The future of television advertising

Fred Wilson and John Battelle have some interesting posts on the future of television and advertising. Fred and John both seem to believe that the concept of paid search will eventually work its way into television advertising. I suggest reading their posts if you have an interest in this space and learning how it will change as PVRs, VOD, and HDTV further penetrate the market. While one can look at how the success of Internet advertising will work its way into the television especially as the two markets converge, I like to look at the $60 billion spent on cable and television advertising another way. Rather than assume it will all go away in the future, why not do something to make it more effective today? What if you could change and personalize the actual commercials to turn television and cable advertising from a mass market media to a one-to-one relationship? Recently, Businss 2.0 (sorry registration required-hey Business 2, when are you going to open yourself up for bloggers to generate traffic for you?) had a nice article about one of my portfolio companies, Visible World, which has the technology that allows advertisers to do just that. As per the article,

Instead of making a single ad, the agency can now create its 30 second stories as a sequence of swappable components using Visible World software. The file is then sent to servers, already installed at Comcast’s cable centers, which instantly assembles hundreds or even thousands of different versions of the ad and send them to particular groups of viewers. The ads can be updated or modified automatically, just like a website. “In the winter, an airline ad could say, “It’s 52 degrees warmer in Miami today, ” Haberman tells the group, “Or an ad for a limited-editiion Volkswagen Beetle could say there are only 392 cars left, creating a sense of urgency.

I encourage you to try the demo to customize a few ads on your own. Username is Business2 and password is visibleworld. The bet is that a more effective and more personalized advertisement will stop some viewers from hitting the fast forward button on their PVR remote. The good news is that Visible World has already worked with some blue-chip companies like Bank of America, Ford, and United Airliness. In addition, via deals with cable companies like Comcast, Visible World will be able to reach 30 million households by the end of 2004.

Comcast says it can direct ads to narrow zones of 1,000 to 20,000 homes in a growing number of cities, including Boston, Chicago, Dallas, Detroit, Miami, and Phildelphia. But to Haberman, that’s just the beginning. Within the next 2 years, he hopes to offer advertisers the ultimate prize: targeting ads to individual households based on criteria such as age, marital status, favorite leisure activities, preferred airlines, and credit cards–though understandably, this very notion raises delicate privacy issues that have yet to be negotiated.

The cool part of this comes when the Internet and television actually do merge to create true interactive television and direct response fulfillment. Imagine its winter and you see the same customized airline ad about Miami, it’s 52 degrees warmer there, and you can take advantage of a special vacation package by clicking a URL and purchasing the plan through your television? We are clearly not there yet, but the potential exists. And before the $60 billion of television and cable advertising moves somewhere else, I hope advertisers give Visible World a shot to make the medium more effective.

What commoditization means for IT spending

The numbers are coming out, and it is clear we are moving to a low growth environment for corporate IT spending in terms of dollars spent. Companies spent too much in the 90s and are being cautious about how they spend their hard-earned cash. Total cash and savings for companies in the S&P 500 have doubled since 1999 and is equal to half a trillion dollars which means companies have added almost 300 billion dollars to their balance sheet in the last 5 years. While companies have so much more cash these days versus 5 years ago, they are spending roughly the same amount on IT. What gives? Reports cite how executives are still worried about the economy or terrorism. However, one other interesting aspect to consider is the effect of commoditization on IT spending. Here we are monitoring year over year growth on actual, nominal dollars spent on IT, hoping and waiting for an uptick in spending which will fuel more growth. After all there is a ton of cash out there and corporates have to invest the cash or give it back to shareholders. The funny thing is that the commoditization trend means that companies can do more with less. What that means is that companies can keep the same IT budget and accomplish the same amount or more without increasing their capital expenditures. In addition the competition for the customer’s dollars is fierce which means that the customer has complete control these days in terms of pricing. Both of these factors obviously work against significant increases in IT spending. In fact, customers have so much power these days (and rightly so) that companies like GM are forcing vendors like Sun and Microsoft and Cisco and Microsoft to work together, to standardize and integrate with one another.

Here is a quote from Fed Ex’s CIO in a recent New York Times article:

The information technology strategy at FedEx, the package delivery service, points to that conclusion. “Technology is coming to us in much smaller bundles that cost a lot less,” said Robert B. Carter, the company’s chief information officer, whose budget is slightly more than $1 billion. “Our intent is to hold the line on I.T. spending and get more bang for the buck.”

The flat spending does not suggest any lack of enthusiasm for technology at FedEx, a sophisticated corporate user of technology. Mr. Carter reels off a series of projects for helping customers use the Web, e-mail alerts and wireless messages to track inbound and outbound packages, trim inventories and fine-tune operations.

“The global interconnectedness and technology services available are growing at an unbelievable pace,” he said. “We are at an inflection point in the adoption of these technologies.”

This theme of doing more with less continues to echo in my brain as I meet with more and more CIOs and technology arhitects. As I mention in an earlier post, it seems that many in corporate america are going through a fundamental rearchitecture of their systems to a service-oriented model, one that will take a number of years, but one in which startups will have plenty of opportunities to thrive even with flat to limited growth in IT spending. Trust me, it would be great if corporations continue to grow their IT budgets. However, I am not worried as the great news is that new architectures and hardware equals lots of new software opportunities. There will be plenty of chances to make great investments in this environment.

Microsoft in a service oriented world…

Here is an interesting article from Business Week about why Microsoft is not so scary anymore. While I do not necessarily buy the argument that a company with billions of dollars of cash on its balance sheet is not scary, the article does raise some interesting questions about Microsoft’s growth, particularly on the enterprise side. A quote from Merrill Lynch software analyst, Jason Maynard, sums it up:

“Microsoft still has the critical mass and the franchise of Windows and Office, but there are fundamental changes going on in how we computer and how businesses get value out of IT,” says Merrill’s Maynard. He further points out that many of these trends, including the rise of on-demand computing models, and software as a service, putting more computing power into the networks, are somewhat antithetical to the Microsoft model.”

That quote definitely resonates with me. In fact, I recently had lunch with a friend who is heading up the Enterprise Architecture group for one of the largest health companies. His goal is to move the company to a service oriented architecture in the next 4-5 years. At the end of the day for him and his organization it is all about having better capacity utilization. Instead of having to roll out a new server with a new database and new storage for every new application, his company wants to deploy the app in a grid and increase the capacity utilization from 30% to 80%. During this 2 hour conversation about architecture and technology, Microsoft was never mentioned until I brought it up. When I prodded him further about this he mentioned that he recently spent time with Microsoft and was less than convinced of how Microsoft was going to help him realize his goal. He said the products are nice, tell a good story, but it still seems disjointed. In addition they are not moving fast enough for him. Just look at the delays in getting the monolithic Longhorn out as an example. Increasingly his organization is relying more and more on an open source, commodity stack, which, by the way, is delivering product on a much more rapid pace. In his view, Microsoft cannot tell the same story that an IBM or HP can in helping his company move to a service-oriented world. While this is one data point, I do believe that there will be challenges ahead for Microsoft in the enterprise. The commoditization of technology is definitely a strong force.

Strike while the iron is hot

I was speaking with a friend of mine today who mentioned that his term sheet for his Series A round fell through. Things looked great for the last 6 weeks and then the deal process went into a stall regarding intellectual property rights. To make a long story short, one of the co-founders of the company built the company’s software in his spare time. However, he also had a full time job and decided ultimately to stay there rather than join the startup. Well, you can imagine that down the line the company that the co-founder worked for could potentially claim rights to the IP. Rather than leave this open to chance, the VC and the early stage company did the right thing and decided to clean up the ambiguity. Today, the IP is about to get assigned in the proper manner. However, the VC got cold feet and backed out of the deal.

So what happened? You see, deals take a life of their own. The more time it takes to close a deal, any deal, the more chance there is for it not to happen. Momentum is a powerful force but deal inertia can be more powerful. It sounds like the VC just got tired of the deal and also got cold feet as it seemed that a competitor or 2 cropped up during the deal closing process. This is not the only story of delayed deal closings. I was interviewing a CFO candidate for one of my portfolio companies yesterday and one of our discussion points was why a potentially large deal fell through. From his perspective, his side tried to overnegotiate the fine points, extending the closing out by a month. During that time the potential acquirer missed its numbers, got hammered by the street, and decided to back out.

My advice to you if you are going to raise a round is to make sure that you are prepared for all that may come at you in terms of due diligence. Have your financials clean, make sure your IP is owned by the company and not by any consultants, and have your references teed up to talk to potential investors. The more prepared you are the more impressed the VC is and the quicker the deal closes. One other point to remember, do not overnegotiate. Figure out the big picture of what you want in a VC partner and deal, negotiate those points but be willing to give up other points that the VC cares about. I have been in a few situations where an entrepreneur overnegotiates, and it certainly makes me wonder what it will be like to work with that person post-closing. Will there be give-and-take in our VC-entrepreneur relationship or will that entrepreneur always try to get his way?

Vortex and Web 2.0

Unfortunately I could not make it to the west coast for the Vortex or Web 2.0 conferences. However, I have been following Vortex via Jeff Nolan and Web 2.0 through a variety of bloggers. As I read through Jeff Nolan’s notes on the enterprise and thoughts from the gorillas in the market, Cisco, Microsoft, Oracle, HP, etc., it is clear that they are all pointed in the same direction, and the vendors are aggressively pushing towards a service-oriented world where you have management software that allocates resources on the fly and componentized software consumed as services on demand. The major disruption will be how we get there. This is in line with an earlier post I made about opportunities for enterprise software investments. As you hear from the horses’ mouths via Jeff’s notes, Cisco will try to creep in from the network (it does not want to be a dumb router) and embed intelligence on the edge and move into the enterprise (security, voip apps, etc). Microsoft is trying to move from the desktop to the edge (btw, I still think that if Microsoft wants to get security right it not only needs to fix its OS but also needs to either partner or aquire someone that can help lock down the perimeter). In the software stack itself, SAP on the enterprise app side does not want to give the plumbing away to Microsoft or BEA and has gone off and built its own platform, Netweaver. Then you have IBM wrapping services around its middleware stack. With this disruption and dislocation in the enterprise market, the great news is that all of these gorillas are aggressively out there looking to acquire companies that help push their trademarked vision of a service-oriented world. The only issue with all of this is that enterprises still don’t seem that willing to spend right now so maybe this vendor-led revolution will take a lot longer.

Despite my interest level in the enterprise, it is clear that the speed of innovation in the web world is happening at a much faster pace. There are lots of great speakers and content at the Web 2.0 conference so I encourage you to stay updated through the RSS feeds on the news page. As I read through all of the notes from the conferences, it is clear that one of the unifying themes is the proliferation of XML and the way people are using it (RSS, common APIs, componentized software, assembly of services to create composite applications, etc). For more on XML, I suggest reading Bill Burnham’s excellent post from the other day.

The web-based platform

There has been lots of discussion about the web as the new platform so none of what I am saying is new. However, I recently came across Adam Bosworth’s take on this which is quite interesting given his experience at Microsoft, BEA, and now Google.

The platform of this decade isn’t going to be around controlling hardware resources and rich UI. Nor do I think you’re going to be able to charge for the platform per se. Instead, it is going to be around access to community, collaboration, and content. And it is going to be mass market in the way that the web is mass market, in the way that the iPod is mass market, in the way that a TV is mass market. Which means I think that it is going to be around services, not around boxes. I postulate, still, that 95% of the UI required for this world will be delivered over the browser for the same reason that we all still use a steering wheel in a car or have stayed with << < | > >> for so long. Everybody gets it. But this will, by definition, be an open platform because the main value it has is in delivering information and communication. Notice that the big players, Amazon, eBay, and Google have already opened up their information through Web API’s. It is Open Data coupled with Open Communication built on top of Open Source that will drive the future, not Longhorn.

The Microsoft/Google wars will be a great one to watch over the years. I, for one, being a big fan of the ASP and hosted software model, like the browser based-platform. It makes so much sense and will continue to do so as we get even more bandwidth and more devices from which to access web-based services. As GBrowser rolls out, I wonder how long it will be before Google, leveraging open source, rolls out GOffice and GCollaboration (web-ex like functionality) to really go after Microsoft. Maybe and Google get together at some point in the distant, distant future?