MochaTalk

It is very interesting to look back to 1999 when I started TeamOn and compare how different things are today compared to the late 90s. The internet has evolved significantly in the last 7 to 8 years. According to Neilsen/NetRatings, overall Internet penetration in the US reached 74% at home in February 2006. Broadband penetration is now at 68% of active internet users making internet access much more compelling. A whole new generation of users (the “MySpace/Facebook” generation) has emerged that is much more actively engaged in the internet compared to the generation in the late 90s. As broadband penetration has increased, internet users are devoting much more time on the web. According to Neilsen, since February 2003, the average PC time per person among active Web users has increased approximately five hours from 25.5 hours a month to 30.5 hours a month. As this cuts into TV viewing time, it’s no wonder that advertisers are increasingly diverting a bigger chunk of the advertising budget to the web.

Lower Startup Costs
It is a lot cheaper now to start a company. There is a lot more open source software that that you can leverage to get a jump start on getting your service out. It allows you to focus more on building your core value proposition rather than spending time building the plumbing. Many startup companies are also reducing their costs by outsourcing their work to India or Eastern European countries. However, unless you are really constrained with respect to your funding, I would not recommend this option until you a more established development team. With a startup, team building, cohesion and rapid execution is very important and that is much harder to achieve if part of your team is half the globe away.

Hardware, hosting costs, bandwidth (thank god for the Telecom bust) are also much cheaper. I recall that for TeamOn that we were paying $5000+ per month for hosting costs and bandwidth. We had to purchase expensive Sun servers to host our database.

Lower startup costs mean that a lot more companies can get started with lower personal investment. A lot more angels can get involved since the commitment they have to make is much lower and it may even be possible to take a company all the way to a reasonable exit just on angel funding.

You can deliver a higher quality experience through the web
The original TeamOn service delivered a complete web based online e-mail/groupware experience. However, we were ahead of our time. Broadband penetration was much lower. DHTML was around but majority of users were still using older generation browsers and performance was a big concern. As a result, it was much more difficult for us to compete with the Outlook and Outlook Express experience that users were used to. Today, the combination of Ajax and broadband speeds is enabling web based applications to successfully compete with the desktop incumbents. For example, companies like Zimbra are now able to compete effectively with Outlook/Exchange.

Customers are looking for your services
In the old days, you had to invest tens of millions of dollars doing distribution deals. In fact, this was a major source of revenue for the major portals like Yahoo, AOL etc. before the Dot Com bust happened. These days customers come looking for your services using search engines. For example, whenever I personally have a need for services, I go straight to Google and type in my search knowing that there will be some service provider who will address my need. More importantly, I don’t pay as much attention to the natural search results as I used to before – I go directly to the paid search results. Why? – because I find them to be a lot more targeted and I figure that they probably have a real business model to support their ability to pay for the Google AdWords. Increasingly, more and more users are behaving in this fashion. This means that your marketing dollars are not being wasted as with traditional display advertising. You are only paying for customers who are actually looking for your services.

Customers are more engaged
Overall, as the internet community has become more mature and access has become much easier, users have become much more comfortable turning to the web to leverage a multitude of services that are becoming available. As I mentioned earlier, a whole new MySpace/Facebook generation has emerged for whom the internet has become an integral part of the social networking experience. Users are much more open to trying new services and, if they are successful, the ramp up rate is much faster as we have seen with MySpace, Facebook, YouTube etc. And users are actively contributing content to the community making the sites much more vibrant and relevant to user needs (not to mention reducing the content generation costs for the web site provider). The whole Web 2.0/Social networking phenomena is no longer an end feature by itself. Now even mainstream sites are starting to incorporate these capabilities to enhance their core value proposition.

Business models are more viable
Given shift of eyeballs from TV to the web, it is no surprise that TV advertisers are increasingly shifting their dollars to the web. The internet ad market is growing very rapidly. It is now projected to grow from $16.8 billion in 2006 to at least $20 billion in 2007. Advertisers also have a wider choice of ad inventory over what they had available. Ads are much more interactive and, with the success of YouTube, video advertising has now emerged as a new category providing TV advertisers a similar medium to what they were used to on TV (except with much better tracking). The larger size of the advertising market also means that the niche areas that various companies are targeting are also much bigger and can support healthy businesses.

Google has also made advertising market a lot bigger by making it a lot more accessible to small/medium size businesses to advertise on. They also made it much easier for smaller companies to leverage their ad network and generate a decent revenue stream from the get go. However, be forewarned that unless you achieve significant scale and targeted demographics, don’t expect that advertising (Google AdSense or otherwise) will be sufficient to make your business model work.

Overall, it is a great time to start a new company. The risk is a lot lower which makes it easier to experiment with new innovative ideas. And if your value proposition hits home with customers, the ramp up can be much faster and you have many more opportunities to monetize your customer base.

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It is amazing how quickly the word gets out these days despite trying to operate in “stealth mode”. Barely 2 weeks after we had put up our web site, we were covered on Mashable (albeit briefly). Yesterday, we got a call from John Cook from Seattle PI wanting to know more about our venture. John Cook is an intrepid reporter who is very plugged into the Seattle startup scene. I would highly recommend his blog if you want to get the inside scoop on local startups and recent VC investments in the Seattle area.

John’s article about LiveMocha (Venture Capital: Creator of social startup LiveMocha a bit mum) is on the front page of the business section of the Seattle PI today. While I didn’t go into specifics of our venture, the article accurately describes our strategy – which is to dramatically transform a large market niche we have identified by applying the latest Web 2.0/social networking concepts. John correctly identifies that “Social networking may be one of the most overused buzzwords of the new Internet era. But the concept — using the Internet to share information and connect people of like-minded interests — is rapidly catching hold as millions of people set up profiles on MySpace, Facebook, LinkedIn, Flickr and other sites.” While there is certainly a “gold rush” mentality these days around social networking, there is no doubt that it is transforming the way users (especially the younger demographic) are interacting with each other over the internet. As I had mentioned in one of my previous blogs, I view this phenomena as creating a “platform shift” and if you are first in your market to leverage the platform shift, you have the opportunity to disrupt markets, create significant value and displace incumbents.

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Welcome to the Mocha Talk café! Over the past few months, we have been meeting at a Tully’s (sorry Starbucks – they have free internet access) on the Sammamish plateau researching and refining our business plan. We are now getting ready to move into our new office by the end of Feb (it is at a great location near the 520 /405 interchange close to Whole Foods). First priority was to order an espresso machine and a ping-pong table, of course. Recruiting is also in full swing. We are getting to meet some great people and have already made our first offer.

Since we are in “stealth” mode, we can’t tell you much about our planned offering. However, we will be sharing some of the lessons we have learned in our previous startups as well as our observations about recent trends in internet services. We hope you will come check us out often and actively contribute your thoughts to what we hope will be an interesting set of discussions.

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