who go to the store).

    These categories are clear and distinct; no one could possibly confuse (1) talking with a friend, (2) watching TV, and (3) buying something.

    But on the internet, things have changed! These three categories, once so clearly separate from each other, are merging into minor variations of a single thing. They are now the variegated media-transaction-communications complex, a complicated single thing which has the characteristics of all three.

    It's easier, and closer to the facts, just to say that the formerly distinct activities of communicating and buying things have become subsumed under "media." Why? The "place" where this activity happens is on screens that you can touch or have keyboards and/or have a mouse, the same kind of screen we use for watching TV, which is clearly a media experience. When communicating and transacting are brought into the world of screens, they adapt to their new world, and become media-like. That's why I say, the world is becoming "media."

    I think about this a lot, partly because of personal experience, but also because I'm involved with companies that have to adapt to this new world.

    The companies that "get" this convergence of everything to media are the ones who succeed in the new "everything is media" world.

    Here are some of my favorite companies and a little sample of what they're doing that shows how they "get" it.

    • Huffington Post is a "media" company. But they are clearly stretching the definition of what "media" is way beyond anything the media dinosaurs can fully comprehend, much less keep up with. The easiest way to see this is the way they are going beyond the classic "elite" media one-to-many model with thousands of bloggers, citizen journalism and an extremely committed and robust community of reader/collaborators who communicate with each other using the site's comments and connections to Facebook and Twitter.
    • Demand Media is making progress on many fronts, with a full-fledged research operation to help guide their efforts. Some of their sites look a lot like on-line versions of classic niche media, for example www.cracked.com. Others are breaking the tyranny of one-to-many media by pioneering the use of professionally generated content to achieve something closer to many-to-many media, for example www.ehow.com. Finally, they are evolving the many-to-one merchant model in media-savvy ways, for example in the Daily Plate section of the Livestrong.com site.
    • Federated Media is all about the shift from broadcast-style media to what they call conversational media. The whole premise of the company is that there is a new kind of media emerging that transcends traditional broadcast models, and this new media naturally calls for a new kind of advertising for merchants to interact with consumers. In fact, Federated Media is right in the middle of a kind of media that incorporates strong elements of conversation and makes a bridge to transactions.
    • FirstRain is not a media company at all, in the old sense. Their roots are in providing search services to financial professionals. But now, like any new media company, you can search for something relevant and find their pages, for example this report on Yahoo. The harsh rule of media is that consumers will glance at your page; if they like it, they'll stay for awhile and explore; if they don't understand it or like it, they'll navigate away, and you've lost them. FirstRain is already a generation ahead of their peer group in understanding and implementing this.

    You may think you're a media company — have you really gotten all the factors that are now part of succeeding in media? You may think you're an e-commerce company — have you really gotten how being an on-line version of a store isn't even in the right ball park, how you're now a media company? You may be a completely different kind of company, like FirstRain — do you get that success means becoming (at least in part) a media company?

    That's because … in the new world we live in, everything is media!

  • Demand Media’s Approach to New Media

    Demand Media's angle on new media is to provide content creators the vetting, ideas, channel and money they need to become professional content creators. It provides a direct path to success for talented, hard-working people. As my previous post points out, this is a new path to success. In the traditional, mainstream media, only the elite few really win, while there is (almost) no path to professionalism in user-generated content.

    Demand's approach is perfect for those with talent, skills and a desire to work … but who may not have a paying outlet for their efforts, or a system to structure and focus their work.

    One of the things that is particularly interesting about Demand is that it's not a boutique. It's an industrial-scale enterprise, capable of producing far more quality content than the vast majority of content-creating entities today. But unlike traditional publishing empires, it leverages the internet and works on a fully scalable, distributed basis. There is no concern about tapping out on a certain kind of talent within commute distance of "the office," not when the office is the internet. There is workflow, there are defined roles for people to play, there is automation (lots of it), so in that respect, it's very industrial.

    "Industrial" can be used as a critical word, but it's also a word that describes a system that is designed to produce a large amount of a desired thing at low cost and with predictable, consistent quality. Back in the 1980's, a whole industry got started to process structured content, the kind you have when you fill out a form, for example. This was when concepts like "automated document processing" and "workflow" began to be implemented, and pioneering companies like FileNet applied industrial templates to massive document handling problems. I personally worked on such an automation effort at Sallie Mae, where even then there were over 40 million documents to be processed per year, with a couple thousand people doing the work — definitely an industrial problem.

    What's fascinating here is that, a couple decades later, Demand Media is leading a similar new wave of document automation. The differences include:

    • DM  produces documents; before we handled documents received
    • DM is highly distributed; most earlier efforts were centralized
    • DM deals with unstructured documents; the earlier efforts were directed at structured documents

    But the commonalities are striking. In both cases:

    • Workflow software is the heart of the industrial engine
    • The work is highly structured, with quality measures taken at each step
    • The process is scalable to massive volumes

    And of course, there is a key new process. In first-generation document processing, we were consuming documents. When you are producing documents, you have to make sure you're producing stuff that people actually want to consume. How the heck do you do that at scale?!

    Well, that's part of the magic of Demand Media, and perhaps will be the subject of a future post.

    What does this mean to the person who would like to work in professional content creation? It means that Demand Media, by pioneering Professionally Generated Content (see prior post), has a job and value-creation system in which all the participants win. And because its industrial system has been built on a secure foundation (workflow, etc.) with appropriate updates and variations, we can be confident it will continue to scale and work as it does.

  • Media for a New Era, Demanded and Federated

    There is a new kind of media. We all know the old media produced by the elites, and we've all heard of user-generated content. There is a new kind of media shepherded by new kinds of companies. It combines the best of the old media, and is generating value for the people who create it and the people who consume it.

    Among other reasons, I'm paying attention to this because a couple of companies I know are in the heart of enabling this new kind of content. That’s partly why I like Demand Media so much. It’s also one of the reasons I’m a fan of
    Federated Media.

    The vast majority of the media we consume is generated by an elite, largely
    full-time, generally well-compensated, tiny group of people, usually working in
    large organizations. Let's call it EGC, Elite Generated Content. EGC is generally a pyramid, with a tiny number of highly
    visible people at the top, a large supporting cast, and often a very large
    number of under-compensated people in support, many of whom aspire to climb up
    the pyramid. Katie Couric, sitting at the top of the CBS News pyramid with her
    $15M annual salary    , is a great example. She can do her job only because of her
    supporting cast of hundreds (thousands?), the vast majority of whom will never
    have the camera focused on them except while saying “testing, testing.” They do the work and she takes the credit. While
    the example I’ve used is broadcast news, there is a similar structure in
    newspapers, magazines, books, music, movies, theater, etc.

    The internet has brought us a new kind of media: UGC, user
    generated content. UGC is generated by essentially anyone who wants to. There
    are a vast number of UGC-er’s (millions!), who do what they do mostly on their
    own, mostly for free. Examples include blogs, comments, everything on Facebook,
    product ratings, Wikipedia, etc.

    Some of the people who create UGC are every bit as talented,
    hard-working and effective as the elite producers of EGC, sometimes more so.
    Some UGC creators produce content for which they know there’s a market, but the
    existing rigid structure and cruel, anti-democratic hierarchy of EGC provides no mechanism for them to tap that
    market.

    Some members of the old media have recognized and
    capitalized on the fact that there is a huge pool of frustrated, under-valued
    and ambitious UGC-er’s out there, and have created mainstream media vehicles
    for tapping into this vast labor pool. Perhaps the best examples are TV shows like
    American Idol. For every Susan Boyle who leaps from complete obscurity to fame
    and fortune, there are tens of thousands of applicants who either waste their
    time, or worse, become the on-air fodder for the laughter and cruelty of the
    wealthy, self-appointed judges. In typical old-media fashion, it dangles the
    hope of success to millions and convinces tens of thousands to donate
    their time and effort to the success of the elite handful at the top, for
    example the well-named Simon Cowell, who is surely the Simon Legree of
    show business aspirants.

    Is there an alternative to old-media EGC and
    chaotic, unstructured and unpaid UGC? Simply put, yes. Demand Media and
    Federated Media each are pioneering new paths to enable UGC-er’s to advance to
    professional success. There is no accepted name for this new category (alert!
    naming opportunity!), so until a better name shows up, I’ll just call it PGC,
    professional-generated content.

    What is PGC? Simple: it combines many of the most desirable characteristics of EGC and UGC. Here are the highlights:

    • Like EGC, the content is vetted, it is good quality.
    • Like EGC, there is a market for the content, and a way to reach that market.
    • Like EGC, the participants in the process actually get money for their efforts.
    • Like UGC, the participants in the process actually get credit for their efforts.
    • Like UGC, there is no hierarchy barring the door to aspirants.
    • Like UGC, the process is highly distributed and democratic.

    Sometime soon, I'll show how DM and FM are each, in their own ways, leading the way to developing the market for PGC, professionally generated content, and thus providing opportunities for people and filling previously unmet needs.

  • Demand Media and the Media

    Members of the mainstream media seem to have trouble looking at Demand Media, understanding its success and the fact that it is pioneering a new and valuable form of content creation. This trouble is illustrated perfectly by an article by David Carr, the media specialist for the New York Times. The article is surprisingly fair, but the author's feelings are easy to read.

    At least from the article, it appears that the author (along with nearly all mainstream-media writers on this subject) either isn't familiar with the Innovator's Dilemma, or is unable or unwilling to apply the concepts to his or her own industry.

    It's really not that different from the transitions between disk drive form factors, an example used by Clayton Christensen in his classic book (The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail) on the subject.

    In each case, the people who are invested in the older technology look at the newer one as inadequate, cheap, failing to meet crucial requirements, and so on. They fail to appreciate how the new technology opens up new markets, fills unmet needs, and satisfies new classes of customers.

    In this case, the old-media establishment is stuck on the notion that any form of media production must meet the following criteria:

    • a small number of
    • high-priced,
    • full-time workers in
    • central offices, producing
    • small amounts of content that are released in a
    • small number of
    • elite outlets that
    • charge readers for access

    By contrast, Demand Media is pioneering media that meets the following criteria:

    • a large number of
    • moderately paid,
    • part-time workers in
    • distributed locations, each producing
    • as much content as they choose, which is
    • released on the internet and is
    • free to readers,
    • supported by advertising

    Since Demand Media knows it's pioneering, it is experimenting and iterating its way to success, largely driven by direct feedback from its new class of customers. They are learning new things every day.

    Again, the Times article was a relatively fair one; but critical feelings about Demand Media are completely understandable — simply put, the people who make them often feel threatened by DM's success. But the day is long past when a small number of highly influential media figures can sway the thinking of the public. In the end, the internet is enabling consumers to vote with their "feet" (actually, their fingers and clicks), and from all the evidence, the number of votes in favor of Demand Media is growing at a rate that the management of old media can only dream about.

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