DISQUS

You wrote...
Any company that can figure out how to get over a half a million rabid users/bloggers on it platform and reach 15mm unique visitors a month with just six people, three of which have just joined, isn't going to be suffering from asphyxiation any time soon.

Maybe so... however the real issue is this... can they get to measurable, sustainable, profitable revenue from volume? Let's do some back of the envelope math... take 1% of 500,000 users as those who are willing to pay for a premium service. That's 5,000 users. Let's charge them $10 a month. That's 50k a month or $600,000. Now lets say we get some attrition each year, however this is countered by growth of the premium accounts of say 5%. Net growth number is 3% a year. Over 5 years maybe they get to $5m a year in revenue.

Most VC's wouldn't even show up for that. Heck most Angels won't. However there is something here. Lets say that the $4.5m was done at a pre of $6m for a post of $10.5 - the real issue here (which of course no one talks about) is the number of outstanding shares. Let's say there were only 3m pre and 5m post. (post share value is $2)

Now fast forward a few years (they have enough runway for at least 2 more years). They grow the user base, add a premium channel and get to maybe a run rate of $2m a year. Big Co comes along and offers $10 a share for all the outstanding. (Total exit price is $50m which is right in the current M&A range)

VC exits stage left with a 5x return over 2 years. Compare this to stock market returns over the next 2 years and this is a grand slam.

So what's left to do? That can be summed up in a single word. "Execute". Deliver growth (doesn't have to be huge) get people converted (at least 1%) to a premium model and then sell in two years.

Tumblr has done 2 rounds - A & B. Total raise is $5m plus and "IF" they can exit in 2 years the VC has played it perfectly. If they need a C round then the 5x is going to drop.

So there you have it. 5x if the Tumblr team can execute AND the VC can get the exit. If not then all bets are off. However what has happened here is risk mitigation by getting in early before the Cap table gets out of hand.

You just have to remember that while profits are the mothers milk of companies, the price per share is the mothers milk to the VC. Get in early, control the cap table, get the team to execute and then get out before the C round and that's what great returns are made of.

Cheers,

Peter

Brilliant. You have it dialed. This is OUR problem, however as long as we have HOPE there can be a better tomorrow.

Depends... what problem are you trying to solve and what are you willing to pay for it. Voice is a done deal - no need to pay through the nose anymore. That leaves the data plan and what you're going to access with it. Is it a must have or a nice to have?

Decide exactly what apps you need to run on it and then compare against the competitors. My bet is that a Blackberry will work just fine - the iPhone will look better in your pocket and the Gphone will make you look hip. It all boils down to your wants and your needs. The rest is simply marketing.

Cheers.

Peter

It's easy to get access to the billing relationship. You just have to figure out how to get access to "Me". We showed your partner Patrick how to do that awhile ago. Once Google have access to three critical pieces of information it's all over. The pieces are (real time) who I am, what I am (device characteristics) and where I am. Then the carriers become pipes. This problem has already been solved and Patrick has seen it demoed.

Cheers,


Peter
www.5o9inc.com

We've had the ability to offer location based services to blackberry and smartphones for over 2 years. Also we introduced the notion of protected fields so that the user was always in control over their entire data not just their location based information. The major difference between us and Yahoo is that anyone one with a web server can plug-in our apache module (mod_mobile) and deliver location based services via simple mash-ups.

Cheers,

Peter

There is a way to do this. You have to collect the users context in real time from his/her mobile device. Once you have that context you can then mash out to anything you want.

Our company has a solution that integrates with the customers mobile browser and allows the web service to see their content. So you can now know that it's Saturday afternoon and that I'm shopping on Oxford street.

For more use cases go to our web site www.5o9inc.com and click on the products page. At the bottom are the use cases.

You're the first person I've come across that really understands the need for context. The technical problem of how to get that context of the mobile device has been solved. What comes next are the services that make your life better.

Cheers,

Peter

>> it is going to draw developers in just because of its sheer mass and size.

Nope. Not necessarily. The key for developers hearts and minds center around a couple of things - is it cool, is it hard to program (and thirdly - can I make money).

Symbian phones are not cool, they are bloody hard to program (multiple platforms and other integration issues) plus right now how do I make money? What's the killer app?

Nobody knows.

Cheers,

Peter

What's the revenue model?

And if you can think of one - what would you be willing to pay?

Free food always attracts the masses - what would be fascinating to understand is what would it take to convert the masses to fare paying customers?

Here you go then. (I'm assuming you have a Blackberry with version 4.2 OS or above) link: http://www.5o9inc.com/blackberry.htm - real time demo's one installed can be found here: http://www.5o9mm.com - company stats - positive revenue for the last two quarters and booked for the current quarter. More info on the company can be found here: http://www.5o9inc.com - Web Application Software for the Mobile Enterprise. (And yes we do have a PowerPoint - however the demo's are much more fun)

One of the problems of funding free models is what happens to the cap table e.g. dilution of the entrepreneurs. By the time you've pumped in $30m plus at high valuations the number of shares goes up tremendously. Now the exit (if there every is one) is predicated on a) the value in the company - earnings and b) the number of shares outstanding. By the time you hit 30 million shares outstanding the exit is in the hundreds of millions and because currently there is no IPO market for companies without real earnings all you are left with is M&A and with a free model, no earnings it's tough to justify anything north of $75m which makes the exit price per share about $2.50 well north of what the last investor paid for his/her shares.

Cheers,

Peter

Great post. Brilliant picture.

Sums up the problem. Now lets see who has an answer to the how do we achieve this.

Great post. Right on the money. Now all we have to do is find them.

Brilliant post - this is a MUST read for every entrepreneur.

And the advantage goes to Microsoft - this is what we've been waiting for. Everyone who has tried to beat MS has failed. Coming out with a Linux based mobile operating is not a trivial thing to pull off - and it takes them right into the lions den.

Game on indeed!

Excellent post - and we can see why you're making money and most of the other VC's are losing it. They've forgotten how to work in alignment with the entrepreneur.

I never forget I was in a meeting with a guy who was behind iTunes for Apple - he made one comment when I told him about our "platform"... he said customers don't buy platforms - they buy applications.

From that point on I changed our company pitch, and even though we are a "platform" for mobile the customers we've spoken to don't understand that. They want solutions to their problems. And as you know the customer is always right.

It's your data. It's your choice where you store it. You have to assume that there service will be hacked at some point. Much more sophisticated services have been - there's will be too. What happens to your data once it's been exposed?

Your login and passwords should NEVER be stored on the server.

Security by obscurification is not security. There is only one way to do this and that is to be open about how things work. That's unlikely to happen, so ultimately you take a risk on having your data exposed. The key is to understand the downside risk and mitigate against it.

All of these services rely on one thing - Trust. Once that trust is broken, however it's done, it will be incredibly hard to resurrect it. All you have to do is ask yourself - what if everyone reading this blog suddenly got to see the data I stored on Wesabe? Now it may not affect you totally because you're well diversified - however for people who aren't it becomes an immediate violation of their personal space. That's tough to recover from.

Also - here's one more thought. What if the Government want to inspect my online financial records (or lawyers in a divorce action) - what are my rights?

Question... is this a service? Do I have to be connected to one of their servers when I run the software?

Oops... I'm sure everything was/is above board

Good... I'm tired of the whole "we'll support it with advertising model". Lets get back to the serious business of solving customer problems and generating sustainable, measurable, profitable revenue from volume. There are a lot of good business out there that have been passed over because of this Web 2.0 hype. Ridiculous amounts of money at silly valuations have gone to companies that will simply never make it. Only those who are willing to learn and adapt will survive - lets bring on Web 3.0 and here's a hint, this time it's going to be all about Mobile.

Web 1.0 - Content and Commerce
Web 2.0 - Community
Web 3.0 - Context - and the junction of Content and Contact i.e. Mobile

Here's another interesting thought. Which one of the T40 would you be willing to pay money for on a regular basis?

So far all I see is people reporting about the name of the company and what it does. When are they going to start reporting on who is willing to pay for this/these services. Surely they can't all be advertising driven?

My thoughts exactly. $350m here, $300m there, pretty soon you're talking real money. Next comes the vision swiftly followed by the integration - a massive amount of Pepto dismal and then we're on to the next thing.

What are they thinking - Where's the explanation? Just what we need - more AJAX email viewers. When will the madness end?

Welcome to the world of entrepreneuring. You get so used to the word "no" or can you send us an update in a few months. What always amazes me is the "your too early for us" response. Total nonsense - I've seen them seed fund an idea and then 9 months later pour in $7m. There's a reason that their IRR's have been in the tank for the last 7 years. They're all panning for gold in the same river - and they've forgotten how to take a real risk on something new. They love betting on the Jockey's never once stopping to inspect the "nag" they're riding.

I'm on my 4th startup. My second one was mod_gzip which is currently the defacto standard for content acceleration on a Apache server. Everyone said it was a waste of time and that the Enterprise would never adopt it. Instead they did and put out of business the appliance vendors.

So this time I'm back to do the same thing to Mobile - Mod_Mobile removes the need for complex infrastructure at the web edge and allows you to bypass the need to build a mobile application, instead you can simply hook your current web services to the mobile browser.

As you can imagine all I hear is - you're too early and the enterprise is not focused on mobile. Funny they told me the same thing 7 years ago with content acceleration.

In the meantime use them to refine your pitch - and focus like crazy on customers because that and cash flow is all that counts in the end. With those two in hand they'll find you.

Totally agree - then it's time to look in another stream for gold. It's there, just can't be in the same river as the "maddening crowd".

The other interesting fact is that you don't pay a dime for anything that you're currently using on your site. And that's part of the problem, where's the "sustainable" value? The only thing I pay for is my bandwidth connection. Everything else is free. Web 2.0 right now is 2 founders, no revenue model, but we're planning on using advertising. The freemium model is not sustainable - you'll be luck to convert 3% of the total user base and I would suspect it's more like 1% (how many people pay for the upgraded version of flickr vs the free version? - I'd be surprised if it's more than 3,000 people).

I think Mark's right... where's the real innovation, the magic?